UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998       Commission File number:
                                                         0-11786

                              VILLAGE BANCORP, INC.
             (Exact name of registrant as specified in its charter)

          CONNECTICUT                                       06-1076844
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

      25 Prospect Street,
        Ridgefield, Ct.                                       06877
(Address of principal executive offices)                    (Zip Code)

        Registrant's telephone number, including area code: 203 438-9551

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                       Name of each exchange
     Title of each class:                              on which registered:
Common Stock ($3.33 Par Value)                                NASDAQ

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section13 or 15 (d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  report(s),  and (2) has  been  subject  to such  filing
requirements for the past 90 days.

                  Yes __X__     No  _____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

             Class                                 Outstanding at March 15, 1999
 Common Stock ($3.33 Par Value)                          1,951,534 Shares

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant - $42,016,554.

    Aggregrate market value                    Based upon reported closing price
        of voting stock                              as supplied by NASDAQ
          $48,056,525                                    March 15, 1999

                       DOCUMENTS INCORPORATED BY REFERENCE

Exhibit index is on page 55.

<PAGE>


                              VILLAGE BANCORP, INC.
                                    FORM 10-K

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PART I

     Item 1.    Business...................................................... 1

     Item 2.    Properties.................................................... 9

     Item 3.    Legal Proceedings.............................................10

     Item 4.    Submission Of Matters to Vote of Security Holders.............10

PART II

     Item 5.    Market for Registrant's Common Stock and
                Related Stockholder Matters...................................10

     Item 6.    Selected Financial Data.......................................11

     Item 7.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations...........................11

     Item 7.a.  Quantitative and Qualitative Disclosure About Market Risk.....16

     Item 8.    Financial Statements and Supplementary Data...................18

     Item 9.    Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure...........................39

PART III

     Item 10.   Directors and Executive Officers of the Registrant............39

     Item 11.   Executive Compensation........................................42

     Item 12.   Security Ownership of Certain Beneficial Owners
                and Management................................................50

     Item 13.   Certain Relationships and Related Transactions................52

PART IV

     Item 14.   Exhibits, Financial Statement Schedules and
                Reports on Form 8-K...........................................53

SIGNATURES ...................................................................54

EXHIBIT INDEX.................................................................55



<PAGE>

                                     PART I

Item 1. Business

Village Bancorp, Inc.

The  management  of The  Village  Bank & Trust  Company  (Bank)  caused  Village
Bancorp,  Inc.  (Company)  to be formed in 1983 to enhance the  opportunity  for
diversification  and  expansion,  and to allow for greater  flexibility  in both
banking and non-banking  functions which banks are prohibited from entering.  On
July 19, 1983,  the Bank became a wholly  owned  subsidiary  of the Company.  On
November 18, 1994, Liberty National Bank (Liberty),  Danbury, Connecticut became
a wholly owned  subsidiary of the Company.  On June 20, 1995, the Company merged
Liberty  into the Bank and now  operates  Liberty's  former  office  as a branch
office of the Bank. As a combination of entities under common control the merger
was accounted for in a manner  similiar to a pooling of interests.  As such, all
historical  financial  data  presented in the annual report has been restated to
include  both  entities for all periods  presented.  As of December 31, 1997 the
Company's  only  subsidiary  was the Bank. On November 11, 1998, the Company and
Webster  Financial  Corporation  ("Webster")  announced  that they had reached a
definitive  agreement,  whereby  Webster  would  acquire  the  Company,  for the
equivalent of $23.50 per share in a tax-free, stock-for-stock exchange valued at
approximately  $46.4 million,  with  stockholders  permitted to elect to receive
cash-in-lieu  of  Webster  stock  for up to 20% of  the  Company's  shares.  The
definitive  agreement,  which  has been  approved  by both  companies  boards of
directors,  is subject to approval by the Company's  stockholders and regulatory
authorities. The transaction is expected to close in the second quarter of 1999.


The Village Bank & Trust Company

The Bank was  incorporated  in 1973 and commenced  operations in 1974.  The Bank
maintains its headquarters in Ridgefield,  Connecticut where it conducts general
banking  business as a state chartered  commercial bank as allowed by Sec. 36-57
of the Connecticut General Statutes.  The Bank began offering trust and similiar
services  in the third  quarter of 1993.  With the  Company  being  acquired  by
Webster, the Bank's offices will become branches in the Webster Bank network.


Patents, Trademarks, Licenses and Concessions Held

There are no  patents,  trademarks,  licenses  or  concessions  held that have a
material importance to the Company.


Seasonal Variations In Business

The Bank experiences little or no seasonal variation in it's business due to the
retail composition of it's customer base.


Dependence Upon Limited Number Of Customers

The Bank is not materially  dependent on any single person,  group of persons or
organization.  The loss of any customer or group of related  customers would not
have a materially adverse effect on the continued operation of the Bank.


Competition

The Bank  encounters  substantial  competition for deposits and loans from other
financial  institutions.  Vigorous competition exists between the Bank and other
branch  offices of  financial  institutions  in Danbury,  New  Milford,  Wilton,
Westport and Ridgefield,  including  commercial banks, savings banks and savings
and  loan  associations.  No  one  financial  institution  is  dominant  in  any
particular function of the banking market place.


Number of Employees

At  December  31,  1998,  Village  had  eighty-eight  (88) full time  equivalent
employees.  Of these employees two officers of the Bank provide  services to the
Company.


Supervision and Regulation

The Bank is insured by the Federal Deposit Insurance  Corporation  (FDIC) and is
subject to extensive  regulation by the FDIC.  The Bank, as a Connecticut  state
chartered bank, is also subject to regulation by the  Connecticut  State Banking
Commissioner, who is responsible for administering Connecticut banking laws. The
Company, as a bank holding company,


                                       1
<PAGE>

is also subject to regulation by the Federal Reserve Board.

The  FDIC has  adopted  regulations  which  require  FDIC-insured  banks to meet
certain  minimum  capital  requirements.  Banks that have less than the  minimum
required  capital  are  considered  to be  operating  in an unsafe  and  unsound
condition,  and are  subject  to a number  of  possible  regulatory  enforcement
actions,  ranging  from  being  required  to  acquire  additional  capital up to
termination of the Bank's FDIC deposit insurance.

Until recently most  legislation had been aimed at increasing  capital levels in
the  banking  industry  and  restricting  business  for  those  who fail to meet
adequate capital levels. As the Company is well capitalized the majority of this
legislation has had little effect on the operation or financial condition of the
Company.  Legislation and proposed legislation most recently has been addressing
the area of risk, specifically interest rate risk. Essentially it is looking for
the banking  industry to have a comprehensive  risk management  process in place
that effectively identifies,  measures, monitors and controls interest rate risk
exposures.  Other regulatory actions focus on risk management (i.e. credit risk)
and the proper use of internal controls.  Proposed legislation runs a wide gamut
of proposals. It is not possible at this time to predict whether or not any such
proposals will have any adverse effect on the Company,  although management does
not  expect  any  material  adverse  effect on the  financial  condition  of the
Company.

Additional information required pursuant to this Item follows in tabular form:




                                       2
<PAGE>

business
================================================================================

<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL

<CAPTION>
                                                                         (Dollar amounts in thousands)
                                                    1998                             1997                              1996
====================================================================================================================================
                                       Average               Yield/     Average               Yield/     Average              Yield/
                                       Balance   Interest     Rate      Balance    Interest    Rate      Balance   Interest    Rate
====================================================================================================================================

ASSETS
<S>                                  <C>         <C>         <C>      <C>          <C>         <C>     <C>         <C>         <C>
Interest earning assets:
   Loans(1)                          $  150,621  $  12,934   8.59%    $  135,525   $ 11,708    8.64%   $  121,387  $ 10,472    8.63%
   Taxable securities(2)                 37,420      2,094   5.60         35,688      2,064    5.78        32,132     1,883    5.86
   Tax-exempt securities                 11,031        500   4.53          6,836        312    4.56         2,495       121    4.85
   Interest bearing deposits                 14          1   4.29             50          2    4.00            --        --
   Federal funds sold                     8,030        416   5.18          7,745        417    5.38         5,994       317    5.29
------------------------------------------------------------------------------------------------------------------------------------
   Total interest earning assets     $  207,116  $  15,945   7.70%    $  185,844   $ 14,503    7.80%   $  162,008  $ 12,793    7.90%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets:
   Cash and due from banks               12,181                            9,184                            8,004
   Bank premises and equipment            5,276                            2,760                            1,537
   Accrued income and other assets        2,928                            4,337                            2,532
   Allowance for loan losses             (1,243)                          (1,333)                          (1,299)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                $  226,258                       $  200,792                       $  172,782
====================================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY


Interest bearing liabilities:
   NOW accounts                      $   53,093        646   1.22%    $   42,522   $    645    1.52%   $   39,029  $    622    1.59%
   Savings deposits                      52,745      1,301   2.47         48,035      1,317    2.74        46,200     1,320    2.86
   Time deposits                         80,357      4,238   5.27         74,730      4,174    5.59        54,990     3,011    5.48
   Federal funds purchased                  248         17   6.85             15          1    6.67             8        --   --
------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities   $  186,443  $   6,202   3.33%    $  165,302   $  6,137    3.71%   $  140,227  $  4,953    3.53%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing liabilities:
   Demand deposits                       21,217                           17,773                           16,271
   Other                                  1,975                            2,061                            1,670
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                       209,635                          185,136                          158,168
Stockholders' equity                     16,623                           15,656                           14,614
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                $  226,258                       $  200,792                       $  172,782
NET INTEREST INCOME                              $   9,743                         $  8,366                        $  7,840
====================================================================================================================================

NET YIELD ON INTEREST
EARNING ASSETS                                               4.70%                             4.50%                           4.84%
====================================================================================================================================
</TABLE>


(1) For the purposes of these  computations,  nonaccruing  loans are included in
the daily average loan amounts  outstanding.  Interest  income  includes fees on
loans of $502,000, $208,000 and $198,000 in 1998, 1997 and 1996, respectively.

(2) Includes Federal Home Loan Bank stock.



                                       3
<PAGE>

business (continued)
================================================================================

VOLUME/RATE ANALYSIS

The  following  table  sets  forth for the  periods  indicated  a summary of the
changes in interest income and interest expense resulting from changes in volume
and changes in rate.



<TABLE>
<CAPTION>
                                                                               (In thousands)
                                                  1998 Compared to 1997                               1997 Compared to 1996
                                             Increase (Decrease) Due to: (1)                     Increase (Decrease) Due to: (1)
====================================================================================================================================
                                            Volume        Rate          Net                     Volume        Rate         Net
====================================================================================================================================
<S>                                         <C>          <C>          <C>                       <C>         <C>          <C>
Interest income on:
  Loans                                     $  1,293     $    (67)    $  1,226                  $  1,224    $      12    $   1,236
  Taxable securities                              84          (54)          30                       199          (18)         181
  Tax-exempt securities                          190           (2)         188                       198           (7)         191
   Interest bearing deposits                      (1)          --           (1)                        1            1            2
  Federal funds sold                              98          (99)          (1)                       94            6          100
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                       $  1,664     $   (222)    $  1,442                  $  1,716    $      (6)   $   1,710
====================================================================================================================================

Interest expense on:
  NOW accounts                              $      5     $     (4)    $      1                  $     45    $     (22)   $      23
  Savings deposits                             3,224       (3,240)         (16)                       (2)          (1)          (3)
  Time deposits                                  267         (203)          64                     1,101           62        1,163
  Federal funds purchased                         16           --           16                         1           --            1
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                       $  3,512     $ (3,447)    $     65                  $  1,145    $      39    $   1,184
====================================================================================================================================

</TABLE>

(1) The change in interest due to both rate and volume has been allocated to the
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.



SECURITIES PORTFOLIO

The following  table sets forth the balance sheet carrying  amount of securities
at the dates indicated:

<TABLE>
<CAPTION>
                                                                                      (In thousands)
                                                                                       December 31,
                                                                 1998                      1997                      1996
====================================================================================================================================
<S>                                                           <C>                       <C>                       <C>
U.S. Treasury and other U.S.
  Government agencies                                         $   35,888                $   42,890                $   30,218
States and political subdivisions                                 10,758                    10,886                     2,639
Other                                                                 16                        33                        47
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                         $   46,662                $   53,809                $   32,904
====================================================================================================================================
</TABLE>




                                       4
<PAGE>

business (continued)
================================================================================

The following table sets forth the maturities of securities at December 31, 1998
and the weighted  average yields of such securities  (calculated on the basis of
the amortized cost and effective  yields weighted for the scheduled  maturity of
each  security).  Tax equivalent  adjustments  have not been made in calculating
yields on obligations of states and political subdivisions.

<TABLE>
                                                                  (Dollar amounts in thousands)
<CAPTION>
                                                                            Maturing
                                                           After One Year But      After Five Years But             After
                                    Within One Year         Within Five Years        Within Ten Years             Ten Years
                                   Amount       Yield       Amount       Yield        Amount      Yield       Amount         Yield
====================================================================================================================================
<S>                               <C>          <C>        <C>           <C>         <C>           <C>        <C>            <C>
U.S. Treasury and other U.S.
  Government agencies             $  16,804    4.76%      $  18,724     5.26%       $    360      6.32%      $      --        --
States and political
  subdivisions                        1,458    4.10           2,409     4.46           4,387      4.65           2,504       5.02
Other                                    14    4.68               2     6.89              --        --              --        --
------------------------------------------------------------------------------------------------------------------------------------
TOTALS                            $  18,276    4.71%      $  21,135     5.17%       $  4,747      4.78%      $   2,504       5.02%
====================================================================================================================================

</TABLE>


LOAN PORTFOLIO

The  following  table shows the Bank's loan  distribution  (net of deferred loan
fees) at the end of each of the last three years:


<TABLE>
<CAPTION>
                                                                                                (In thousands)
                                                                                                 December 31,
                                                                                 1998                1997                 1996
     =============================================================================================================================
<S>                                                                          <C>                 <C>                 <C>
     Real estate - mortgage and home equity, net                             $  108,065          $   108,621         $    96,345
     Real estate - construction and land development                             13,620               14,012               7,953
     Installment and consumer credit                                              8,389                7,888               9,917
     Commercial and financial                                                    19,312               17,138              12,621
     -----------------------------------------------------------------------------------------------------------------------------
     TOTALS                                                                  $  149,386          $   147,659         $   126,836
     =============================================================================================================================
</TABLE>


The following table shows the maturity of gross loans (excluding installment and
consumer  credit loans)  outstanding as of December 31, 1998.  Also provided are
the amounts due after one year classified according to sensitivity to changes in
interest rates.

<TABLE>
<CAPTION>
                                                                                                (In thousands)
                                                                                                   Maturing
                                                                                    After One Year
                                                                      Within          But Within           After
                                                                     One Year         Five Years        Five Years           Total
====================================================================================================================================
<S>                                                                <C>               <C>               <C>               <C>
Commercial and financial                                           $     9,718       $     6,592       $     3,002       $    19,312
Real estate - construction and land development                         12,361               944               315            13,620
Real estate - mortgage and home equity                                   1,707             3,578           102,780           108,065
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                              $    23,786       $    11,114       $   106,097       $   140,997
====================================================================================================================================

Loans maturing after one year with:
  Fixed interest rates                                                               $       319       $     8,822
  Variable interest rates                                                                 10,795            97,275
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                                $    11,114       $   106,097
====================================================================================================================================

</TABLE>





                                       5
<PAGE>

business (continued)
================================================================================

NONACCRUAL AND PAST DUE LOANS

The following table summarizes the Bank's nonaccrual loans and loans past due 90
days or more:

<TABLE>
<CAPTION>
                                                                                                  (In thousands)
                                                                                                   December 31,
                                                                                   1998                1997                 1996
====================================================================================================================================
<S>                                                                              <C>                  <C>                 <C>
Nonaccrual loans                                                                 $  1,137             $ 1,299             $  1,596
Accruing loans past due
  90 days or more                                                                     151                 323                  157
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                                            $  1,288             $ 1,622             $  1,753
====================================================================================================================================
</TABLE>

At December 31, 1998, $1,135,000 of nonaccrual loans were collateralized.

A loan is put on  nonaccrual  basis when the loan  becomes past due ninety days,
except for instances  where there are factors known to management  which reflect
favorably  on the ability of the  customer to fulfill the  obligation.  The Bank
would  have  recorded  an  additional  $116,000,  $74,000  and  $59,000 of gross
interest income in 1998, 1997 and 1996,  respectively,  if nonaccrual  loans had
been current.



SUMMARY OF LOAN LOSS EXPERIENCE

The following table summarizes the activity in the allowance for loan losses:

<TABLE>
<CAPTION>
                                                                                         (Dollar amounts in thousands)
                                                                                 1998                1997                 1996
====================================================================================================================================
<S>                                                                            <C>                 <C>                  <C>
Allowance at beginning of year                                                 $  1,309            $   1,356            $  1,311
Charge-offs:
  Commercial and financial                                                           29                   --                  --
  Installment and consumer credit                                                    23                   77                  69
  Real estate - mortgage                                                             --                   42                 104
------------------------------------------------------------------------------------------------------------------------------------
  Total charge-offs                                                                  52                  119                 173
====================================================================================================================================
Recoveries:
  Commercial and financial                                                           38                    1                  10
  Installment and consumer credit                                                     2                   10                   7
  Real estate - mortgage                                                              4                    1                  81
------------------------------------------------------------------------------------------------------------------------------------
  Total recoveries                                                                   44                   12                  98
====================================================================================================================================
Net charge-offs                                                                       8                  107                  75
Provision (credit) for loan losses (1)                                             (123)                  60                 120
------------------------------------------------------------------------------------------------------------------------------------
Allowance at end of year                                                       $  1,178            $   1,309            $  1,356
====================================================================================================================================
Ratio of net charge-offs (recoveries) during the
  year to average loans outstanding                                                .005%                .079%               .062%
====================================================================================================================================
</TABLE>

(1) The amount  charged to operations  and the related  balance in the allowance
for loan losses is based upon  periodic  evaluations  of the loan  portfolio  by
management.  These evaluations  consider several factors which include,  but are
not limited to, general economic conditions,  loan portfolio composition,  prior
loan loss experience and management's estimation of potential losses.

The  allowance  for loan losses is  considered  adequate by  management to cover
known and  unknown  risk  elements  in the  portfolios.  This  consideration  is
affected by the Bank's real estate lending  portfolio which represents the major
portion of the growth in the loan  portfolios.  Real estate loans are  generally
well  collateralized,  and are  therefore  reflected  as such in the  allowance.
Management  anticipates no material increase or decrease in charge-off  activity
in 1999.


                                       6
<PAGE>

business (continued)
================================================================================

DEPOSITS

The  average  daily  amount of  deposits  and rates  paid on such  deposits  are
summarized for the periods indicated in the following table:


<TABLE>
<CAPTION>
                                                                          (Dollar amounts in thousands)
                                                                             Year Ended December 31,
                                                         1998                         1997                        1996
====================================================================================================================================
                                                 Amount          Rate        Amount           Rate        Amount           Rate
====================================================================================================================================
<S>                                           <C>               <C>        <C>               <C>        <C>               <C>
Noninterest bearing and
  demand deposits                             $    21,217                  $    17,773                  $   16,271
NOW accounts                                       53,093       1.22%           42,522       1.52%          39,029        1.59%
Savings deposits                                   52,745       2.47            48,035       2.74           46,200        2.86
Time deposits                                      80,357       5.27            74,730       5.59           54,990        5.48
------------------------------------------------------------------------------------------------------------------------------------
TOTAL                                         $   207,412                  $   183,060                  $  156,490
====================================================================================================================================
</TABLE>


Maturities of time  certificates  of deposit of $100,000 or more  outstanding at
December 31, 1998 are summarized as follows:



<TABLE>
<CAPTION>
                                                                                           (In thousands)
                                                                                    Time Certificates of Deposit
     ===============================================================================================================================
<S>                                                                                       <C>
     Three months or less                                                                 $     4,208
     Over three through six months                                                              2,218
     Over six through twelve months                                                             4,741
     Over twelve months                                                                           905
     -------------------------------------------------------------------------------------------------------------------------------
     TOTAL                                                                                $    12,072
     ===============================================================================================================================
</TABLE>


RETURN ON EQUITY AND ASSETS

The following table shows consolidated  operating and capital ratios for each of
the last three years:


<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                           1998                 1997                 1996
     ===============================================================================================================================
<S>                                                                   <C>                  <C>                 <C>
     Return on average assets                                               .91%                .59%                1.05%
     Return on average stockholders' equity                               12.40                7.52                12.45
     Dividend payout ratio                                                34.62               59.02                35.26
     Equity to assets ratio (1)                                            7.35                7.80                 8.46
     ===============================================================================================================================
</TABLE>

(1) Ratio is based upon average stockholders' equity and average asset balances.


MARKET RISK

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility. Any fluctuation in interest rates will impact both the
level of income and expense  recorded on a large percentage of the Bank's assets
and liabilities,  and the fair value of all interest earning assets. In general,
financial  institutions are negatively affected by an increase in interest rates
to the extent that  interest-bearing  liabilities mature or reprice more rapidly
than interest-earning assets. The Bank does not own any trading assets, nor does
it have any hedging  transactions in place such as interest rate swaps and caps.
Based on the  nature of the  Bank's  operations,  it is not  subject  to foreign
exchange or commodity price risk.

The Bank's earnings are primarily  dependent on its net interest income which is
the difference (the "spread")  between the yields earned on its interest earning
assets,  such as loans  and  investments,  and the  rates  paid on its  interest
bearing liabilities, primarily deposits.


                                       7
<PAGE>

business
================================================================================

Asset/liability  management  is the  measurement  and  analysis  of  the  Bank's
exposure to changes in the interest rate environment.  The principal  objectives
of the Bank's interest rate risk  management  activites are to: (a) evaluate the
interest rate risk included in certain balance sheet accounts; (b) determine the
level  of  risk   appropriate   given  the  Bank's  business  focus,   operating
environment,  capital and liquidity requirements and performance objectives; and
(c) manage this risk consistent with Board of Director approved guidelines.  The
Bank's interest rate management strategy is designed to stabilize the spread and
preserve  capital over a broad range of interest  rate  scenarios,  while at the
same time enhancing  income.  Management  realizes certain risks are inherent in
the  financial  services  industry and that the goal is to identify and minimize
these risks.  Various  strategies are in place to control the Bank's exposure to
interest  rate risk.  The Bank has an  Asset/Liability  Committee  comprised  of
senior management which is primarily  responsible for monitoring and determining
methods of managing the rate  sensitivity and repricing  characteristics  of the
balance sheet  components.  This is done consistent with maintaining  acceptable
levels of both risk and net interest  income.  This committee meets on a regular
basis.   Quarterly   reports  are  provided  to  the  Board  of  Directors   for
informational purposes and to ensure compliance with policy.

The following  table sets forth the dollar  amount,  weighted  average  interest
rates and  estimated  fair value (see Note 15 to the  financial  statements)  of
selected assets and  liabilities  that are scheduled to mature within the stated
time frames as of December 31, 1998:

Maturities (dollars in thousands)

<TABLE>
<CAPTION>
                                                                  Scheduled Maturity dates
                              1999         2000          2001        2002          2003       Thereafter     Total    Fair Value
====================================================================================================================================
<S>                       <C>           <C>         <C>            <C>          <C>           <C>         <C>          <C>
Assets:
   Securities             $   19,176    $   14,509  $      2,452   $    1,152   $    3,022    $    7,252  $   47,563   $   48,048
   Weighted average
     interest rate (%)          4.79          5.08          5.48         5.15         5.35          4.86        4.97
   Home equity loans             474           695           246          690          688         3,737       6,530        6,530
   Weighted average
     interest rate (%)          9.13          9.25          9.19         9.11         9.10          9.23        9.20
   Real estate loans          13,594           476           777          354          596        99,487     115,155      116,084
   Weighted average
     interest rate (%)          8.68          8.65          8.48         8.90         8.78          7.90        8.01
   Installment and
     commercial loans         17,111         3,875         3,048        1,717          772         1,178      27,701       27,701
   Weighted average
     interest rate (%)          8.88          8.53          8.98         8.89         8.66          9.29        8.85
------------------------------------------------------------------------------------------------------------------------------------
   TOTAL                  $   50,355    $   19,555  $      6,523   $    3,913   $    5,078    $  111,654  $  197,078   $  198,492
====================================================================================================================================

Liabilities:
   Non-interest
     bearing deposits     $   22,162    $       --  $         --   $       --   $       --    $       --  $   22,162   $   22,162
   Weighted average
     interest rate (%)            --            --            --           --           --            --          --
   Now, savings &
     money market            117,396            --            --           --           --            --     117,396      117,396
   Weighted average
     interest rate (%)          1.54            --            --           --           --            --        1.54
   Certificates of deposit    69,758         5,380         1,562          489          430            --      77,619       77,881
   Weighted average
     interest rate (%)          4.95          5.65          5.46         6.07         5.31            --        5.02
------------------------------------------------------------------------------------------------------------------------------------
   TOTAL                  $  209,316    $    5,380  $      1,562   $      489   $      430    $       --  $  217,177   $  217,439
====================================================================================================================================
</TABLE>

Although the Bank is subject to interest rate risk as described above, loans and
deposits of the Bank have  historically  been largely stable and the Company has
not  experienced  any  significant  adverse  effects on net income in periods of
rapidly changing interest rates. Accordingly, no prepayment, deposit decay rates
or reinvestment  assumptions have been reflected in the above table.  Management
makes a conscious effort to match the maturities or the repricing time frames of
assets with the liabilities  that fund them, to limit the period of time between
repricing on  adjustable  rate assets in portfolio and to minimize the volume of
fixed-rate assets held.


                                       8
<PAGE>

business
================================================================================

INTEREST RATE SENSITIVITY

The following  table sets forth the dollar amount of rate  sensitive  assets and
liabilities that contractually reprice within the stated time frames at December
31, 1998:


<TABLE>
<CAPTION>
                                                                          (Dollar amounts in thousands)
Rate Sensitive Assets:
                                                     1 Year or less       1 - 5 Years      Over 5 Years           Total
====================================================================================================================================
<S>                                                     <C>               <C>                <C>               <C>
Loans (net of deferred loan fees)                       $  92,835         $   38,394         $  18,157         $  149,386
Federal funds                                              18,150                 --                --             18,150
Securities1                                                19,177             21,134             7,252             47,563
------------------------------------------------------------------------------------------------------------------------------------
Total                                                     130,162             59,528            25,409            215,099
====================================================================================================================================

Rate Sensitive Liabilities:
Deposits                                                  187,155              7,860                --            195,015
------------------------------------------------------------------------------------------------------------------------------------
Gap (Repricing difference)                              $ (56,993)        $   51,668         $  25,409         $   20,084
====================================================================================================================================
Cumulative gap                                          $ (56,993)        $   (5,325)        $  20,084
====================================================================================================================================
Cumulative ratio of rate
  sensitive assets to liabilities                             .70                .97              1.10
====================================================================================================================================
</TABLE>

1 Includes Federal Home Loan Bank Stock


Item 2. Properties

Village  owns in fee simple a self  contained  facility  at 25  Prospect  Steet,
Ridgefield,  Connecticut.  The site contains  0.929 acres.  The building has two
floors,  the first floor which approximates 5,500 square feet is the location of
the general banking area, board room and President's  office.  The second floor,
which  approximates  5,000  square feet,  is the location of the  administrative
offices, loan operations department, sanitary and employee facilities.

Village  entered into a lease  agreement  on April 5, 1985 for a branch  banking
facility at 219 Town Green,  Wilton,  Connecticut.  The  leasehold  contains two
thousand six hundred forty five (2,645) square feet,  that the Bank uses for its
branch banking office. The lease arrangement is for ten years with two five year
extensions  options that can be exercised by the Bank.  The lease has provisions
for consumer  price index  increases,  and the current  annual rental expense is
$75,343 not including  property tax and maintenance  charges.  This facility was
opened November 16, 1985 and is a full service branch banking office.

Village  extended  a  lease  agreement  on  March  31,  1993,  for a  non-branch
operations  (back-office) facility at 96 Danbury Road, Ridgefield,  Connecticut.
The leasehold  contained  approximately  seven  thousand  (7,000) square feet of
space. The original lease arrangement was for five years with provisions for two
five  year  extensions,  at an  annual  rental  of  approximately  $90,870,  not
including property tax and maintenance charges.  This lease originally commenced
November,  1988, with five percent annual increases.  Four stockholders,  two of
whom are Directors,  are affiliated with the  partnership  which was leasing the
facility to the Bank.  The lease  expired in the fourth  quarter of 1998 and was
not renewed.

Village owns in fee simple a self contained  facility at 54 Bridge  Street,  New
Milford, Connecticut. The site contains 0.16 acres. The building has two floors.
The first floor,  which  approximates  1,700 square feet, is the location of the
general banking office.  The second floor, which approximates 1,524 square feet,
will be used for offices and loan originations and closings.

Village has a lease  agreement for a branch banking  facility at 28 Shelter Rock
Road, Danbury, Connecticut, that extends through October 31, 2001. The leasehold
contains  approximately two thousand four hundred sixty (2,460) square feet. The
annual rental is approximately  $39,360,  not including property and maintenance
charges.


                                       9
<PAGE>

Village  entered  into a lease  agreement  in May,  1997  for a  branch  banking
facility at 244 Post Road East,  Westport,  Connecticut.  The leasehold contains
eight thousand seventy-nine (8,079) square feet, of which approximately 6,000 is
used by the Bank for its branch  banking  office.  Currently  approximately  one
thousand  six hundred  (1,600)  square feet of this space is being  sublet.  The
lease  arrangement is for ten years with one five year extension option that can
be exercised by the Bank.  The current  annual  rental  amount is $270,000,  not
including tax and maintenance charges.

Village  completed the building a three-story,  17,000 square foot building at 2
National  Place,  Danbury,  Connecticut,  in July of 1997,  which it owns in fee
simple.  The first floor  contains a full service  branch  banking  office.  The
second and third  floors are being  utilized  for loan and  deposit  back-office
operations.


Item 3. Legal Proceedings

There are no material pending legal proceedings.

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

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 1998.



                                     PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

Village Bancorp,  Inc. stock is listed on the NASDAQ SmallCap Market. The prices
of the Company's  common stock as quoted by NASDAQ and the dividends paid during
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                       1998                                          1997

                           Bid           Ask          Dividend          Bid            Ask          Dividend
                           ---           ---          --------          ---            ---          --------
<S>                     <C>          <C>           <C>                <C>           <C>          <C>         
     1st Quarter        $ 20.50      $  22.25      $  .09/Share       $ 10.50       $ 11.4375    $  .09/Share
     2nd Quarter        $ 19.75      $  20.00      $  .09/Share       $ 11.00       $ 11.75      $  .09/Share
     3rd Quarter        $ 19.50      $  19.875     $  .09/Share       $ 12.375      $ 13.50      $  .09/Share
     4th Quarter        $ 22.625     $  24.50      $  .09/Share       $ 19.25       $ 22.00      $  .09/Share
</TABLE>

As of December 31, 1998 there were 1,188 stockholders of record.

Request for Financial Information

The Company  will  provide  without  charge to each  stockholder,  upon  written
request,  a copy of the Company's Form 10-K. Written requests should be directed
to Enrico J.  Addessi,  Secretary,  c/o Village  Bancorp,  Inc.,  P.O.  Box 366,
Ridgefield, CT 06877.



                                       10
<PAGE>

Item 6.     Selected Financial Data


<TABLE>
SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the last five years:

<CAPTION>
                                                           (In thousands, except per share amounts)
                                                                    Year Ended December 31,
                                        1998              1997               1996              1995               1994
====================================================================================================================================
<S>                                  <C>                <C>               <C>                <C>               <C>
Net interest income                  $    9,743         $   8,366         $    7,840         $   7,694         $    7,002
Provision (credit) for loan losses         (123)               60                120               210                311
Net income                                2,061             1,178              1,820             1,316                707
------------------------------------------------------------------------------------------------------------------------------------
Per share data:  (1)
  Net income - basic earnings        $     1.07         $     .62         $      .96         $     .70         $      .37
  Net income - diluted earnings            1.04               .61                .95               .69                .37
  Cash dividends declared                   .36               .36               .335               .24               .315
------------------------------------------------------------------------------------------------------------------------------------
Balance sheet totals:
  Average assets                     $  226,258         $ 200,792         $  172,782         $ 161,898          $ 149,505
  Average deposits                      207,412           183,075            156,498           146,480            135,642
  Average stockholders' equity           16,623            15,656             14,614            13,545             13,095
====================================================================================================================================
</TABLE>

The following  table sets forth selected  quarterly  financial data for 1998 and
1997:


<TABLE>
<CAPTION>
                                                             (In thousands, except per share amounts)
                                                    1998 Quarters                                 1997 Quarters
                                      Total   Fourth    Third   Second     First    Total   Fourth    Third    Second    First
====================================================================================================================================
<S>                                 <C>      <C>        <C>     <C>      <C>      <C>       <C>      <C>      <C>       <C>
Net interest income                 $ 9,743  $ 2,470    $2,482  $ 2,449  $ 2,342  $ 8,366   $ 2,250  $ 2,106  $ 2,041   $ 1,969
Provision (credit) for loan losses     (123)       -         -     (153)      30       60        15       15       15        15
Net income                            2,061      477       580      522      482    1,178       223      231      315       409
------------------------------------------------------------------------------------------------------------------------------------
Per share data:
Net income - basic earnings         $  1.07  $   .25   $   .30  $   .27  $   .25  $   .62   $   .12  $   .12  $   .17   $   .21
Net income - diluted earnings          1.04      .24       .29      .27      .24      .61       .12      .12      .16       .21
Cash dividends declared                 .36      .09       .09      .09      .09      .36       .09      .09      .09       .09
====================================================================================================================================

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations is presented below:



                                       11
<PAGE>

management's discussion & analysis of financial condition &
results of operations
================================================================================

General

Village  Bancorp,  Inc.  (Company) is a  Connecticut  incorporated  bank holding
company and parent  corporation  of the Village Bank & Trust Company  (Village),
which is the only  subsidiary of the Company.  On November 11, 1998, the Company
and Webster Financial  Corporation  (Webster)  announced that they had reached a
definitive  agreement,  whereby  Webster  would  acquire  the  Company,  for the
equivalent of $23.50 per share in a tax-free, stock-for-stock exchange valued at
approximately  $46.4 million,  with  stockholders  permitted to elect to receive
cash-in-lieu  of  Webster  stock  for up to 20% of  the  Company's  shares.  The
definitive  agreement,  which  has been  approved  by both  companies  boards of
directors,  is  subject  to  approval  by  Village  Bancorp's  shareholders  and
regulatory  authorities.  The  transaction  is  expected  to close in the second
quarter of 1999. During 1997, the Bank opened  full-service  branches in Danbury
and Westport,  Connecticut.  The Westport location was opened in June of 1997 in
leased  office  space.  The Danbury  location  was opened in July of 1997 in the
Bank's new three-story,  17,000 square foot office  building.  In November 1994,
Village Bancorp,  Inc. acquired Liberty National Bank. In June of 1995,  Liberty
National Bank was merged into The Village Bank & Trust  Company.  All historical
financial  data has been  restated  to include  both  entities  for all  periods
presented.  The Bank functions as a financial  intermediary acting as depository
and lender of funds to its customers, and generates its income from the interest
earned on invested  assets  less  interest  paid on its  deposits  and  interest
bearing  liabilities.  The Bank is a member  of the  Federal  Deposit  Insurance
Corporation  (FDIC) and the  deposits of the Bank are insured by the FDIC to the
extent provided by law. The Bank offers all general  commercial banking services
allowed by both State and Federal  regulations.  The Company  does not engage in
any non-banking  activities  that are permitted to bank holding  companies under
enacted  regulations.  The Bank is subject to intense  competition  from various
financial  institutions  and other  companies  or firms that  engage in similiar
activities.  Bank holding  companies and banks are  extensively  regulated under
both federal and state law. As of December  31, 1998,  the Bank had 88 full-time
equivalent  employees.  Most  full-time  employees  are eligible for group life,
health and medical and disability insurance.  Village Bank & Trust employees are
eligible  for  participation  in a 401(k)  plan after one year of  service.  The
Company is listed on the National  Association of Securities  Dealers  Automated
Quotation System ("NASDAQ")  SmallCap Stock Market price quotation service under
the symbol "VBNK". Village began operating a trust department and offering trust
services in the third quarter of 1993.


COMPARISON OF 1998 TO 1997

Financial Condition

The Company had total assets of $237,156,000 on December 31, 1998 as compared to
assets of  $222,549,000  on December  31,  1997.  The most  significant  area of
increase over the past year was in cash and cash  equivalents,  which  increased
$20,089,000 (180.1%).

The growth in this area was funded mainly by an increase of  $13,369,000  (6.6%)
in the Bank's deposits.  The increase in cash and cash equivalents was primarily
attributable  to a  combination  of  factors.  The  growth  of the  Bank's  loan
portfolio only increased  $1,727,000  (1.2%) as increased  competition kept loan
growth to a minimum. Deposit growth easily outstripped loan growth, with the new
branch offices  increasing the Bank's presence in the marketplace,  particularly
in Westport,  where the branch opened an entirely new market.  Finally,  because
year end 1997 cash and cash  equivalents  was  historically  lower than what has
usually been kept in this area,  there was a conscious  effort to increase these
balances.

The loan portfolio of the Bank includes $121,685,000 of real estate, home equity
and construction mortgages.  This is 81.5% of the Bank's total loan portfolio as
of December 31, 1998.  This is in  comparison  to  $122,633,000  (83.1%) in real
estate  related  loans  outstanding  on  December  31,  1997.  Due to this  high
percentage  of real  estate  loans the  management  of the Bank is  continuously
monitoring real estate values and the general economic  conditions in the Bank's
lending areas so that it may take appropriate action when necessary.


Capital Resources

The  Company,  aware  that its  capital  position  is a measure  of its  ongoing
viability and ability to compete effectively in the highly competitive financial
services industry,  strives to maintain a strong capital position. With a strong
capital position,  the Company has the ability to effectively compete now and in
the  future  and  to  be  better  able  to  withstand  economic  instability  or
uncertainty.  The Company had a leverage  ratio of 7.35% on December 31, 1998 as
compared to 7.80% on December 31, 1997.

In 1989 the Federal Deposit Insurance  Corporation approved a final Statement of
Policy on Risk-Based Capital to be implemented over a two-year transition period
beginning at December 31, 1990.  Risk weights are assigned to balance  sheet and
off-balance  sheet items and are used to calculate the Bank's capital ratios. On
December 31, 1998 the required minimum capital was 8.0% of total capital to risk
weighted assets and 4.0% Tier 1 capital to risk weighted  assets.  The Company's
ratios on December  31, 1998 were 13.90% total  capital  ratio and 13.02% Tier 1
capital ratio, which exceed the minimum requirements.  These ratios for December
31, 1997 were 13.06% and 12.06%,  respectively.  Management  does not anticipate
any event that would cause the Company to fall below the minimum requirements at
December 31, 1999, and anticipates that the Company will continue to have excess
"risk-based" capital.


                                       12
<PAGE>

management's discussion & analysis of financial condition &
results of operations (continued)
================================================================================


Results of Operations

Net income for 1998 was  $2,061,000  as compared to  $1,178,000  for 1997.  This
increase was primarily the result of an ongoing cost containment program and the
fact that there were expenses  incurred in the  completion and related move into
the Bank;s new three story office  building in Danbury,  Connecticut  along with
the opening of a new  full-service  branch  office in Westport,  Connecticut  in
leased  office  space.  Net interest  income for 1998  amounted to $9,743,000 as
compared to $8,366,000 for 1997. Net interest  income  increased  primarily as a
result of the increase in interest income on loans.


Income Taxes

The  Company's  provision  for income taxes was $939,000 for 1998 as compared to
$585,000 for 1997. The increase in the Company's  provision for income taxes was
primarily  the result of the 75%  increase in pre-tax  income for the 1998 year.
For  more  information  please  see  Note  10  to  the  Consolidated   Financial
Statements.


Assets and Related Income Analysis

Loans  outstanding  on December  31, 1998  totaled  $149,386,000  as compared to
$147,659,000  outstanding on December 31, 1997.  This small increase in the loan
portfolio  of  $1,727,000  (1.2%)  was for the  most  part  attributable  to the
increased competition in the Bank's market area. Over the past year the majority
of real estate loans  originated  have been fixed rate,  which the Bank sells in
the secondary  market.  The majority of loans at the Bank are and have been real
estate related.  Loan income  increased  $1,226,000 from $11,708,000 for 1997 to
$12,934,000 for 1998. This increase is due to an increase in average outstanding
loans from  $135,772,000 for 1997 to $150,803,000 for 1998, offset by a decrease
in the average rate earned from 8.62% in 1997 to 8.58% in 1998.

Securities,   which  consist  of  securities   held-to-maturity  and  securities
available-for-sale,  decreased  $7,147,000  (13.3%) from $53,809,000 at December
31, 1997 to $46,662,000 at December 31, 1998.  Income from securities  increased
$209,000  (9.0%) from  $2,329,000 for the 1997 period to $2,538,000 for the 1998
period.  This increase  resulted  primarily  from an increase in average  dollar
amount  outstanding from $41,760,000 for 1997 to $48,451,000 for 1998, offset by
a decrease in average rate earned from 5.58% for 1997 to 5.24% for 1998. In 1998
there were net security  gains of $83,000,  in 1997 there were no security gains
or  losses.  The Bank has the  positive  intent and  ability to hold  securities
designated  as  held-to-maturity  until  maturity and does not engage in trading
activities.  Securities  available-for-sale are used to compensate for liquidity
forecasting deviations.

Federal funds sold increased by and to $18,150,000 at December 31, 1998. Federal
funds sold income  decreased $1,000 (.2%) from $417,000 for 1997 to $416,000 for
1998.  This  decrease  resulted  primarily  from a decrease in the average  rate
earned  from 5.38% in 1997 to 5.18% in 1998 offset by an increase in the average
dollar amount outstanding from $7,745,000 in 1997 to $8,030,000 in 1998.


Liability and Related Expense Analysis

Deposits increased  $13,369,000 (6.6%) from $203,808,000 at December 31, 1997 to
$217,177,000 at December 31, 1998. Interest on deposits increased $65,000 (1.1%)
from  $6,137,000 for 1997 to $6,202,000 for 1998.  This increase is attributable
to an increase in the average dollar amount  outstanding  from  $183,060,000 for
1997 to $207,412,000  in 1998,  offset by a decrease in the average rate paid of
3.35% for 1997 to 2.99% for 1998.

Salary and benefits expenses  increased  $297,000 (8.3%) from $3,599,000 in 1997
to  $3,896,000  in 1998,  primarily as a result of the increase in the number of
personnel due to the opening of the two new branch office locations.

Net  occupancy  expenses  increased  $175,000  (21.9%) from  $800,000 in 1997 to
$975,000 in 1998,  furniture and equipment  expenses  increased  $66,000 (20.3%)
from $325,000 in 1997 to $391,000 in 1998, both as result of additional expenses
due to the opening of the full-service branch locations in Westport and Danbury,
Connecticut.

Data processing  services  increased  $186,000  (30.2%) from $615,000 in 1997 to
$801,000 in 1998,  as a result of increased  use of services  offered along with
increased volumes.

Supplies expenses decreased $65,000 (24.5%) from $265,000 in 1997 to $200,000 in
1998, and advertising  expense decreased  $154,000 (64.2%) from $240,000 in 1997
to $86,000 in 1998 mainly as a result of the ongoing cost containment program.


Provision for Loan Losses

The provision  (credit) for loan losses decreased $183,000 (305.0%) from $60,000
for 1997 to a credit of  $123,000  for 1998.  The  economy  and the real  estate
market in the  Bank's  market  areas are  closely  monitored  by  management  to
maintain an allowance for loan losses that is considered adequate. The loan loss
allowance was $1,178,000 to support loan portfolios of  $149,386,000,  or a loan
loss reserve  ratio of .79%.  This is in comparison to a ratio of .89% for 1997.
Management believes that the allowance for loan losses is adequate.





                                       13
<PAGE>

management's discussion & analysis of financial condition &
results of operations (continued)
================================================================================


Interest Rate Sensitivity

Financial  institutions  have become  increasingly  concerned about matching the
repricing  ability  of  interest-earning  assets  to the  repricing  ability  of
interest-bearing  liabilities.  Interest rate risk occurs when these  repricings
occur in  different  time  frames.  An interest  rate  sensitivity  "gap" is the
difference between the repricing assets and the repricing  liabilities  occuring
in a given time frame. A positive "gap" occurs when the asset amount exceeds the
liability  amount. A negative "gap" occurs when the liability amount exceeds the
asset amount. In a falling interest rate environment a negative "gap" would tend
to increase the institution's net interest income,  while a positive "gap" would
have an adverse effect.  In a rising interest rate  environment a positive "gap"
would tend to increase the institution's  net interest income,  while a negative
"gap" would have an adverse effect. Normally institutions attempt to match these
repricings   while   maintaining  an  adequate   interest  rate  spread  without
compromising the quality of assets. The Bank's interest rate sensitivity for the
one year or less  time  frame  consists  of  $130,162,000  of  repricing  assets
compared to $187,155,000 of repricing  liabilities.  For more information please
see "Business".


Liquidity

Liquidity is the ability to provide funds for loan requests,  unexpected deposit
outflows and meeting  other  recurring  financial  obligations.  The Bank,  as a
financial  intermediary,  monitors its liquidity position carefully,  so that it
might identify trends that could impact its  liquidity/cash  flow position.  The
Bank experiences little in seasonal liquidity fluctuation.  Loan commitments are
also closely  monitored to assure these commitments do not negatively affect the
Bank's planned  liquidity  position.  Primary liquidity is comprised of cash and
due from banks,  interbank  overnight federal funds sold and securities maturing
in less than one year. These assets  aggregated  $49,518,000,  or 20.9% of total
assets, as of December 31, 1998, as compared to $36,762,000  (16.5%) at December
31, 1997. The Bank has borrowing capabilities from the Federal Home Loan Bank of
Boston,  which is available as a  supplemental  source of funding for  liquidity
purposes.  Management closely monitors the Bank's  liquidity/cash  flow position
and does not anticipate any liquidity problems in the future.


Impact of Inflation

The  quantitative  impact of  inflation  is  subjective  in  interpretation  and
difficult and imprecise to measure in the financial services industry. Inflation
poses a financial risk as the Bank's assets  consist mainly of financial  assets
which are funded by deposit liabilities of varying maturities and deposit yields
as opposed to physical or real assets.  With few fixed or physical  assets,  the
Bank has a low degree of operating  leverage  which  mitigates the  inflationary
impact.  The  financial  leverage  ratio of capital to total  assets is the most
effective  measure of a  financial  institution's  viability  and its ability to
withstand inflationary pressures.


Year 2000

     The Company and the Bank are aware of the significant impact that Year 2000
("Y2K")  will  have on  financial  service  companies,  as  such,  the  Bank has
established  a program  to  address  Y2K  issues.  The Board  established  a Y2K
Committee to oversee  activities  of  management  and others in dealing with Y2K
issues.  This committee  reports to the Board on a regular  basis.  The Board of
Directors  monitors the project and its ongoing  implementation.  The  potential
problem with year 2000 concerns the inability of information systems,  primarily
software programs,  to properly recognize and process date sensitive information
for the year 2000 and beyond.

     The Bank  utilizes  the  services of a third party  service  bureau for its
primary  data  processing  needs.  This  service  bureau  is  well on its way to
addressing  the Y2K  project  and has  completed  the first and second  phase of
testing of its  processing  system.  The Bank has also  completed  its first two
phases of testing on all the applications  that are provided by the third party.
This  first  phase  tested the actual  change of dates  from  December,  1999 to
January, 2000. The second phase tested month end, quarter end and odd date (i.e.
February 29, 2000) processing.

     The Bank has developed  contingency plans to deal with the possibility that
our third party processor will not be Y2K compliant on January 1, 2000. One plan
takes into account our role in the contingency plan that has been adopted by our
processor.  The  second  plan  which  the  Bank has  developed  will  deal  with
processing if our third party processor is not able to.

     The Bank has  completed  the  planned  upgrade of the  teller and  platform
systems in all branch offices.  This upgrade  included  enhancements to the back
office operational areas as well. All of these upgrades were Y2K compliant.  All
personal  computers  currently in use at the Bank have been tested to ensure Y2K
compliance.  In addition,  all critical  software  used at the Bank not directly
involved with system  processing by the Bank's third party  processor  have been
verified as being Y2K compliant.

     Another risk for the Company would be the temporary business disruptions of
its large borrowers due to their failure to be prepared for Y2K. The Company has
already polled

                                       14
<PAGE>

management's discussion & analysis of financial condition &
results of operations (continued)
================================================================================


these  customers to determine  their readiness for year 2000, and
has independently assessed their readiness.

     The worst case Y2K scenario would involve the breakdown of utility service,
critical  system  failure  and Federal  Reserve,  Automated  Clearing  House and
Clearing House failure. In this case, the Bank would have difficulty  continuing
operations in a manner  approaching  normal. The Company has not yet developed a
contingency plan for this scenario,  other than for the critical system failure.
It is not expected that this worst case scenario will occur. It is expected that
utilities,  the Federal  Reserve and the Clearing  Houses will be Y2K compliant.
All of these items will be closely  monitored and a contingency plan is expected
to be completed prior to the end of the second quarter of 1999.

     The Federal  Deposit  Insurance  Corporation  ("FDIC") is  responsible  for
supervising  efforts by banks to prepare for the Y2K date  change.  The FDIC has
been  conducting  special  examinations  of insured  banks to make sure they are
taking  necessary  steps to get ready for the Y2K date change.  The FDIC is also
closely  monitoring  the progress  that the Bank is making to complete  critical
steps as required by Y2K plans.

     The costs  associated with the  implementation  of changes to deal with Y2K
issues is not expected to have a material  impact on the Company's  consolidated
financial  statements.  Costs will be expensed as  incurred.  The only  expenses
recorded to date are  $42,000.  The  remaining  cost  expected to be incurred is
approximately  $15,000.  While every  effort is being made to ensure the Bank is
Y2K  compliant,  there  can be no  assurances  that Y2K will not to some  degree
affect the operations of the Bank.


COMPARISON OF 1997 TO 1996

Financial Condition

The Company had total assets of $222,549,000 on December 31, 1997 as compared to
assets of  $179,550,000  on December  31,  1996.  The most  significant  area of
increase over the past year was in loans,  which increased  $20,823,000  (16.4%)
and securities, which increased $20,905,000 (63.5%).

The growth in these two areas was funded  mainly by an increase  of  $41,183,000
(25.3%) in the Bank's deposits. This increase in loans is primarily attributable
to a combination of factors.  The Bank continued its increased  marketing effort
in this area.  The new branch  offices  increased  the  Bank's  presence  in the
market-place, with the Westport branch opening an entirely new market. The sales
force was expanded late in 1996 in both the mortgage and commercial  loan areas,
this helped to increase the volume of business.  The  expanded  adjustable  rate
product line has been well received.  The Bank generally retains adjustable rate
loans for its own  portfolio,  this  contributed to the increase in the mortgage
loan area.

The loan portfolio of the Bank includes $122,633,000 of real estate, home equity
and construction mortgages.  This is 83.1% of the Bank's total loan portfolio as
of December 31, 1997.  This is in  comparison  to  $104,298,000  (82.2%) in real
estate  related  loans  outstanding  on  December  31,  1996.  Due to this  high
percentage  of real  estate  loans the  management  of the Bank is  continuously
monitoring real estate values and the general economic  conditions in the Bank's
lending areas so that it may take appropriate action when necessary.


Capital Resources

The  Company had a leverage  ratio of 7.80% on December  31, 1997 as compared to
8.46% on December 31, 1996.  On December 31, 1997 the required  minimum  capital
was 8.0% of total  capital  to risk  weighted  assets and 4.0% Tier 1 capital to
risk  weighted  assets.  The  Company's  ratios on December 31, 1997 were 13.06%
total  capital ratio and 12.06% Tier 1 capital  ratio,  which exceed the minimum
requirements.  These  ratios for  December  31,  1996 were  14.62%  and  13.43%,
respectively.  Management  does not  anticipate  any event that would  cause the
Company to fall  below the  minimum  requirements  at  December  31,  1998,  and
anticipates that the Company will continue to have excess "risk -based" capital.


Results of Operations

Net income for 1997 was  $1,178,000  as compared  to  $1,820,000  for 1996.  Net
interest  income for 1997 amounted to  $8,366,000 as compared to $7,840,000  for
1996.  Net interest  income  increased  primarily as a result of the increase in
interest income on loans.


Income Taxes

The  Company's  provision  for income taxes was $585,000 for 1997 as compared to
$471,000 for 1996. The increase in the Company's  provision for income taxes was
primarily  the result of the 1996  receipt of a tax refund  settlement  from the
State  of  Connecticut.   For  more  information  please  see  Note  10  to  the
Consolidated Financial Statements.


Assets and Related Income Analysis

Loans  outstanding  on December  31, 1997  totaled  $147,659,000  as compared to
$126,836,000  outstanding  on  December  31,  1996.  The  increase  in the  loan
portfolio  of  $20,823,000  (16.4%)  was for the most part  attributable  to the
majority of real estate loans  originated  being variable  rate,  which the Bank
primarily holds for its own portfolio.  There was also an increased sales effort
in the commercial loan area which  increased the outstanding by $4,517,000.  The
majority


                                       15
<PAGE>

management's discussion & analysis of financial condition &
results of operations (continued)
================================================================================


of loans at the Bank are and have been real estate related. Loan income
increased  $1,236,000  from  $10,472,000  for 1996 to $11,708,000 for 1997. This
increase is due to an increase in average  outstanding  loans from  $121,623,000
for 1996 to $135,772,000 for 1997, coupled with a slight increase in the average
rate earned from 8.61% in 1996 to 8.62% in 1997.

Securities,   which  consist  of  securities   held-to-maturity  and  securities
available-for-sale,  increased  $20,905,000 (63.5%) from $32,904,000 at December
31, 1996 to $53,809,000 at December 31, 1997.  Income from securities  increased
$329,000  (16.5%) from $2,000,000 for the 1996 period to $2,329,000 for the 1997
period.  This increase  resulted  primarily  from an increase in average  dollar
amount  outstanding from $34,570,000 for 1996 to $41,760,000 for 1997, offset by
a decrease in average rate earned from 5.79% for 1996 to 5.58% for 1997. In 1997
there were no net security  gains or losses;  there were net security  losses of
$17,000 in 1996. The Bank has the positive intent and ability to hold securities
designated  as  held-to-maturity  until  maturity and does not engage in trading
activities.  Securities  available-for-sale are used to compensate for liquidity
forecasting deviations.

Federal funds sold decreased  $6,600,000 from $6,600,000 at December 31, 1996 to
$0 at December 31, 1997.  Federal funds sold income  increased  $100,000 (31.5%)
from $317,000 for 1996 to $417,000 for 1997.  This increase  resulted  primarily
from a increase in the average dollar amount outstanding from $5,994,000 in 1996
to  $7,745,000  in 1997 coupled with an increase in the average rate earned from
5.29% for 1996 to 5.38% in 1997.


Liability and Related Expense Analysis

Deposits increased $41,183,000 (25.3%) from $162,625,000 at December 31, 1996 to
$203,808,000  at December 31, 1997.  Interest on deposits  increased  $1,184,000
(23.9%)  from  $4,953,000  for 1996 to  $6,137,000  for 1997.  This  increase is
attributable  to an increase  in the  average  dollar  amount  outstanding  from
$156,489,000  for 1996 to $183,060,000 in 1997,  coupled with an increase in the
average rate paid of 3.17% for 1996 to 3.35% for 1997.

Salary and benefits expenses  increased $535,000 (17.5%) from $3,064,000 in 1996
to  $3,599,000  in 1997,  primarily as a result of the increase in the number of
personnel due to the opening of the two new branch office locations.

Net  occupancy  expenses  increased  $218,000  (37.5%) from  $582,000 in 1996 to
$800,000 in 1997,  furniture and equipment  expenses  increased  $62,000 (23.6%)
from $263,000 in 1996 to $325,000 in 1997,  supplies expense  increased  $89,000
(50.6%)  from  $176,000  in 1996 to  $$265,000  in 1997,  mainly  as a result of
additional  expenses due to the opening of the full-service  branch locations in
Westport and Danbury, Connecticut.

Data  processing  services  increased  $82,000  (15.4%) from $533,000 in 1996 to
$615,000 in 1997,  as a result of increased  use of services  offered along with
increased volumes.


Provision for Loan Losses

The provision for loan losses decreased  $60,000 (100.0%) from $120,000 for 1996
to $60,000 for 1997. The economy and the real estate market in the Bank's market
areas are closely  monitored by  management  to maintain an  allowance  for loan
losses that is considered  adequate.  The loan loss  allowance was $1,309,000 to
support loan portfolios of  $147,659,000,  or a loan loss reserve ratio of .89%.
This is in comparison to a ratio of 1.06% for 1996. Management believes that the
allowance for loan losses is adequate.


Liquidity

Primary liquidity is comprised of cash and due from banks,  interbank  overnight
federal funds sold and securities  maturing in less than one year.  These assets
aggregated  $25,689,000,  or 14.7% of total assets,  as of December 31, 1996, as
compared to $36,762,000 (16.5%) at December 31, 1997.



Item 7.a. Quantitative and Qualitative Disclosure About Market Risk


MARKET RISK

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility. Any fluctuation in interest rates will impact both the
level of income and expense  recorded on a large percentage of the Bank's assets
and liabilities,  and the fair value of all interest earning assets. In general,
financial  institutions are negatively affected by an increase in interest rates
to the extent that  interest-bearing  liabilities mature or reprice more rapidly
than interest-earning assets. The Bank does not own any trading assets, nor does
it have any hedging  transactions in place such as interest rate swaps and caps.
Based on the  nature of the  Bank's  operations,  it is not  subject  to foreign
exchange or commodity price risk.

The Bank's earnings are primarily  dependent on its net interest income which is
the difference (the "spread")  between the yields earned on its interest earning
assets,  such as loans  and  investments,  and the  rates  paid on its  interest
bearing liabilities, primarily deposits.



                                       16
<PAGE>

Asset/liability  management  is the  measurement  and  analysis  of  the  Bank's
exposure to changes in the interest rate environment.  The principal  objectives
of the Bank's interest rate risk  management  activites are to: (a) evaluate the
interest rate risk included in certain balance sheet accounts; (b) determine the
level  of  risk   appropriate   given  the  Bank's  business  focus,   operating
environment,  capital and liquidity requirements and performance objectives; and
(c) manage this risk consistent with Board of Director approved guidelines.  The
Bank's interest rate management strategy is designed to stabilize the spread and
preserve  capital over a broad range of interest  rate  scenarios,  while at the
same time enhancing  income.  Management  realizes certain risks are inherent in
the  financial  services  industry and that the goal is to identify and minimize
these risks.  Various  strategies are in place to control the Bank's exposure to
interest  rate risk.  The Bank has an  Asset/Liability  Committee  comprised  of
senior management which is primarily  responsible for monitoring and determining
methods of managing the rate  sensitivity and repricing  characteristics  of the
balance sheet  components.  This is done consistent with maintaining  acceptable
levels of both risk and net interest  income.  This committee meets on a regular
basis.   Quarterly   reports  are  provided  to  the  Board  of  Directors   for
informational purposes and to ensure compliance with policy.

The following  table sets forth the dollar  amount,  weighted  average  interest
rates and  estimated  fair value (see Note 15 to the  financial  statements)  of
selected assets and  liabilities  that are scheduled to mature within the stated
time frames as of December 31, 1998:

<TABLE>
<CAPTION>
Maturities (dollars in thousands)
                                                                  Scheduled Maturity dates
                              1999         2000          2001        2002          2003       Thereafter     Total    Fair Value
====================================================================================================================================
<S>                       <C>           <C>         <C>            <C>          <C>           <C>         <C>          <C>
Assets:
   Securities             $   19,176    $   14,509  $      2,452   $    1,152   $    3,022    $    7,252  $   47,563   $   48,048
   Weighted average
     interest rate (%)          4.79          5.08          5.48         5.15         5.35          4.86        4.97
   Home equity loans             474           695           246          690          688         3,737       6,530        6,530
   Weighted average
     interest rate (%)          9.13          9.25          9.19         9.11         9.10          9.23        9.20
   Real estate loans          13,594           476           777          354          596        99,487     115,155      116,084
   Weighted average
     interest rate (%)          8.68          8.65          8.48         8.90         8.78          7.90        8.01
   Installment and
     commercial loans         17,111         3,875         3,048        1,717          772         1,178      27,701       27,701
   Weighted average
     interest rate (%)          8.88          8.53          8.98         8.89         8.66          9.29        8.85
------------------------------------------------------------------------------------------------------------------------------------
   TOTAL                  $   50,355    $   19,555  $      6,523   $    3,913   $    5,078    $  111,654  $  197,078   $  198,492
====================================================================================================================================

Liabilities:
   Non-interest
     bearing deposits     $   22,162    $       --  $         --   $       --   $       --    $       --  $   22,162   $   22,162
   Weighted average
     interest rate (%)            --            --            --           --           --            --          --
   Now, savings &
     money market            117,396            --            --           --           --            --     117,396      117,396
   Weighted average
     interest rate (%)          1.54            --            --           --           --            --        1.54
   Certificates of deposit    69,758         5,380         1,562          489          430            --      77,619       77,881
   Weighted average
     interest rate (%)          4.95          5.65          5.46         6.07         5.31            --        5.02
------------------------------------------------------------------------------------------------------------------------------------
   TOTAL                  $  209,316    $    5,380  $      1,562   $      489   $      430    $       --  $  217,177   $  217,439
====================================================================================================================================
</TABLE>

Although the Bank is subject to interest rate risk as described above, loans and
deposits of the Bank have  historically  been largely stable and the Company has
not  experienced  any  significant  adverse  effects on net income in periods of
rapidly changing interest rates. Accordingly, no prepayment, deposit decay rates
or reinvestment  assumptions have been reflected in the above table.  Management
makes a concious  effort to match the maturities or the repricing time frames of
assets with the liabilities  that fund them, to limit the period of time between
repricing on  adjustable  rate assets in portfolio and to minimize the volume of
fixed-rate assets held.


                                       17
<PAGE>

INTEREST RATE SENSITIVITY

The following  table sets forth the dollar amount of rate  sensitive  assets and
liabilities that contractually reprice within the stated time frames at December
31, 1998:



<TABLE>
<CAPTION>
                                                                          (Dollar amounts in thousands)
Rate Sensitive Assets:
                                                     1 Year or less       1 - 5 Years      Over 5 Years           Total
====================================================================================================================================
<S>                                                     <C>               <C>                <C>               <C>
Loans (net of deferred loan fees)                       $  92,835         $   38,394         $  18,157         $  149,386
Federal funds                                              18,150                 --                --             18,150
Securities(1)                                              19,177             21,134             7,252             47,563
------------------------------------------------------------------------------------------------------------------------------------
Total                                                     130,162             59,528            25,409            215,099
====================================================================================================================================

Rate Sensitive Liabilities:
Deposits                                                  187,155              7,860                --            195,015
------------------------------------------------------------------------------------------------------------------------------------
Gap (Repricing difference)                              $ (56,993)        $   51,668         $  25,409         $   20,084
====================================================================================================================================
Cumulative gap                                          $ (56,993)        $   (5,325)        $  20,084
====================================================================================================================================
Cumulative ratio of rate
  sensitive assets to liabilities                             .70                .97              1.10
====================================================================================================================================
</TABLE>
(1) Includes Federal Home Loan Bank Stock.



Item 8. Financial Statements and Supplementary Data

The consolidated  financial  statements and notes and the Independent  Auditors'
Report follow.









                                       18
<PAGE>

independent auditors' report
================================================================================

     Deloitte &
      Touche 
                          ......................................................
                          Stamford Harbor Park         Telephone: (203) 708-4000
                          333 Ludlow Street            Facsimile: (203) 708-4797
                          P.O. Box 10098
                          Stamford, Connecticut 06904







INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Village Bancorp, Inc.

We have audited the  consolidated  balance sheets of Village  Bancorp,  Inc. and
subsidiary  (the  "Company")  as of December 31, 1998 and 1997,  and the related
consolidated   statements   of   income,   comprehensive   income,   changes  in
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Village Bancorp,
Inc.  and  subsidiary  as of December 31, 1998 and 1997 and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.




DELOITTE & TOUCHE LLP
February 5, 1999






Deloitte Touche
Tohmatsu



                                       19
<PAGE>

consolidated balance sheets
================================================================================

<TABLE>
<CAPTION>
                                                                               (In thousands, except share amounts)
                                                                                            December 31,
                                                                                        1998              1997
====================================================================================================================================
<S>                                                                                <C>              <C>
ASSETS
Cash and due from banks                                                            $   13,092       $   11,153
Federal funds sold                                                                     18,150               --
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                              31,242           11,153
------------------------------------------------------------------------------------------------------------------------------------
Securities:
   Available-for-sale, at fair value                                                   12,726           19,427
   Held-to-maturity, at amortized cost (fair value of $34,421
   and $34,554 in 1998 and 1997)                                                       33,936           34,382
Federal Home Loan Bank stock, at cost                                                     901              782
Loans, net of deferred loan fees                                                      149,386          147,659
Allowance for loan losses                                                             (1,178)          (1,309)
------------------------------------------------------------------------------------------------------------------------------------
  Loans - net                                                                         148,208          146,350
------------------------------------------------------------------------------------------------------------------------------------
Loans held for sale                                                                     1,874            1,686
Bank premises and equipment - net                                                       5,230            5,256
Accrued income and other assets                                                         3,039            3,513
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                       $  237,156       $  222,549
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Deposits:
  Noninterest bearing                                                              $   22,162       $   20,764
  Interest bearing                                                                    195,015          183,044
------------------------------------------------------------------------------------------------------------------------------------
    Total deposits                                                                    217,177          203,808
------------------------------------------------------------------------------------------------------------------------------------
Income taxes                                                                              536               26
Other liabilities                                                                       1,914            2,842
------------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                                                                 219,627          206,676
------------------------------------------------------------------------------------------------------------------------------------

Commitments and contingent  liabilities (Note 5, 14) 
STOCKHOLDERS' EQUITY 
Common stock, $3.33 par value; authorized, 10,000,000 shares;
  issued and outstanding, 1,946,534 shares in 1998 and 1,908,634
  in 1997                                                                               6,482            6,356
Additional paid-in capital                                                              4,998            4,851
Retained earnings                                                                       6,002            4,635
Accumulated other comprehensive income                                                     47               31
------------------------------------------------------------------------------------------------------------------------------------
    Total stockholders' equity                                                         17,529           15,873
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                                         $  237,156       $  222,549
====================================================================================================================================
See notes to consolidated financial statements.

</TABLE>


                                       20
<PAGE>

consolidated statements of income
================================================================================

<TABLE>
<CAPTION>
                                                                              (In thousands, except per share data)
                                                                                     Year Ended December 31,

                                                                          1998                1997                 1996
====================================================================================================================================
INTEREST INCOME
<S>                                                                  <C>                  <C>                  <C>
Loans, including fees                                                $    12,934          $     11,708         $     10,472
Securities:
  Taxable                                                                  2,038                 2,017                1,879
  Tax-exempt                                                                 500                   312                  121
Federal funds sold                                                           416                   417                  317
Dividends on Federal Home Loan Bank stock                                     57                    49                    4
------------------------------------------------------------------------------------------------------------------------------------
    Total interest income                                                 15,945                14,503               12,793
INTEREST EXPENSE                                                           6,202                 6,137                4,953
------------------------------------------------------------------------------------------------------------------------------------

NET INTEREST INCOME                                                        9,743                 8,366                7,840
PROVISION (CREDIT) FOR LOAN LOSSES                                         (123)                    60                  120
------------------------------------------------------------------------------------------------------------------------------------

NET INTEREST INCOME AFTER
  PROVISION FOR LOAN LOSSES                                                9,866                 8,306                7,720
------------------------------------------------------------------------------------------------------------------------------------

OTHER INCOME
Service charges                                                              349                   343                  332
Security gains (losses) - net                                                 83                    --                 (17)
Other operating income                                                       320                   225                  175
------------------------------------------------------------------------------------------------------------------------------------
    Total other income                                                       752                   568                  490
------------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits                                              3896                 3,599                3,064
Net occupancy                                                                975                   800                  582
Other real estate owned                                                        8                     4                   18
Furniture and equipment                                                      391                   325                  263
Data processing services                                                     801                   615                  533
Regulatory assessments                                                        28                    20                    3
Printing, stationery and supplies                                            200                   265                  176
Advertising                                                                   86                   240                  146
Appraisal fees                                                                88                    72                   55
Postage                                                                      114                   122                  107
Other operating expenses                                                   1,031                 1,049                  972
------------------------------------------------------------------------------------------------------------------------------------
    Total other expenses                                                   7,618                 7,111                5,919
------------------------------------------------------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES                                                 3,000                 1,763                2,291
PROVISION FOR INCOME TAXES                                                   939                   585                  471
------------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                           $     2,061          $      1,178         $      1,820
====================================================================================================================================
PER SHARE DATA
Net income - basic earnings                                          $      1.07          $        .62         $        .96
Net income - diluted earnings                                               1.04                   .61                  .95
Cash dividends                                                               .36                   .36                 .335
====================================================================================================================================
</TABLE>

See notes to consolidated financial statements.



                                       21
<PAGE>

consolidated statements of comprehensive income
================================================================================

<TABLE>
<CAPTION>
                                                                                         (In thousands)
                                                                                     Year Ended December 31,
                                                                          1998                1997                 1996
====================================================================================================================================
COMPREHENSIVE INCOME

<S>                                                                  <C>                  <C>                  <C>
Net income                                                           $     2,061          $      1,178         $      1,820

Other comprehensive income, net of tax:
   Unrealized holding gains (losses) on securities
      available-for-sale arising during the period                            40                    44                 (69)

   Reclassification adjustment, net of tax,
      for net gains realized on available-for-sale
      securities  that were held at the beginning
      of the year                                                           (24)                     -                   15
------------------------------------------------------------------------------------------------------------------------------------

Other comprehensive
   income (loss)                                                              16                    44                 (54)
------------------------------------------------------------------------------------------------------------------------------------

Comprehensive income                                                 $     2,077          $      1,222         $      1,766
====================================================================================================================================
</TABLE>

See notes to consolidated financial statements.



                                       22
<PAGE>

consolidated statements of changes in stockholders' equity
================================================================================


<TABLE>
<CAPTION>
                                                                        (In thousands, except share data)
                                                        Common Stock                                     Accumulated
                                                 ---------------------------        Additional              Other
                                                 Number of                            Paid-In           Comprehensive       Retained
                                                  Shares            Amount            Capital           Income (Loss)       Earnings
====================================================================================================================================
<S>                                              <C>              <C>               <C>               <C>               <C>
BALANCE AT JANUARY 1, 1996                         950,317        $    3,165        $    7,982        $       41        $    2,960
Net income                                                                                                                   1,820
Cash dividends declared, $.335 per share                                                                                      (637)
Exercise of options                                  1,800                 6                14
Other comprehensive loss                                                                                     (54)

------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                       952,117             3,171             7,996               (13)            4,143
Net income                                                                                                                   1,178
Cash dividends declared, $.36 per share                                                                                       (686)
Exercise of options                                  2,200                 7                33
100% Stock dividend                                954,317             3,178            (3,178)
Other comprehensive income                                                                                    44

------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                     1,908,634             6,356             4,851                31             4,635
Net income                                                                                                                   2,061
Cash dividends declared, $.36 per share                                                                                       (694)
Exercise of options                                 37,900               126               147
Other comprehensive income                                                                                    16

------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                     1,946,534        $    6,482        $    4,998        $       47        $    6,002
====================================================================================================================================

</TABLE>
See notes to consolidated financial statements.









                                       23
<PAGE>

consolidated statements of cash flows
================================================================================

<TABLE>
<CAPTION>
                                                                                           (In thousands)
                                                                                       Year Ended December 31,
                                                                            1998                1997                 1996
====================================================================================================================================
OPERATING ACTIVITIES
<S>                                                                     <C>                  <C>                  <C>
Net income                                                              $     2,061          $    1,178           $    1,820
Adjustments to reconcile net income to net cash
 provided by operating activities:
      Provision (credit) for loan losses                                       (123)                 60                  120
      Depreciation and amortization                                             445                 339                  242
      Accretion of security discounts, net                                     (343)               (251)                (196)
      Deferred income taxes                                                     473                  (4)                (213)
      Security losses (gains), net                                              (83)                 --                   17
Increase (decrease) in deferred loan fees                                       (75)                (59)                  16
Origination of loans held for sale                                          (26,730)            (10,159)              (6,934)
Proceeds from sales of loans                                                 26,861               8,600                7,513
Gains on sales of loans                                                        (319)                (77)                 (77)
Decrease (increase) in accrued income and other assets                            1                 206               (1,492)
Increase (decrease) in other liabilities                                       (418)              1,240                   38
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                     1,750               1,073                  854
------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of securities available-for-sale                          5,323                  --                2,307
Proceeds from maturities of securities held-to-maturity                      18,946               4,160                6,350
Proceeds from maturities of securities available-for-sale                    15,178               9,099               16,719
Purchases of securities held-to-maturity                                    (18,476)            (21,245)              (9,583)
Purchases of securities available-for-sale                                  (13,382)            (12,591)             (14,047)
Purchase of Federal Home Loan Bank stock                                       (119)                (70)                (712)
Net increase in loans                                                        (1,660)            (20,869)              (7,336)
Purchases of premises and equipment                                            (419)             (4,086)                (201)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                           5,391             (45,602)              (6,503)
------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits                                                     13,369              41,183                4,086
Cash dividends                                                                 (694)               (686)                (637)
Net proceeds from issuance of common stock                                      273                  40                   20
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                    12,948              40,537                3,469
------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS                                                       20,089              (3,992)              (2,180)
CASH AND CASH EQUIVALENTS:
      BEGINNING OF YEAR                                                      11,153              15,145               17,325
------------------------------------------------------------------------------------------------------------------------------------
      END OF YEAR                                                       $    31,242          $   11,153           $   15,145
====================================================================================================================================

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid on deposits                                               $     6,510          $    5,439           $    5,202
Income tax payments                                                             460                 939                  898
====================================================================================================================================
</TABLE>

See notes to consolidated financial statements.




                                       24
<PAGE>

notes to consolidated financial statements
================================================================================


1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations -- Village  Bancorp,  Inc. and its subsidiary,  The Village
Bank & Trust Company (the "Bank"),  collectively  the "Company",  are engaged in
the business of commercial  banking.  Headquartered  in Ridgefield,  the Company
operates six branch offices in Fairfield and Litchfield counties in Connecticut.
The Company  principally is engaged in lending and deposit gathering  activities
within these counties.  The Company's future prospects are largely  dependent on
its  ability  to compete  with  entities  having  greater  resources  and on the
performance of the local economy.  A wide range of loan and deposit products and
trust services are offered to the customer.  Customer convenience and responsive
service  are  emphasized.  Over 80% of loans are  collateralized  by real estate
located  in  Fairfield,  Litchfield  and  adjacent  counties.  Within  this area
employment  levels and related  economic  activity  generally are not materially
dependent on any one employer.

Basis  of  Financial  Statement   Presentation  --  The  Company's  consolidated
financial  statements include the Bank and have been prepared in accordance with
generally accepted accounting  principles and conform with predominant practices
used within the banking  industry.  All  significant  intercompany  accounts and
transactions  are  eliminated  in  consolidation.  In preparing  such  financial
statements, management is required to make estimates and assumptions that affect
the  reported  amounts  of  assets  and  liabilities  as  of  the  date  of  the
consolidated balance sheet and the revenues and expenses for the period.
Actual results could differ significantly from those estimates.

Estimates that are particularly  susceptible to significant change relate to the
determination  of the  allowance  for loan losses,  the valuation of real estate
acquired in connection  with  foreclosures  or in  satisfaction of loans and the
valuation   allowance  for  deferred  tax  assets.   In   connection   with  the
determination of the allowance for loan losses and real estate owned, management
obtains independent appraisals for significant properties.

Management  believes  that the  allowance  for loan  losses is  adequate.  While
management uses available  information to recognize possible loan losses, future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions,  particularly  in the Bank's service area,  Fairfield and Litchfield
Counties,  Connecticut. In addition, regulatory agencies, as an integral part of
their  examination  process,  periodically  review the Bank's allowance for loan
losses.  Such agencies may recommend to the Bank that it recognize  additions to
the allowance based on their judgements of information  available to them at the
time of their examination.

Allowance  for Loan  Losses -- The  allowance  for loan losses is  sustained  by
charges to operating  expense.  Loans are charged against the allowance for loan
losses when  management  believes  that the  collectibility  of the principal is
unlikely;  recoveries  of  previously  charged  off  loans are  restored  to the
allowance.  The  allowance  for loan losses is  maintained  at a level  believed
adequate  by  management  to  absorb  potential  losses  inherent  in  the  loan
portfolio.  Management's determination of the adequacy of the allowance is based
on an evaluation of the loan portfolio and other pertinent  factors,  including,
but not limited to, past loan loss experience, composition of the loan portfolio
and current economic factors.

Consolidated  Statements  of  Cash  Flows  -- For  purposes  of  presenting  the
consolidated statements of cash flows, cash equivalents include amounts due from
banks  and  federal  funds  sold.  Generally,  federal  funds  sold have one day
availability.

Securities  --  Securities  held-to-maturity  are stated at cost,  adjusted  for
accumulated  amortization  of premiums  and  accretion  of  discounts,  which is
calculated  on a  method  that  approximates  the  interest  method.  Securities
available-for-sale  are stated at estimated  fair value.  The  determination  to
include  debt   securities   as   securities   held-to-maturity   or  securities
available-for-sale  is made at the time of purchase and is based on such factors
as the overall  interest rate  sensitivity of the Company,  projected  liquidity
needs,  and the Company's  long-term  investment  strategies.  The Bank does not
acquire securities for the purpose of engaging in trading activities. When sales
occur,  gains or  losses  on the sale of  securities  are  recognized  using the
specific  identification method. The Bank has the positive intent and ability to
hold its securities classified as held-to-maturity for their economic life.


                                       25
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


Loans --  Interest  income  on loans is  recognized  based on rates  applied  to
principal  amounts  outstanding.  Loans are  placed on  nonaccrual  status  when
management  believes  that  interest  or  principal  on  such  loans  may not be
collected in the normal course of business.  Interest payments received on loans
in  nonaccrual  status are applied,  based on  management's  judgement as to the
collectibility  of loan  principal,  either as a reduction  of  principal  or as
interest  income.  Such loans are  restored  to accrual  status when there is no
longer  doubt  concerning  collectibility  and the  borrower  has  performed  in
accordance  with the terms of the loan.  Loans  held for sale are  stated at the
lower of cost or estimated fair value.

Loan origination and commitment fees, net of certain loan origination costs, are
deferred and the net amount  amortized as an  adjustment  of the related  loan's
yield.  Loan fees  deferred in 1998 and 1997  aggregated  $99,000 and  $203,000,
respectively.  Loan  costs  deferred  in 1998 and  1997  aggregated  $8,000  and
$18,000,  respectively.  Net amounts  amortized to income  aggregated  $164,000,
$260,000 and $213,000 in 1998, 1997 and 1996, respectively.

Impaired  Loans -- The Company  follows the  guidance in  Statement of Financial
Accounting  Standards ("SFAS") No. 114,  "Accounting by Creditors for Impairment
of a Loan", as amended by SFAS No. 118,  "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures".

A loan is  recognized  as impaired  when it is probable  that  principal  and/or
interest are not  collectible in accordance  with the  contractual  terms of the
loan.  When a loan is considered  impaired,  it is placed on nonaccrual  status.
Income is  recorded  using the income  recognition  principles  outlined  above.
Measurement of impairment is based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate,  or, at the loan's
observable  market  price or the fair  value of the  collateral,  if the loan is
collateral  dependent.  Small homogeneous  loans such as residential  mortgages,
home equity  loans,  installment  loans and consumer  credit are not  separately
reviewed for impaired status. These loans typically are for maturities less than
five years and require monthly payments.  Separate  allocations of the allowance
for loan  losses  are made  based upon  trends  and prior  loss  experience  and
composition  of  credit  risk in  these  types  of  loans.  This  evaluation  is
inherently  subjective as it requires material estimates that may be susceptible
to significant change.

If the fair value of an impaired loan is less than the related  recorded amount,
a  specific  valuation  allowance  is  established  or the write down is charged
against the  allowance  for loan losses if the  impairment  is  considered to be
permanent.

Bank  Premises and  Equipment -- Bank premises and equipment are stated at cost,
less accumulated  depreciation and  amortization.  Depreciation and amortization
are computed using the straight-line method based upon estimated useful lives or
the  lease  term,  if  shorter,  up to 39 years  for  premises  and 15 years for
equipment.

Income Taxes -- An asset and liability approach is used for financial accounting
and  reporting  for  income  taxes.  Deferred  tax assets  and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement  carrying  amounts of assets and  liabilities and their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period the change is enacted.

Other Real Estate -- Other real estate includes  properties which are foreclosed
or received in  settlement  of a loan,  and real  property  not used in trade or
business. The properties are recorded at the lower of cost or fair value (net of
estimated costs of disposition) at the date  transferred.  Losses arising at the
time of  acquisition of such  properties  are charged  against the allowance for
loan losses.  Subsequent  write-downs of the carrying value of these  properties
may be required  and would be charged to  operations.  At December  31, 1998 and
1997, other real estate was $0 and $154,000, respectively.

Earnings Per Share -- SFAS No. 128,  "Earnings Per Share",  requires that "Basic
EPS"  exclude  dilution and be computed by dividing  income  available to common
stockholders by the weighted-average number of common shares outstanding for the
period;  "Diluted  EPS"  reflects  the  potential  dilution  that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common  stock that would then
share in the earnings of the entity.

Stock-Based   Compensation   --  SFAS  No.  123,   "Accounting  for  Stock-Based
Compensation",   establishes  a  fair  value  based  method  of  accounting  for
stock-based compensation plans and encourages, but does not require, entities to
adopt that method of accounting for all employee stock compensation  plans. SFAS
No. 123 also establishes fair value as the measurement basis for transactions in
which an entity  acquires goods or services from  non-employees  in exchange for
equity  instruments.  However,  SFAS No. 123  permits  entities  to  continue to
measure compensation costs for stock-based compensation plans using the





                                       26
<PAGE>

notes to consolidated financial statements (continued)
================================================================================

instrinsic value based method of accounting  prescribed by Accounting Principles
Board ("APB")  Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
present proforma disclosure of net income and earnings per share, as if the fair
value based method of  accounting  prescribed  by SFAS No. 123 had been applied.
The Company has elected to continue to measure compensation cost for stock-based
compensation plans in accordance with the provisions of APB Opinion No. 25.

Transfers and  Servicing of Financial  Assets -- SFAS No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
specifies  accounting  and  reporting  standards  for transfers and servicing of
financial  assets and  extinguishments  of  liabilities  and for  distinguishing
whether  a  transfer  of  financial   assets  in  exchange  for  cash  or  other
consideration  should be accounted for as a sale or as a pledge of collateral in
a secured  borrowing.  SFAS No. 125 is effective  for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996,  except for certain  provisions  (relating to the  accounting  for secured
borrowings  and  collateral  and the  accounting  for transfers and servicing or
repurchase   agreements,   dollar   rolls,   securities   lending  and  similiar
transactions) which was adopted January 1, 1998 in accordance with SFAS No. 127,
"Deferral of the  Effective  Date of Certain  Provisions  of FASB  Statement No.
125." Adoption of all of the provisions of SFAS No. 125 has not had any material
effect on the Company's consolidated financial statements.

Comprehensive Income. -- SFAS No. 130 "Reporting Comprehensive Income," requires
that all items that are  components of  "comprehensive  income" be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  Comprehensive income is defined as the "change in equity
(net  assets) of a business  enterprise  during a period from  transactions  and
other events and circumstances from nonowner sources. It includes all changes in
equity during a period except those  resulting  from  investments  by owners and
distributions to owners."  Companies are required to (a) classify items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  The  Company  adopted  SFAS No. 130 as of January 1, 1998,
which resulted only in increased disclosures for 1998 and prior years.

Segments of an  Enterprise  -- SFAS No. 131,  "Disclosure  About  Segments of an
Enterprise and Related  Information,"  requires that enterprises  report certain
financial and descriptive  information about operating segments in complete sets
of financial statements and in condensed financial statements of interim periods
issued  to  stockholders.  It  also  requires  that  a  Company  report  certain
information  about  its  products  and  services,  geographic  areas in which it
operates and its major  customers.  The Company  adopted SFAS No. 131  effective
January 1, 1998 and no additional  disclosures were required because the Company
operates solely within the community banking segment of the economy.

Pending Accounting  Pronouncement -- In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
establishes  accounting and reporting  standards for derivative  instruments and
hedging  activities.  It requires,  among other things,  that all derivatives be
recognized in the statement of  condition,  either as assets or as  liabilities,
and measured at their fair value and that changes in a  derivative's  fair value
be recognized in current earnings unless specific hedge accounting  criteria are
met.  For the  Company,  SFAS No. 133 will be  effective  January  1, 2000.  The
Company does not anticipate that adoption of this statement will have a material
impact on its financial position or results of operations.

Reclassifications  -- Certain prior year amounts in the  consolidated  financial
statements have been reclassified to conform with the current presentation.


2. Earnings Per Share

The only dilutive  potential  common shares were  attributable  to stock options
outstanding  (See Note 9). A summary of the basic and diluted earnings per share
calculations for 1998, 1997 and 1996 is as follows:


                        Income            Shares          Per-Share
================================================================================
1998
Basic EPS              $2,061,000         1,929,132         $1.07
Effect of
Dilutive Securities -
Stock Options                  --            51,567           .03
Diluted EPS            $2,061,000         1,980,699         $1.04

1997
Basic EPS              $1,178,000         1,905,441          $.62
Effect of
Dilutive Securities -
Stock Options                  --            36,389           .01
Diluted EPS            $1,178,000         1,941,830          $.61

1996
Basic EPS              $1,820,000         1,902,375          $.96
Effect of
Dilutive Securities -
Stock Options                  --            16,127           .01
Diluted EPS            $1,820,000         1,918,502          $.95


3. Cash and Due from Banks

The Bank is required by Federal  regulation  to maintain  average  cash  reserve
balances.  Throughout 1998, daily cash reserves and compensating balances served
to satisfy this requirement and averaged approximately $4,797,000.




                                       27
<PAGE>

notes to consolidated financial statements (continued)
================================================================================

4. Securities

The  aggregate   amortized   cost  and  estimated   fair  values  of  securities
held-to-maturity   and  securities   available-for-sale   at  December  31,  are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                     1998
                                                                              Gross          Gross        Estimated
                                                             Amortized     Unrealized      Unrealized        Fair
                                                               Cost           Gains         (Losses)         Value
====================================================================================================================================
<S>                                                          <C>            <C>             <C>            <C>

SECURITIES HELD-TO-MATURITY

U.S. Treasury securities                                     $  18,801      $     183       $      (4)     $  18,980
Mortgage-backed securities of
  U.S. Government agencies                                       4,377             35              (3)         4,409
Obligations of states and political subdivisions                10,758            275              (1)        11,032
------------------------------------------------------------------------------------------------------------------------------------
Total                                                        $  33,936      $     493       $      (8)     $  34,421
====================================================================================================================================

SECURITIES AVAILABLE-FOR-SALE

U.S. Treasury securities                                     $  12,446      $      98       $     (22)     $  12,522
Mortgage-backed securities of
  U.S. Government agencies                                         186              2              --            188
Other                                                               16             --              --             16
------------------------------------------------------------------------------------------------------------------------------------
Total                                                        $  12,648      $     100       $     (22)     $  12,726
====================================================================================================================================


<CAPTION>
                                                                                     1997
                                                                              Gross          Gross        Estimated
                                                             Amortized     Unrealized      Unrealized        Fair
                                                               Cost           Gains         (Losses)         Value
====================================================================================================================================
<S>                                                          <C>            <C>             <C>            <C>

SECURITIES HELD-TO-MATURITY

U.S. Treasury securities                                     $  16,792      $      23       $      (4)     $  16,811
Mortgage-backed securities of
  U.S. Government agencies                                       6,704             24              (2)         6,726
Obligations of states and political subdivisions                10,886            147             (16)        11,017
------------------------------------------------------------------------------------------------------------------------------------
Total                                                        $  34,382      $     194       $     (22)     $  34,554
====================================================================================================================================

SECURITIES AVAILABLE-FOR-SALE

U.S. Treasury securities                                     $  18,993      $      54       $      (2)     $  19,045
Mortgage-backed securities of
   U.S. Government agencies                                        346              3              --            349
Other                                                               33             --              --             33
------------------------------------------------------------------------------------------------------------------------------------
Total                                                        $  19,372      $      57       $      (2)     $  19,427
====================================================================================================================================
</TABLE>


At December 31, 1998, securities with an amortized cost of $1,129,000 and a fair
value of $1,174,000  were pledged to secure public funds and for other  purposes
as required by law and banking regulation. Gross gains on sales of securities in
1998, 1997 and 1996 were $83,000, $0 and $5,000, respectively,  and gross losses
were $0, $0 and $22,000, respectively.

The  amortized  cost and fair value of  securities  at  December  31,  1998,  by
contractual  maturity,  are shown below.  Expected  maturities  will differ from
contractual  maturities  because  issuers  may have the  right to call or prepay
obligations with or without call or prepayment penalties.


                                       28
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


<TABLE>
<CAPTION>
                                                                                    (In thousands)
                                                                                   December 31, 1998
     ===============================================================================================================================
                                                                  Available-for-sale                  Held-to-maturity
                                                                                 Estimated                          Estimated
                                                               Amortized           Fair            Amortized          Fair
                                                                 Cost              Value             Cost             Value
     ===============================================================================================================================
<S>                                                         <C>               <C>               <C>               <C>
     Within 1 year                                          $     5,107       $     5,112       $    13,164       $    13,184
     After 1 but within 5 years                                   7,490             7,562            13,572            13,785
     After 5 but within 10 years                                     51                52             4,696             4,825
     After 10 years                                                  --                --             2,504             2,627
     -------------------------------------------------------------------------------------------------------------------------------
     Totals                                                 $    12,648       $    12,726       $    33,936       $    34,421
     ===============================================================================================================================
</TABLE>




5. Loans

The composition of the loan portfolio is summarized as follows:


<TABLE>
<CAPTION>
                                                                                          (In thousands)
                                                                                           December 31,
                                                                                    1998                 1997
     ===============================================================================================================================
<S>                                                                          <C>                  <C>
     Real estate - mortgage and home equity                                  $     108,194        $     108,825
     Real estate - construction and land development                                13,620               14,012
     Installment and consumer credit                                                 8,389                7,888
     Commercial and financial                                                       19,312               17,138
     -------------------------------------------------------------------------------------------------------------------------------
     Total loans                                                                   149,515              147,863

     Deferred loan fees, net                                                          (129)                (204)
     Allowance for loan losses                                                      (1,178)              (1,309)
     -------------------------------------------------------------------------------------------------------------------------------
     Loans - net                                                             $     148,208        $     146,350
     ===============================================================================================================================
</TABLE>



In the normal course of business there are outstanding  various  commitments and
contingent  liabilities,  such as guarantees  and  commitments to extend credit,
which are not reflected in the financial  statements.  Such commitments  involve
elements of credit and interest rate risk in excess of the amount  recognized in
the  consolidated  balance  sheet.  The Bank controls these risks through credit
approvals,  limits and monitoring  procedures.  Commitments generally have fixed
expiration dates or other termination  clauses and may require payment of a fee.
Since a portion of these  commitments are expected to expire without being drawn
upon, the total  commitment  amounts do not  necessarily  represent  future cash
requirements.  At  December  31,  1998,  existing  commitments  were as follows:
commitments to originate loans - $18,309,000,  unused  revolving lines of credit
on residential properties,  including home equity - $8,952,000, unused revolving
lines of credit on commercial real estate and  construction - $9,046,000,  stand
by  letters  of  credit -  $2,435,000  and  unused  consumer  lines of  credit -
$2,755,000. At December 31, 1997, these commitments were as follows: commitments
to  originate  loans  -  $13,459,000,   unused  revolving  lines  of  credit  on
residential  properties,  including home equity - $8,775,000,  unused  revolving
lines of credit on commercial real estate and  construction - $6,106,000,  stand
by  letters  of  credit  -  $1,939,000  and  unused  consumer  lines  of  credit
$2,417,000.




                                       29
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


Substantially  all of the Bank's commercial and residential  lending  activities
are with customers  located in Fairfield and Litchfield  counties,  Connecticut.
Although lending activities are diversified,  a substantial portion of many Bank
customers' net worth is dependent on local real estate values.

The Bank has  established  credit  policies  applicable  to each type of lending
activity in which it engages,  evaluates the  credit-worthiness of each customer
and,  in most  cases,  lends  up to 80% of the  fair  value  of the  collateral,
depending on the Bank's evaluation of the borrowers' creditworthiness.  The fair
value of collateral is monitored on an ongoing basis and  additional  collateral
is obtained when warranted. Real estate is the primary form of collateral. While
collateral  provides  assurance  as a secondary  source of  repayment,  the Bank
ordinarily  requires  the  primary  source  of  repayment  to be  based  on  the
borrower's ability to generate continuing cash flows.

Changes in the allowance for loan losses are summarized as follow:

                                                     (In thousands)
                                                 Year Ended December 31,
                                        1998            1997             1996
================================================================================
Balance, beginning of year            $ 1,309        $ 1,356           $ 1,311
Provision (credit) for loan losses       (123)            60               120
Loans charged off                         (52)          (119)             (173)
Recoveries on loans
  previously charged off                   44             12                98
--------------------------------------------------------------------------------
Balance, end of year                  $ 1,178        $ 1,309           $ 1,356
================================================================================

For management purposes, portions of this allowance are allocated to segments of
the loan  portfolio  based on  perceived  credit  risks.  At December  31, 1998,
management allocated $262,000 of the balance in the allowance for loan losses to
specific credit risks,  which includes $179,000 of reserves that relate to loans
that are considered impaired, and $916,000 is considered to be an unallocated or
general  allowance.  Based on  regulatory  constraints  all or a portion of this
allowance is  considered  to be capital for purposes of  determining  compliance
with certain regulatory capital standards (see Note 8).

The principal portion of loans delinquent as to principal or interest for ninety
days or more, including nonaccrual loans, is as follows:


                                                       (In thousands)
                                                        December 31,
                                                1998                   1997
================================================================================
Loans 90 days or more past due:
Real estate-mortgage and home equity         $   1,174              $   1,557
Commercial and financial                            17                      -
Installment and consumer credit                     97                     65
--------------------------------------------------------------------------------
Total                                        $   1,288              $   1,622
================================================================================





                                       30
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


At December 31, 1998 and 1997 there were restructured  loans of $831,000.  Loans
on which interest is not being accrued aggregated  approximately  $1,137,000 and
$1,299,000  at  December  31, 1998 and 1997,  respectively.  The Bank would have
recorded an additional $116,000, $74,000 and $59,000 of gross interest income in
1998,  1997 and 1996,  respectively,  if nonaccrual  loans had been current.  At
December  31,  1998,  there  were no  commitments  to lend  additional  funds to
borrowers whose loans are classified as nonaccrual or were restructured.

The recorded  investment in loans that are considered to be impaired at December
31,  1998  and  1997  was  $1,275,000  and  $1,427,000,  respectively.  Specific
valuation  allowances of $179,000 and $174,000 for 1998 and 1997,  respectively,
have been established.  During 1998 and 1997 the average recorded  investment in
impaired loans was  approximately  $1,315,000 and $1,418,000,  respectively.  No
interest income was recognized on impaired or nonaccrual loans.  Generally,  the
fair  value of the  above  loans  was  determined  using  the fair  value of the
underlying collateral.


6. Bank Premises and Equipment

Bank  premises  and  equipment,  at  cost,  and  accumulated   depreciation  and
amortization are summarized as follows:



                                                        (In thousands)
                                                         December 31,
                                                 1998                  1997
================================================================================
Land                                         $      175             $     175
Premises                                          4,715                 4,673
Equipment                                         2,602                 2,606
Leasehold improvements                              501                   387
--------------------------------------------------------------------------------
Total                                             7,993                 7,841
Accumulated depreciation and amortization        (2,763)               (2,585)
--------------------------------------------------------------------------------
Bank premises and equipment - net            $    5,230             $   5,256
================================================================================


The Bank  completed the  construction  of a new three story building in Danbury,
Connecticut,  in July of 1997.  The first floor of this new building  contains a
full-service  branch office.  The second and third floors are being utilized for
the deposit and loan back-office operations of the bank.


7. Deposits

Included  in  interest   bearing   deposits  are   certificates  of  deposit  in
denominations of $100,000 or more. These certificates  aggregated  approximately
$12,072,000  and  $14,647,000  at December 31, 1998 and 1997,  respectively.  At
December 31, 1998, the scheduled  maturities of  certificates of deposit were as
follows:


                                                                (In thousands)
                                                                 December 31,
Maturing in                                                          1998
================================================================================
1999                                                             $   69,686
2000                                                                  5,380
2001                                                                  1,562
2002                                                                    488
2003 and thereafter                                                     430
================================================================================
Total                                                            $   77,546
================================================================================

NOW accounts, included in interest bearing deposit liabilities, were $61,297,000
and $49,107,000 at December 31, 1998 and 1997, respectively.



                                       31
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


8. Stockholders' Equity

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

Capital adequacy  regulations require the Company and Bank to maintain or exceed
minimum  amounts and ratios (set forth in the tables  below) of Total and Tier 1
Capital (as defined in the  regulations)  to risk weighted  assets (as defined),
and Tier 1 capital  (as  defined)  to average  assets (as  defined).  Management
believes  that the Company and Bank meet all capital  adequacy  requirements  to
which  it is  subject,  and is  considered  well  capitalized  under  regulatory
guidelines, as of December 31, 1998.

As of December 31, 1998, the most recent  notification  from the Federal Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized  the Bank must maintain or exceed minimum total  risk-based,  Tier 1
risk-based  and Tier 1 leverage  ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.

The Company's and Bank's  capital  amounts and ratios are presented in the table
that follows:


<TABLE>
<CAPTION>
                                               (Dollar amounts in thousands)
                                                                                                               Minimum
                                                                                      Minimum           To Be Well Capitalized
                                                                                    For Capital         Under Prompt Corrective
                                                              Actual            Adequacy   Purposes       Action Provisions
Company                                                   Amount     Ratio       Amount      Ratio       Amount        Ratio
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>       <C>         <C>        <C>           <C>
At December 31, 1998
Total Capital (to Risk Weighted Assets)                 $  18,660     13.90%    $  10,741    >=8.0%      N/A            N/A
Tier 1 Capital (to Risk Weighted Assets)                   17,482     13.02         5,370    >=4.0       N/A            N/A
Tier 1 Capital (to Average Assets)                         17,482      7.72         9,053    >=4.0       N/A            N/A
                                                                                            
At December 31, 1997                                                                        
Total Capital (to Risk Weighted Assets)                 $  17,151     13.06%    $  10,505    >=8.0%      N/A            N/A
Tier 1 Capital (to Risk Weighted Assets)                   15,842     12.06         5,253    >=4.0       N/A            N/A
Tier 1 Capital (to Average Assets)                         15,842      7.17         8,842    >=4.0       N/A            N/A
                                                                                            
Bank                                                                                        
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1998                                                                        
Total Capital (to Risk Weighted Assets)                 $  18,536     13.81%    $  10,735    >=8.0%      $  13,418    >=10.0%
Tier 1 Capital (to Risk Weighted Assets)                   17,358     12.94         5,367    >=4.0           8,051     >=6.0
Tier 1 Capital (to Average Assets)                         17,358      7.67         9,050    >=4.0          11,313     >=5.0
                                                                                            
At December 31, 1997                                                                        
Total Capital (to Risk Weighted Assets)                 $  17,076     13.01%    $  10,499    >=8.0%      $  13,124    >=10.0%
Tier 1 Capital (to Risk Weighted Assets)                   15,767     12.01         5,250    >=4.0           7,874     >=6.0
Tier 1 Capital (to Average Assets)                         15,767      7.14         8,839    >=4.0          11,049     >=5.0
</TABLE>                                                              


                                       32
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


Capital   ratios  are  computed   excluding   unrealized   gains  or  losses  on
available-for-sale  securities,  net of  tax  effect,  which  is  included  as a
component of stockholders' equity for financial reporting purposes.


9. Stock Option Plans

The Company and Bank have a stock option plan for their  officers and  employees
to be granted and issued by the Board of Directors  from time to time. The plan,
adopted in 1996,  provides for 150,000  shares to be reserved for  issuance.  In
1998 and 1997,  6,000 and 23,800  shares,  respectively,  were granted under the
1996 plan to the Bank's  officers.  There are currently  45,800 shares available
for issuance under the 1996 plan. Options issued under the plans must be granted
at the fair value of the Company's  common stock on the date of grant and expire
five years from the grant date. In addition,  all grants vest  immediately  upon
issuance.  1996 share  amounts have been  adjusted  for the 100% stock  dividend
issued in 1997.

Stock option transactions under the Plans were as follows:

<TABLE>
<CAPTION>
                                                                               Shares Underlying          Weighted Average
                                                                                     Options               Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Outstanding and exercisable Options as of January 1, 1996:                          29,200                 $    5.50
Options granted                                                                     78,400                      9.50
Options exercised                                                                   (3,600)                     5.50
------------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable Options as of December 31, 1996:                       104,000                 $    8.52
Options granted                                                                     23,800                     13.19
Options exercised                                                                   (4,400)                     9.14
Options expired                                                                     (2,000)                     9.50
------------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable Options as of December 31, 1997:                       121,400                      9.39
Options granted                                                                      6,000                     20.46
Options exercised                                                                  (37,900)                     7.20
Options expired                                                                     (2,000)                     9.50
------------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable Options as of December 31, 1998:                        87,500                    $11.10
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


The following table summarizes  information  regarding  options  outstanding and
exercisable as of December 31, 1998:


<TABLE>
<CAPTION>
         Range of                                               Weighted Average               Weighted Average
     Exercise Prices                Number                       Remaining Life                 Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                           <C>                             <C>
      $9.50 - $11.13                  69,900                        2.39 years                     $  9.66

     $13.50 - $15.625                 11,600                        3.83 years                     $ 14.97

     $19.50 - $22.125                  6,000                        4.29 years                     $ 20.46
====================================================================================================================================
     $ 9.50 - $22.125                 87,500                        2.71 years                     $ 11.10

</TABLE>



                                       33
<PAGE>

notes to consolidated financial statements (continued)
================================================================================

As  described  in Note 1, the Bank  continues  to apply APB  Opinion  No. 25 and
related  interpretations  in  accounting  for the  Plans,  and  accordingly,  no
compensation  cost has been recognized in 1998 or 1997. If compensation cost for
the Plans had been  determined  consistent  with the method of SFAS No. 123, the
Bank's net income and  earnings  per share for the year ended  December 31, 1998
would have been reduced to the pro forma amounts indicated as follows:


                                        1998                           1997
--------------------------------------------------------------------------------
                                        (In thousands, except share data)
Net income          As reported       $   2,061                     $  1,178
                    Pro forma             2,040                          989
Basic EPS           As reported           1.07                           .62
                    Pro forma             1.06                           .52
Diluted EPS         As reported           1.04                           .61
                    Pro forma             1.03                           .51

The weighted average fair value of options granted under the Plans was $3.45 for
1998 and $7.95 for 1997 and were  estimated  on the date of the grants using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used:  dividend  yield-  1998 --  2.51%,  1997 --  3.12%,  expected
volatility-  1998--  22.57%,  1997--  24.66%,  risk free  interest  rate- 1998--
4.61-4.64%,  1997--  5.39 - 5.40%,  expected  lives of 3 years for both 1998 and
1997.


10. Income Taxes

A  reconciliation  of the income tax provision to the amount  computed using the
statutory federal tax rate is as follows


<TABLE>
<CAPTION>
                                                                                    (Dollar amounts in thousands)
                                                                                       Year Ended December 31,
                                                                      1998                     1997                   1996
====================================================================================================================================
<S>                                                                <C>                    <C>                     <C>
Income tax at 34% of pre-tax income                                $     1,020            $       599             $      778
Connecticut corporation tax, net of federal tax benefit                     95                     57                    (14)
Effect of tax-exempt income                                               (153)                   (91)                   (36)
Change in valuation allowance                                               --                    (25)                  (214)
Other items, net                                                           (23)                    45                    (43)
------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes                                         $       939            $       585             $      471
====================================================================================================================================
Effective rate                                                            31.3%                  33.2%                  20.6%
====================================================================================================================================
</TABLE>


The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                                                              (In thousands)
                                                                                          Year Ended December 31,
                                                                          1998                   1997                   1996
====================================================================================================================================
<S>                                                                <C>                    <C>                     <C>
Current income taxes:
   Federal                                                         $       299            $       454             $      762
   State                                                                   167                    160                    136
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                      466                    614                    898

Deferred income tax (benefit) expense
   Federal                                                                 474                     69                   (56)
   State                                                                   (1)                   (73)                  (157)
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                      473                    (4)                  (213)

Change in valuation allowance                                               --                   (25)                  (214)
------------------------------------------------------------------------------------------------------------------------------------

Total provision for income taxes                                   $       939            $       585             $      471
====================================================================================================================================

</TABLE>


                                       34
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


Deferred income tax assets and liabilities at December 31, 1998 and 1997 reflect
the  impact of  temporary  differences  between  values  recorded  as assets and
liabilities   for  financial   reporting   purposes  and  values   utilized  for
remeasurement  in  accordance  with the tax laws.  The tax effects of  temporary
differences giving rise to the Company's deferred tax assets and liabilities are
as follows:

                                                         (In thousands)
                                                          December 31,
                                                  1998                  1997
================================================================================
Deferred tax assets:
      Allowance for loan losses               $      254          $       341
      Deferred loan fees                              36                   66
      Deferred compensation                          118                   80
      Net operating loss                             600                  718
      State tax credit                                66                  103
      Other                                           50                   11
--------------------------------------------------------------------------------
      Total                                        1,124                1,319
--------------------------------------------------------------------------------
Deferred tax liabilities:
      Available for sale securities                   31                   24
      Treasury securities                            276                   35
      Depreciation                                   137                   39
      Other                                           --                   61
--------------------------------------------------------------------------------
      Total                                          444                  159
--------------------------------------------------------------------------------
Valuation allowance                                 (396)                (396)
--------------------------------------------------------------------------------
Net deferred tax assets                       $      284          $       764
================================================================================



The Company has net operating  loss  carryforwards  ("NOL's") for federal income
tax purposes at December 31, 1998 of approximately  $1,763,000 expiring in years
2003 through 2008.  The NOL's relate to the  acquisition of Liberty in 1994. Due
to  limitations  on their use, a valuation  allowance  has been  established  to
reduce the NOL's to the amount that, more likely than not, will be realized.


11. Employee Benefit Plan

The Bank has an  incentive  savings  plan under  Section  401(k) of the Internal
Revenue Code. Employees are eligible to participate after one year of continuous
service.  The plan allows  participating  employees  to defer up to 15% of their
compensation on a pre-tax basis, within code limitations,  through contributions
to the plan. In accordance  with the provisions of the plan, the Bank matches up
to 6% of the employee contributions with a percentage determined by the Board of
Directors.  Matching contributions of $54,000,  $48,000 and $43,000 were charged
to operating expenses in 1998, 1997 and 1996, respectively.



                                       35
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


12. Village Bancorp, Inc. (Parent Company Only)
Condensed Financial Statements

Condensed balance sheets are as follows:




                                                     (In thousands)
                                                       December 31,
                                                 1998                  1997
================================================================================
ASSETS
--------------------------------------------------------------------------------
Investment in subsidiary                    $  17,529               $   15,798
Other assets                                        -                       75
--------------------------------------------------------------------------------
TOTAL ASSETS                                $  17,529               $   15,873
================================================================================

STOCKHOLDERS' EQUITY                        $  17,529               $   15,873
================================================================================



Condensed operating results are as follows:
                                                 (In thousands)
                                             Year Ended December 31,
                                    1998              1997              1996
================================================================================
Dividend income from Bank     $       694       $      686        $       637
Equity in undistributed
  income of subsidiary              1,367              492              1,183
--------------------------------------------------------------------------------
Net income                    $     2,061       $    1,178        $     1,820
================================================================================

Condensed statements of cash flows are as follows:

                                                   (In thousands)
                                               Year Ended December 31,
                                           1998         1997        1996
================================================================================

OPERATING ACTIVITIES:
   Net income                           $  2,061     $ 1,178     $  1,820
   Equity in undistributed
      income of subsidiary                (1,367)       (492)      (1,183)
--------------------------------------------------------------------------------
        Net cash provided by
          operating activities          $    694     $   686     $    637
================================================================================

INVESTING ACTIVITIES:
   Investment in subsidiaries           $   (273)    $   (40)    $    (20)
--------------------------------------------------------------------------------
        Net cash used in
          investing activities          $   (273)    $   (40)    $    (20)
================================================================================

FINANCING ACTIVITIES:
   Cash dividends paid                  $   (694)    $  (686)    $   (637)
   Net proceeds from issuance of common
      stock and capital contribution         273          40           20
--------------------------------------------------------------------------------
        Net cash used in
          financing activities          $   (421)    $  (646)    $   (617)
================================================================================





                                       36
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


There are various  restrictions  which limit the ability of a bank subsidiary to
transfer  funds in the form of cash  dividends,  loans or advances to the parent
company.  Under  Connecticut  law,  the  approval  of the primary  regulator  is
required  if the  dividend  declared  by the  bank in any year  exceeds  the net
profits of that year combined with its retained net profits of the preceding two
years.

In addition,  the Company is subject to  restrictions  under the Federal Reserve
Act. These  restrictions  limit the transfer of funds to the parent company,  in
the form of loans or extensions of credit,  investments and purchases of assets.
Such  transfers are limited in amount to 10% of the bank's  capital and surplus.
These transfers are also subject to various collateral requirements.


13. Related Party Transactions

Certain directors and executive officers, including their immediate families and
companies in which they are principals, are loan customers of the Bank. Loans to
these persons aggregated approximately $5,119,000 and $5,540,000 at December 31,
1998 and 1997, respectively. During 1998 new loans to related parties aggregated
$11,976,000 and loan payments aggregated $12,397,000. The maximum amount of such
loans  outstanding  during  1998  and  1997  was  $11,179,000  and  $11,167,000,
respectively.

Two  directors  and four  stockholders  of the Company  are  partners in a joint
venture  which was leasing  certain  real estate to the Bank.  The terms of such
lease which expired in 1998, are described further in Note 14.


14. Commitments and Contingent Liabilities

In July 1985,  the Bank entered into a five-year  noncancelable,  branch  office
lease  arrangement.  The lease  contains a provision  which allows for an annual
adjustment to the minimum payment to reflect changes in the Consumer Price Index
and a provision for two five-year renewal options, which have been exercised.

In March 1993,  the Bank  entered into a five-year  noncancelable,  office lease
arrangement  with related  parties (see Note 13).  Minimum  payments  under this
operating  lease started at $82,400 a year. The lease contains a provision which
allows for a five percent annual increase and provides for two five-year renewal
options.  This lease  expired and was not renewed  during the fourth  quarter of
1998.

The Bank is leasing  space for its Shelter  Rock Road,  Danbury  office  under a
lease agreement that extends through  October 31, 2001.  Minimum  payments under
this lease started at $39,360 per year.

In April 1997,  the Bank entered into a ten-year  noncancelable,  branch  office
lease  arrangement.  The lease  contains a provision  which allows for an annual
increase and provides for a five-year renewal option.

Total rent expense for 1998, 1997 and 1996 was $519,000,  $434,000 and $255,000,
respectively,  which  amounts  are net of  $55,000,  $36,000  and $0 of sublease
income in 1998, 1997 and 1996.Future minimum lease payments at December 31, 1998
are as follows:

Year Ending December 31,                            Amount
                                                (In thousands)
================================================================================
                1999                             $     408
                2000                                   417
                2001                                   353
                2002                                   335
                2003                                   347
             Thereafter                              1,252
--------------------------------------------------------------------------------
                Total                            $   3,112
================================================================================


15. Estimated Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments," requires
disclosure  of the  estimated  fair  values of  certain  financial  instruments.
Estimated  fair  values  are as of  December  31,  1998 and  1997 and have  been
determined using available market  information and various valuation  estimation
methodologies.  Considerable  judgment is required to  interpret  the effects on
fair value of such items as future expected loss  experience,  current  economic
conditions,  risk  characteristics  of various  financial  instruments and other
factors.  The estimates  presented herein are not necessarily  indicative of the
amounts that the Company would realize in a current market  exchange.  Also, the
use of different market assumptions  and/or estimation  methodologies may have a
material effect on the determination of the estimated fair values.




                                       37
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


                                                   As of December 31,
                                              1998                 1997
                                                 Estimated             Estimated
                                     Carrying     Fair      Carrying      Fair
                                      Amount      Value      Amount       Value
================================================================================
Assets:                                             (In thousands)
Cash and cash equivalents           $ 31,242    $ 31,242    $ 11,153    $ 11,153
Securities                            47,563      48,048      54,591      54,763
Loans                                149,386     150,315     147,659     148,445
Loans held for sale                    1,874       1,902       1,686       1,706
Accrued income receivable              1,649       1,649       1,881       1,881

Liabilities:
Deposits without stated maturities   139,558     139,558     122,341     122,341
Time deposits                         77,619      77,881      81,467      81,646
Accrued interest payable               1,302       1,302       1,610       1,610


The fair value  estimates  presented  above are based on  pertinent  information
available to management as of December 31, 1998 and 1997. Although management is
not aware of any factors  that would  significantly  affect the  estimated  fair
value  amounts,  such  amounts  have not  been  comprehensively  revalued  since
December  31, 1998 and,  therefore,  current  estimates of fair value may differ
significantly from the amounts presented above.

Fair value methods and assumptions are as follows:

Cash and Cash  Equivalents,  Accrued  Income  Receivable  and  Accrued  Interest
Payable -- The carrying amount is a reasonable estimate of fair value.

Securities -- The fair value of securities was estimated  based on quoted market
prices or dealer quotes, if available.  If a quote is not available,  fair value
is estimated using quoted market prices for similar securities.

Loans -- The fair value of fixed rate loans has been  estimated  by  discounting
projected  cash flows using  current  rates for similar  loans.  For loans which
reprice to market  rates or mature  within a one year time frame,  the  carrying
amount is a reasonable  estimate of fair value.  The value of impaired  loans of
approximately   $1,275,000  and  $1,427,000  at  December  31,  1998  and  1997,
respectivly,are  estimated to have a fair value of approximately  $1,096,000 and
$1,254,000. This estimate is net of other specific and general allowances and is
very  subjective  and may not be  indicative  of what  would  be  realized  in a
liquidation situation.

Deposits Without Stated  Maturities -- Under the provisions of SFAS No. 107, the
estimated fair value of deposits with no stated  maturity,  such as non-interest
bearing  demand  deposits,  savings  accounts,  NOW  accounts,  money market and
checking accounts, is equal to the amount payable on demand.

Time  Deposits  -- The fair  value of  certificates  of  deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.

Off  Balance  Sheet Risk -- As  described  in Note 4, the Company was a party to
financial  instruments  with  off-balance  sheet risk at December 31, 1998. Such
financial  instruments  consist of commitments to extend permanent financing and
letters of credit.  If the options are exercised by the  prospective  borrowers,
these financial instruments will become  interest-bearing assets of the Company.
If the options expire,  the Company retains any fees paid by the counterparty in
order to obtain the  commitment or guarantee.  The fair value of  commitments is
estimated based upon fees currently  charged to enter into similiar  agreements,
taking  into  account  the  remaining  terms of the  agreements  and the present
creditworthiness of the  counterparties.  For fixed-rate  commitments,  the fair
value estimation takes into consideration an interest rate risk factor. The fair
value of guarantees and letters of credit is based on fees currently charged for
similiar agreements. The fair value of these off-balance sheet items at December
31,  1998 and 1997,  respectively,  approximates  the  recorded  amounts  of the
related  fees,  which are not  material.  The  Company  has not engaged in hedge
transactions such as interest rate futures contracts or interest rate swaps.



                                       38
<PAGE>

notes to consolidated financial statements (continued)
================================================================================


16. Pending Acquisition

On November 11, 1998, the Company and Webster Financial Corporation  ("Webster")
announced that they had reached a definitive  agreement,  whereby  Webster would
acquire  the  Company,  for the  equivalent  of $23.50 per share in a  tax-free,
stock-for-stock   exchange   valued  at   approximately   $46.4  million,   with
stockholders  permitted to elect to receive cash-in-lieu of Webster stock for up
to 20% of the Company's shares.

The definitive  agreement,  which has been approved by both companies' boards of
directors,  is subject to approval by the Company's  stockholders and regulatory
authorities. The transaction is expected to close in the second quarter of 1999.




Item 9. Changes in and Disagreements With Accountants on Accounting
        and Financial Disclosure

None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The following table sets forth,  with respect to each director,  his or her
name, age, principal occupation and other business  affiliations,  the date each
became a director of the  Corporation  and VBT, the office with the  Corporation
and VBT, if any, of each director.  Each director has furnished the  information
set forth below,  with  respect to his or her age,  other  business  affiliates,
direct or indirect  beneficial  ownership of the common stock of the Corporation
and principal occupation.

                      INFORMATION AS TO DIRECTORS IN OFFICE

                                          VBT           Bancorp
                                       Director        Director          Term
         Name                Age         Since           Since          Expires

ENRICO J. ADDESSI            69          1982            1975            1999
JOSE P. BOA                  45          1994            1995            2000
RICHARD O. CAREY             67          1982            1974            2001
JEANNE M. COOK               69          1989            1989            1999
NICHOLAS R. DINAPOLI         70          1982            1974            2001
EDWARD J. HANNAFIN           63          1982            1974            1999
CARL LECHER                  63          1984            1984            2001
JOSEPH L. KNAPP              69          1982            1974            1999
ROBERT V. MACKLIN            51          1990            1990            2000
ANTONIO M. RESENDES          47          1994            1995            2000
THOMAS F. REYNOLDS           50          1993            1993            1999
ROBERT SCALA                 63          1982            1974            2001
JAMES R. UMBARGER, JR.       48          1997            1996            2000





                                       39
<PAGE>

                               BUSINESS EXPERIENCE

     ENRICO J. ADDESSI: Age 69. Mr. Addessi has been a Director of Bancorp since
1982 and of VBT since 1975.  His present  term expires in 1999.  Mr.  Addessi is
Secretary of the Board of  Directors of Bancorp and VBT. He is the  President of
Addessi Jewelers of Ridgefield, Inc. located in Ridgefield, Connecticut.

     JOSE P. BOA:  Age 45. Mr. Boa was  appointed  a Director of Bancorp in 1994
and a Director of VBT in 1995.  His present term expires in 2000. Mr. Boa served
as a Director,  Chairman and Vice  Chairman of the Board of Directors of Liberty
National Bank ("LNB"), which subsequently was acquired and merged into VBT, from
1989 to  1995.  Mr.  Boa is  President  and  owner  of  Diversified  Maintenance
Corporation of Danbury, Connecticut.

     RICHARD O. CAREY:  Age 67. Mr.  Carey has been a Director of Bancorp  since
1982 and of VBT since 1974.  His  present  term of office  expires in 2001.  Mr.
Carey is owner of The Connecticut Land Company, a real estate brokerage company,
and is a licensed real estate broker, located in Washington, Connecticut.

     JEANNE M. COOK:  Age 69.  Mrs.  Cook has been a Director of Bancorp and VBT
since 1989.  Her present term of office  expires in 1999.  Mrs. Cook is a travel
industry  consultant and was the owner of Jeanne Cook Travel  Service,  a travel
agency in Ridgefield, Connecticut.

     NICHOLAS R. DINAPOLI:  Age 70. Mr.  DiNapoli has been a Director of Bancorp
since  1982 and VBT  since  1974.  He has been  Vice  Chairman  of the  Board of
Directors of Bancorp and VBT since 1988.  His term of office expires in 2001. He
is President of DiNapoli  Development Co., Inc., a building contracting and real
estate development firm having an office in Ridgefield, Connecticut.

     EDWARD J.  HANNAFIN:  Age 63. Mr.  Hannafin  has been a Director of Bancorp
since 1982 and VBT since 1974. He has been Chairman of the Board of Directors of
Bancorp  and VBT  since  1988.  His term of  office  expires  in 1999.  He was a
Director of LNB from 1994 to 1995. He was formerly Vice Chairman of the Board of
Directors  of Bancorp and VBT from 1982 to 1988.  He is an attorney at law and a
principal  of the Law Firm of Collins,  Hannafin,  Garamelia,  Jaber & Tuozzolo,
P.C. of Danbury, Connecticut.

     JOSEPH  L.  KNAPP:  Age 69.  Mr.  Knapp  has been a member  of the Board of
Directors  of Bancorp  since 1982 and of VBT since  1974.  His  present  term of
office  expires  in 1999.  Mr.  Knapp is an  officer  of Knapp  Brothers,  Inc.,
arborist, having an office in Ridgefield, Connecticut.

     CARL  LECHER:  Age 63. Mr.  Lecher has been a Director  of Bancorp  and VBT
since 1984.  His present term of office expires in 2001. He is President of Carl
Lecher,  Incorporated, a real estate contracting and development firm, having an
office in Ridgefield, Connecticut.

     ROBERT V. MACKLIN:  Age 51. Mr. Macklin has been a Director,  President and
Chief  Executive  Officer of Bancorp and VBT since 1990.  His present  term as a
Director  expires in 2000. He was formerly  Executive  Vice President of Bancorp
(1984 to 1990)  and VBT (1979 to 1990).  He was a  Director  of LNB from 1994 to
1995.

     ANTONIO M.  RESENDES:  Age 46. Mr.  Resendes  was  appointed  a Director of
Bancorp in 1994. He was appointed a Director of VBT in 1995. Mr. Resendes served
as a Director  and  Chairman of the Board of Directors of LNB from 1989 to 1995.
His present term  expires in 2000.  Mr.  Resendes has been a Department  Head of
Henry Abbott Technical School in Danbury, Connecticut, since 1987. He was a Vice
President of DaSilva Fuel  Company,  Inc. of Danbury,  Connecticut  from 1979 to
1987.



                                       40
<PAGE>

     THOMAS F. REYNOLDS: Age 49. Mr. Reynolds has been a Director of Bancorp and
VBT since  1993.  His present  term  expires in 1999.  He is a certified  public
accountant,  who is a partner in the accounting firm of Reynolds & Rowella, CPA,
having its principal office in Ridgefield, Connecticut.

     ROBERT  SCALA:  Age 63. Mr. Scala has been a Director of Bancorp since 1982
and of VBT since 1974. He is Assistant Secretary of Bancorp and VBT. His present
term expires in 2001. He is retired.  He was formerly Vice President of the Elms
Inn,  Inc.,  a  restaurant  and  hotel  company,  with a place  of  business  in
Ridgefield, Connecticut.

     JAMES R.  UMBARGER,  JR.: Age 47. Mr.  Umbarger has been the Executive Vice
President  of Bancorp  since 1994,  VBT since 1995, a Director of VBT since 1996
and a Director of Bancorp since 1997. His present term expires in 2000. Prior to
that he was the Senior Vice  President  and Treasurer of Bancorp and VBT. He was
President,  Chief Executive  Officer and a Director of Liberty  National Bank in
1995.

     There is no  arrangement or  understanding  between the directors and other
person or persons;  except the  Directors  and  Officers  acting  solely in that
capacity.  There is no  family  relationship  between  any  Director,  Executive
Officer of either Bancorp or VBT.

                               EXECUTIVE OFFICERS

The Executive Officers of Bancorp and VBT are listed below,  together with their
age, position and office,  principal occupation and their term and period during
which they have served as such:

                          Position, Office &                       Term and
Name and Age              Principal Occupation                     Period

ROBERT V. MACKLIN
Age 51                    President, Chief Executive               1990 to date
                          Officer, and Director of
                          Bancorp  and  VBT;  formerly
                          Executive  Vice President of
                          Bancorp    and   VBT    (VBT
                          1979-1990;  Bancorp  1984 to
                          1990).

JAMES R. UMBARGER, JR.    Executive Vice-President                 1990 to date
Age 48                    of Bancorp and VBT,
                          Director  of  VBT  (1996  to
                          date);  Director  of Bancorp
                          (1997 to date), President of
                          LNB   (1995);    Sr.   Vice-
                          President  and  Treasurer of
                          Bancorp  and  VBT  (1982  to
                          1990)     and      Executive
                          Vice-President  of VBT (1990
                          to 1995).

     The salaries of Bancorp officers are paid by VBT.



                                       41
<PAGE>

     There are no  arrangements or  understandings  between the Officers and any
other persons pursuant to which he is to be selected as an officer.  There is no
family relationship between any Director,  Executive Officer or person chosen to
be  a  Director  or  Executive  Officer.  There  are  no  employment  contracts,
compensation  plans or arrangements with the Executive Officers other than their
respective  interests in the Corporations  401(k)  Incentive  Savings and Salary
Reduction  Plan,  Stock  Option  Plan,  insurance  and  an  agreement  regarding
termination resulting from a change in control of Bancorp or VBT. (See Item 11.)


Item 11. Executive Compensation

                     REMUNERATION OF DIRECTORS AND OFFICERS

                             EXECUTIVE COMPENSATION

     There are no Directors or Executive  Officers of VBT or Bancorp (other than
the  President,  Robert V. Macklin and the Executive  Vice  President,  James R.
Umbarger,  Jr.),  who  individually  received  a total  annual  salary and bonus
remuneration  from VBT or Bancorp  in excess of  $100,000  in 1998.  There is no
compensation  paid by Bancorp to its Directors or Officers.  All compensation to
them is paid by  VBT.  See  "Remuneration  of  Directors  and  Certain  Business
Relationships."  The following table sets forth the 1998  remuneration for VBT's
highest paid Executive Officers and Directors as a group.


                                       VBT

Name of individual or          Capacities in             Cash Remuneration
number of persons in            which served
group

      (14)                  Director & Excutive             $  508,808
                            Officers as a group

      (26)                  Officers as a group             $1,608,934


     1. The term  "Director"  does not  include  salaried  employees  who do not
receive fees as a Director.  The term  "Directors"  does  include the  Chairman,
Vice-Chairman  and  Secretary  of the Board of  Directors.  The term  "Executive
Officers"  and  eligible   "Officers"   includes  the  President  and  Executive
Vice-President.

     2. Officers of the Corporation  receive life, health,  hospitalization  and
medical insurance as part of a group plan, which does not discriminate in scope,
term or operation in favor of officers or directors,  and is generally available
to all salaried employees.  The personal benefits to any officer,  which are not
directly  related to job  performance or those  provided to broad  categories of
employees  and  which  do not  discriminate  in  their  favor,  of  Officers  or
Directors, do not exceed either $50,000 or 10% of their cash compensation as set
forth in the Summary  Compensation  Table.  Certain of the Executive Officers of
the Corporation  utilize  Corporation  automobiles in the ordinary course of its
business. Any personal use of Corporate automobiles is minimal.

     3. Includes  payments under Employee  Incentive Thrift Plan. See "Incentive
Savings and Salary Reduction Plan".

     4. Includes bonus payments. All the employees earned a bonus at year end in
1996,   1997  and  1998.   The   entire   bonus   amount   was:   1996($60,090);
1997($64,461.00);  1998($63,992.00).  Executive  Officers did not participate in
these bonuses.



                                       42
<PAGE>


                   INCENTIVE SAVINGS AND SALARY REDUCTION PLAN

     VBT has a 401(k)  Incentive  Savings and Salary Reduction Plan. The Plan is
available  to all  eligible  employees  The Plan is  designed  to be a qualified
pension plan under Section 401 and 501 of the Internal  Revenue  Code.  The Plan
provides  for 50%  matching  contributions  to be  made  by VBT if the  employee
voluntarily agrees to contribute to the Plan by a salary reduction election.  An
employee may  contribute no more than the maximum IRS. index amount to the Plan;
however  the  Company  only  matches  contributions  up to 6% of the  employee's
eligible salary. The entire amount of contributions made by the employee and VBT
and credited to the account of the participating employee is fully vested within
five (5) years.  Withdrawals  from the Plan are only  allowed  upon  retirement,
disability,  separation from service,  attainment of the age of 59 1/2 or in the
event of financial  hardship as defined by the  Internal  Revenue  Service.  The
employee's  election to participation  is revocable.  Directors are not eligible
for participation in the Plan other than in their capacity as an employee.  (The
President,  Robert V. Macklin, and Executive Vice-President,  James R. Umbarger,
Jr., who are also Directors, participate in the Plan as employees).

     The total amount contributed by VBT to the Plan in the past three (3) years
is set forth in the following table.

                                      1996             1997             1998
Robert V. Macklin, President
and Chief Executive Officer
of Bancorp and VBT.                  $ 4,224          $ 4,410          $ 4,665

James R. Umbarger, Jr., Executive
Vice-President of Bancorp
and VBT.                             $ 3,782          $ 3,612          $ 4,073

Executive Officers as a Group        $ 8,006          $ 8,022          $ 8,738

Employees as a Group
(excluding executive officers)       $34,973          $39,977          $45,638



SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

Name &                                                            Other
Principal                                                         Annual
Position               Year         Salary($)      Bonus($)    Compensation($)

Robert V Macklin
President & Chief      1998         164,950        27,000          9,000
Executive Officer:     1997         186,506        27,000          9,000
Director               1996         141,400        24,000          9,000

James R Umbarger
Executive Vice-        1998         127,520        18,000          4,000
President:             1997         121,291        18,000          4,000
Director               1996         116,502        16,000          4,000

                                       43
<PAGE>

LONG TERM COMPENSATION

                               AWARDS       AWARDS        PAYOUTS
Name &                         Restricted                               All
Principal                      Stock        Options/      TIP           Other
Position               Year    Awards($)    SARs($)       Payouts($)    Comp.($)

Robert V Macklin
President & Chief      1998    0            0                   0       4,665
Executive Officer:     1997    0            0                   0       4,410
Director               1996    0            20,000              0       4,224

James R Umbarger
Executive Vice-        1998    0            0                   0       4,073
President:             1997    0            0                   0       3,612
Director               1996    0            15,000              0       3,782

Notes:

     SALARY:  The amounts shown for Mr. Macklin and Mr. Umbarger under all other
compensation include amounts deferred under Section 401K of the Internal Revenue
Code. See "Incentive  Savings and Salary  Reduction  Plan". The amount shown for
Mr.  Macklin  in 1997  includes  $38,448  for his  initiation,  membership,  and
enrollment in a local country club to be used for business purposes.

     BONUS:  Bonuses were paid to the  Executive  Officers as  determined by The
Board of Directors after consideration of financial performance,  including cash
flow, profitability,  return on capital, growth, administration,  compliance and
regulatory reports of the Bank. See "Compensation  Committee Report of Executive
Compensation".

     OTHER ANNUAL COMPENSATION: Mr. Macklin and Mr. Umbarger utilize Corporation
automobiles  in the ordinary  course of  business.  Any personal use is minimal.
They receive life,  health,  hospitalization  and medical insurance as part of a
group plan; which does not discriminate in scope,  term or operation in favor of
officers and is generally available to all salaried employees. These perquisites
and  other  benefits  do not  exceed  the  lesser  of  $50,000  or 10% of  their
respective  total  annual  salary and  bonuses.  The amounts  shown are deferred
income. See "Directors and Officers Deferred Income Plan".

     OPTIONS/SARs: In 1993 and 1996 Stock Options were granted.

     ALL OTHER  COMPENSATION:  Mr. Macklin and Mr.  Umbarger  received  employer
contributions  under its 401K Plan. See "Incentive  Savings and Salary Reduction
Plan".


                                     OPTIONS

There were no options granted to executive officers in 1998.

     The  following  table  sets  forth  information  with  respect to the named
Executive  Officers  concerning  the  exercise  of options  during  1998 and the
unexercised options held as of December 31, 1998.

<TABLE>
                  Aggregated Option/SAR Exercises in Last Year
                     and Fiscal Year-End Option/SAR Values.

<CAPTION>
                                                                                    Number                   Value of
                                                                                  Unexercised               Unexercised
                                                                                 Options/SAR's             Options/SAR/s
                                     Shares                                      At FY-End (#)              FY-End ($)
                                   Acquired On               Value               Exercisable/              Exercisable/
                                   Exercise($)            Realized($)            Unexercisable             Unexercisable

<S>                               <C>                      <C>                      <C>                       <C>
Robert V Macklin                     9,800                 151,900                  20,000/0                  270,000/0

James R Umbarger                     7,800                 109,200                  15,000/0                  202,500/0
</TABLE>



                                       44
<PAGE>

The options were granted under the "Stock Option Reserve Plan".

     1. The President of VBT,  Robert V. Macklin,  was granted an option in 1993
to  purchase  9,800  shares of common  stock of  Bancorp at a price of $5.50 per
share to be exercised on or before  October 14, 1998.  In 1996 he was granted an
option  to  purchase  20,000  shares  of  common  stock at $9.50 per share to be
exercised  on or before  April 8, 2001 under the 1996 Stock  Option Plan for Key
Employees. See footnotes 3, 4, and 5.

     2. The Executive  Vice-President of VBT, James R. Umbarger, Jr. was granted
an option in 1993 to purchase  7,800  shares of common  stock of  Bancorp,  at a
price of $5.50 per share to be exercised on or before  October 14, 1998. In 1996
he was granted an option to  purchase  l5,000  shares of common  stock under the
1996 Stock  Option Plan for Key  Employees at $9.50 per share to be exercised on
or before April 8, 2001. See footnotes 3, 4, and 5.

     3. In 1993, Bancorp granted options to purchase 32,600 shares of its common
stock to sixteen (16) of VBT's  officers.  The  officers  and the number  shares
granted to them  varied  from 200 shares to 9,800  shares,  including  Robert V.
Macklin (9,800 shares) and James R. Umbarger,  Jr. (7,800 shares).  The purchase
price is $5.50 per share and is subject to adjustment for stock dividends, stock
splits and issuance of additional  shares.  The  expiration  date is October 14,
1998;  but sooner expire upon the expiration of fourteen (14) days from the date
on which the respective  officers employment is terminated or three (3) calendar
months  from  date of  death  during  employment  to be  exercised  by  personal
representatives.  These options are granted by the Board of Directors  under the
Stock Option Reserve Plan.

     4. In 1996, Bancorp granted options to purchase 78,400 shares of its common
stock to Key Employees  under the 1996 Stock Option Plan for Key Employees.  The
Officers and number of shares  granted to them varied from 200 to 20,000  shares
including  Robert V.  Macklin  (20,000  shares)  and James R.  Umbarger  (15,000
shares).

     5. In 1997, Bancorp granted options to purchase 23,800 shares of its common
stock to Key Employees  under the 1996 Stock Option Plan for Key Employees.  The
Officers and number of shares granted to them varied from 200 to 6,000 shares.

     6. In 1998,  Bancorp granted options to purchase 6,000 shares of its common
stock to Key Employees  under the 1996 Stock Option Plan for Key Employees.  The
Officers and number of shares granted to them varied from 1,000 to 2,000 shares.

     7. The market  value of the  October  14,  1993  grants were the last known
sales price of Bancorp as represented  by NASDAQ,  and the market value of grant
made under the 1996 Stock  Option Plan was the last known sales price of Bancorp
as represented by NASDAQ. The number of shares were increased by the two (2) for
one (1) stock dividend in November, 1997.


                            REMUNERATION OF DIRECTORS
                       AND CERTAIN BUSINESS RELATIONSHIPS

     Members of the Board of Directors of Bancorp, who are not employees, do not
receive any remuneration except for attendance at meetings.  In 1998, members of
the Board of  Directors  of Bancorp  and VBT  received  the sum of $550 each for
attendance  at the joint  meetings of the Board of  Directors  and $150 each for
attendance at committee meetings of the Board of Directors.  In 1999, members of
the Board of  Directors  of Bancorp and VBT will  receive the same  compensation
each for  attendance  at the joint  meeting of the Board of Directors of Bancorp
and VBT and for attendance at committee  meetings of the Board of Directors.  In
1998, each member of the Board of Directors  received a bonus of $1,000.00.  The
Chairman of the Board of Directors receives  additional  compensation of $10,000
per annum for his  additional  work and  services  provided  to the  Corporation
during the course of the year and will receive the same additional  compensation
for the additional  work and services in 1999.  Mr. Macklin and Mr.  Umbarger do
not receive  remuneration as members of the Board of Directors for attendance at
Director and Committee meetings.

     Edward J.  Hannafin,  who is Chairman of the Board of  Directors of VBT and
Bancorp, is a principal in the Law Firm of Collins, Hannafin, Garamella, Jaber &
Tuozzolo,  P. C.,  which is counsel  to the  Corporation  and VBT.  The Law Firm
received  a  total  remuneration  for  ordinary  and  extraordinary  fees to the
Corporation and VBT in 1996 of $53,816.00,  in 1997 of $40,452.00 and in 1998 of
$41,234.00.  The Law Finn has been  retained  as counsel to Bancorp  and VBT for
services to be rendered in the  ordinary  course of business in 1999 for the sum
of $600 per month (an annual aggregate amount of $7,200).



                                       45
<PAGE>

     Mr.  Nicholas R.  DiNapoll  and Mr.  Carl  Lecher are  partners in Skylands
Associates,  a  Connecticut  partnership,  which leases real estate to VBT at 96
Danbury Road, Ridgefield,  Connecticut.  The premises contain approximately 7000
sq. ft. of office space with parking.  VBT paid $114,251.00 to Skylands in 1996,
$111,499.00  in 1997 and  $82,122.00 in 1998.  The lease expired in 1998 and was
not renewed.

     Jose P. Boa is President and Owner of Diversified  Maintenance  Corporation
of Danbury, Connecticut,  which provides cleaning and janitorial services to VBT
and received fees of $40,035.00  in 1996,  $46,537.00 in 1997 and  $60,458.00 in
1998. Diversified  Maintenance  Corporation is providing cleaning and janitorial
services in 1999 to VBT.

     Carl Lecher provided construction supervision for VBT's new office building
in Danbury,  Connecticut,  and received  $22,500.00 in compensation in 1996, and
$24,000.00 in 1997 for this service.

     Other Directors have minimal or no business contact with the Corporations.

              DIRECTORS AND EXECUTIVE OFFICERS DEFERRED INCOME PLAN

     In 1986,  the  Corporation  adopted a  voluntary  deferred  income plan for
Directors which permits Directors to defer receipt of a part of their director's
fees. There are presently eleven (11) Directors eligible for the plan. Robert V.
Macklin and James R. Umbarger,  Jr., are not eligible for the Directors Deferred
Income Plan as Mr. Macklin is the President and Chief  Executive  Officer of the
Corporation  and Mr. Umbarger is Executive Vice President of the Corporation and
are members of active management. Five (5) Directors have elected to participate
in the plan.

     The  Corporation  has adopted a deferred  income plan for Robert V. Macklin
and James R.  Umbarger,  Jr.,  (Executive  Officer).  Under  this  program,  the
participants  elect to defer a portion of their salary.  The amount  deferred is
used by VBT to purchase  life  insurance on the lives of the  participants.  The
life insurance  proceeds will be used to reimburse VBT for the benefit  payments
made under the  program.  The amounts  referred  were:  Robert V. Macklin - 1998
$9,000, 1997 $9,000, 1996 $9,000;  James R. Umbarger - 1998 $4,000, 1997 $4,000,
1996 $4,000.

     Under  the  programs,  a  Director  or  Officer  may elect to have all or a
portion of their  director's  fees or officer  salary  deferred.  These deferred
awards are paid out ill one hundred twenty (120) monthly installments at the age
selected by the  participant.  The amount of the benefit  varies with the amount
deferred, the participant's age at time of commencement and time of termination,
and the  circumstances  of the  termination.  The program also includes  special
provisions  for payment to the  beneficiary  of the  participant  who dies while
participating in the Plan. The right to the amount deferred vests immediately on
payment.  The right to additional  sums will vary and vest at different times in
accordance  with  the  amount  deferred,   age  of  participant  and  length  of
participation.

     The amount  deferred is used by VBT to purchase life insurance on the lives
of the deferring  participants.  The proceeds from the insurance will he used to
reimburse VBT for the benefit payments made under the program.  The insurance is
designed so that if the  assumptions  made as to  mortality  experience,  policy
dividends,  and other  factors are  realized,  the proceeds  paid VBT will be at
least equal to all the premium payments.


                  TERMINATION OF EMPLOYMENT: CHANGE IN CONTROL

     In 1993,  the Board of  Directors  of VBT entered  into an  agreement  with
Robert V.  Macklin,  its  President and Chief  Executive  Officer,  and James R.
Umbarger,  Jr., its Executive  Vice-President (both individually  referred to as
"Executives"),  which provides for compensation in the event their employment is
terminated or resigns for any reason,  or dies or is disabled  after a change in
control of VBT or Bancorp.  This  Agreement was amended in 1996 and in 1997. The
agreements  provide for a salary  continuation in the amount equal to a multiple
of 2.99 times their  average  annual  salary for the previous  five (5) calendar
years for a period of two (2) years in the event of  termination  within one (1)
year of the change in control or in the amount equal to a multiple of 1.99 times
their  average  annual  salary for the previous  five (5)  calendar  years for a
period of one (1) year in the event of termination  within the second (2nd) year
after change in control.  The agreement also provides for salary continuation in
the event of salary  reduction during the first two (2) years following a change
in  control.  These  payments  may be  terminated  in the event the  Executives'
employment is terminated for cause. The agreement terminates


                                       46
<PAGE>

January 1, 2000.  In 1996 The Board of  Directors  of VBT entered into a similar
change of control  agreement  with Senior  Vice-President  George W. Hermann and
Senior  Vice-President  Gerard Shpunt providing for one (1) year compensation if
terminated  within the first  year and in 1997,  the Board of  Directors  of VBT
entered  into a similar  agreement  with its  Senior  Vice-President  Kenneth M.
Griffin.

     In 1996,  The Board of  Directors  adopted a change  of  control  Severance
Policy  for  directors  and  employees  of VBT and  Bancorp  in the event  their
employment is terminated after a change of control of Bancorp or VBT. The policy
for Directors  provides for a continuation  of directors  compensation  equal to
2.99 times the annual  compensation  received by the respective director for the
preceding two (2) years, based on a percentage determined by the number of years
in service,  payable monthly on the date directors are customarily  compensated.
The Compensation for employees shall equal three (3) weeks average salary and is
prorated  on a  formula  based  on a  percentage  of  the  number  of  years  of
employment.  The  compensation  for any  employee or director  shall at no times
exceed 2.99 times  their  annualized  compensation  for the most recent five (5)
year  taxable  years  ending  before  the date on which the change in control or
ownership occurs of control.

     The  Officers  Agreement  defines a "change in  control" as (a) a purchase,
sale, or exchange, legally or equitably, of more than fifty (50%) percent of the
outstanding  shares of the  Corporation,  with a  corresponding  change of forty
(40%) percent or more of the Directors of the Corporations Board of Directors in
any one (1) year; (b) the appointment or election of fifty (50%) percent or more
of new members to the Board of Directors of the Corporation in any one (1) year;
(c) the  purchase,  sale or exchange of thirty (30%) or more of the  outstanding
shares of the  Corporation by one person,  one entity,  or related person and/or
entities  with a  corresponding  change of forty  (40%)  percent  or more of the
Directors of the  Corporations  Board of Directors,  in any one (1) year period;
(d)  an  event  under  (a) or (c)  above  where  the  Executives  employment  is
terminated  other  than for  cause  within  two (2)  years of the event or (e) a
merger, consolidated of dissolution of the Corporation.

     All payments are paid as salary or  compensation in the same increments and
payment schedule as the Corporation pays its Directors management,  or employers
in the regular cause of business.

     Notwithstanding,  the aggregate present value of all payments in the nature
of  compensation,  such as cash advances,  cash benefits,  severance  plan, etc.
which are made or to be made to the individual,  shall not exceed 2.99 times the
average base amount If the aggregate  present value of such payment  exceed 2.99
times the individuals  base amount,  the aggregate  present value of such amount
shall be reduced to an amount equal to 2.99 times the  individuals  base amount.
The purpose of the  limitation is to prevent any part of the  compensation  from
being treated as an "excess  parachute  payment" under the provisions of Section
280 of the Internal Revenue Code.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

           The  Board  of  Directors  acts as the  Compensation  Committee.  All
Directors had and have transactions with Bancorp as noted in "Transactions  With
Management". Edward J. Hannafin, Chairman of the Board of Directors, Nicholas R.
DiNapoli,  Vice-Chairman  of the  Board of  Directors,  and Jose P. Boa and Carl
Lecher members of the Board of Directors,  had certain  business  relations with
Bancorp and VBT during 1998. See "Remuneration of Directors and Certain Business
Relationships",  "Transactions  With Management",  and  "Compensation  Committee
Report of Executive Compensation".


COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION

     Neither  Bancorp nor VBT has a  compensation  committee.  This  function is
performed by their respective  Boards of Directors.  The Board of Directors sets
the   compensation   for  the  members  of  the  Board  of  Directors   and  the
President/Chief   Executive   Officer  and   Executive   Vice   President.   See
"Compensation Committee Report of Executive Compensation".

     The Board of Directors acts as the  Compensation  Committee with respect to
compensation  for Robert V. Macklin,  President and Chief Executive  Officer and
James R. Umbarger, Jr., Executive Vice President.



                                       47
<PAGE>

     Robert V. Macklin and James R.  Umbarger,  Jr., who are also members of the
Board of Directors,  do not participate as board members relative to discussion,
determination, policies and review of executives and executive compensation. See
"Compensation Committee Interlocks and Insider Participation."

     The Committee reviewed the Bank's earnings on assets,  return on equity and
growth,  administration,  compliance and regulatory reports of the corporations,
development  and  maintenance of business and  customers,  the  development  and
opening of offices in Westport  and Danbury  and the general  economic  industry
conduct The Bank  enjoyed an increase  in profits.  It is noted the  increase is
principally from earnings and not  extraordinary  profit basis. The public stock
sale price has increased significantly.  The Committee reviewed the institutions
stockholder value, analyzation, the effort and analysis of sale or merger of the
Bank, and the negotiations with Webster Bank.

     The  profits  of  The  Village  Bank  &  Trust  Company  are  estimated  at
approximately $2.0 million.  This was after start-up cost for Westport,  Danbury
and the further development of the Trust Department. While peer banks in Western
Conecticut  have  similiar  or  better  performance  on the  average,  the solid
performance  has  permitted  the Board of Directors to continue to pay dividends
while the Bank grew.

     The Committee  reviewed known  compensation  packages of executives at peer
banking institutions located in Western and Southwestern Connecticut.  This is a
self  selected  group of  comparable  size and banking  business.  The  salaries
provided to Bancorp and VBT  executives  are  targeted at a  competitive  median
range of these peer groups.

     In  addition,  the Board  considered  the  overall  performance  of VBT and
Bancorp for the past three (3) years,  the continued  profitability  of Bancorp,
the earnings per share, the continued  executive efforts to improve the Bank and
the  corresponding  results,  the competitive  environment,  earnings on assets,
return on equity, growth, administration, compliance and regulatory reports, the
initiation of a new development team,  development of business,  customers,  the
the Trust  Department  and the  expansion  of the Bank with related  costs.  The
criteria are  typically  subjective  and not  specifically  specified,  however,
certain performance measures are available.

     The Board determined the executive compensation paid in 1998 to be fair and
reasonable.  It believes  the  issuance of stock  options are an  incentive to a
continuing  profitability and a vehicle for retention of qualified personnel. An
Employee Stock Option Plan was adopted in 1996.

     The Board of Directors acting as the Compensation Committee were:

  Enrico J Addessi             Nicholas R DiNapoli           Antonio Resendes
     Jose P Boa                 Edward J Hannafin            Thomas F Reynolds
   Richard O Carey               Joseph L Knapp                Robert Scala
    Jeanne M Cook                  Carl Lecher

                          TRANSACTIONS WITH MANAGEMENT

     Bancorp and VBT have had no transactions and have no proposed  transactions
with their Directors,  Officers, any of their relatives, or firm, corporation or
other entity, in which they may have an interest, directly or indirectly; except
as noted below.

     All  Directors  and Officers of Bancorp and VBT are  depositors  of VBT and
several  have had credit  extended  to them in varying  degrees in the  ordinary
course of business.

     VBT has had and expects to have in the future,  banking transactions in the
ordinary  course  of  business,  with  its  and  Bancorp's  Directors,  Advisory
Directors,   Officers,   principal   stockholders,   their  immediate  families,
corporations,  organizations,  and associates,  on substantially the same terms,
including interest rates,  collateral and repayment terms as those prevailing at
the same time for comparable transactions with others, which do not involve more
than normal risk ofcollectability or present unfavorable features.

     See  "Remuneration  of Directors and Certain  Business  Relationships"  for
further transactions with Directors.



                                       48
<PAGE>



COMPARISON OF TOTAL STOCKHOLDER RETURN

Set forth below is a line graph comparing the five year cumulative total return
of the Company's common stock with that of the SNL Securities Corporation
Performance New England Bank Index Value and the NASDAQ Stock Market (U.S.)
Total Return Index. The graph compares the value of $100 invested on December
31, 1993 in the Company's stock with that of the two indexes. The SNL New
England Bank Index was chosen as it represents a broad market group in which the
company participates, and the NASDAQ Stock Market (U.S.) Total Return Index was
chosen as having a representative peer group of companies. The total return
includes reinvestment of dividends.

<PAGE>

--------------------------------------------------------------------------------
                             Village Bancorp, Inc.
                            Total Return Performance
--------------------------------------------------------------------------------

 [Line Graph Representing the Comparitive Performance of Village Bancorp, Inc.,
           NASDAQ and New England Bank Index Over a Five Year Period]

<TABLE>
<CAPTION>

                                                      Period Ending
                              ----------------------------------------------------------
Index                         12/31/93  12/31/94  12/31/95  12/31/96  12/31/97  12/31/98
----------------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>       <C>       <C>       <C>
Village Bancorp, Inc.           100.00    114.71    187.11    226.28    398.55    484.93
NASDAQ - Total US               100.00     97.75    138.26    170.01    208.58    293.21
SNL New England Bank Index      100.00     96.10    157.58    214.87    342.02    374.29
</TABLE>






                                       49
<PAGE>







Item 12.     Security Ownership of Certain Beneficial Owners and Management


                            COMMON STOCK OUTSTANDING

                                     BANCORP

As of March 15, 1999,  there were  outstanding  and  entitled to vote  1,951,534
shares of common stock of Bancorp which is its only class of stock.  To the best
knowledge  and  belief of the  Officers  and  Directors  of  Bancorp,  no person
(including  any  "group"  as  that  term  is used  in  Section  13(d)(3)  of the
Securities  Exchange  Act of 1934 is  beneficially  owner of more than five (5%)
percent of the  outstanding  voting  securities  of the  Corporation;  except as
stated below in the following  table. The following table represents the percent
of class  based on number of shares  outstanding  (1,951,534)  and the number of
shares subject to options within 60 days (87,500).

                                                 Amount & Nature
                     Name & Address of           of Beneficial
Title of Class       Beneficial Owner            Ownership          % of Class
--------------       ----------------            ---------          ----------

Common               Austin, Rosow and           189,450              9.88%
                     Rueckert (Group)            -------
                     167 Old Post Road           (A=94,800)
                     Southport, CT 06490         (B=94,650)
                     

Common               John Sheldon Clark          100,110(3)           5.22%
                     6102 East Mockingbird       --------
                     #622                        (A=38,192)
                     Dallas, TX 75214            (B=14,000)
                                                 (C=47,918)

Common               Lewis J. Finch              140,411(3)           7.32%
                     520 Main Street             --------
                     Ridgefield, CT 06877        (A=86,476)
                                                 (B=53,935)

The members of the Board of Directors and  Directors  and Executive  Officers of
Bancorp as a group beneficially own securities of Bancorp as follows:

                                                 Amount & Nature
                     Name of                     of Beneficial
Title of Class       Beneficial Owner            Ownership 1,2      % of Class
--------------       ----------------            -------------      ----------

Common               Directors and Executive
                     Officers (as a group)       280,278              13.78%
                                                 -------
                                                 (A=114,238)
                                                 (B= 99,498)
                                                 (C=  6,184)
                                                 (D= 25,358)
                                                 (E= 35,000)

Common               Enrico J Addessi            33,064(3)            1.63%
                     (Director and               -------
                     Secretary)                  (A=29,640)
                                                 (D= 3,424)

Common               Jose P Boa                  25,776               1.27%
                     (Director)                  ------
                                                 (A=24,630)
                                                 (B=   918)
                                                 (C=   228)



                                       50
<PAGE>

Common               Richard O Carey             37,186               1.83%
                     (Director)                  ------
                                                 (A= 4,086)
                                                 (B=25,600)
                                                 (C= 1,200)
                                                 (D= 6,300)

Common               Jeanne M Cook               4,840                .24%
                     (Director)                  -----
                                                 (A=4,840)

Common               Nicholas R DiNapoli         49,282(3)            2.42%
                     (Director & Vice            -------
                     Chairman)                   (A=23,294)
                                                 (B=23,220)
                                                 (C= 2,768)

Common               Edward J Hannafin           31,310(3)            1.54%
                     (Director and               -------
                     Chairman)                   (A=13,074)
                                                 (B= 2,060)
                                                 (D=16,176)

Common               Joseph L Knapp              13,722               .67%
                     (Director)                  ------
                                                 (A=10,446)
                                                 (B= 1,800)
                                                 (C= 1,476)

Common               Carl Lecher                 9,560                .47%
                     (Director)                  -----
                                                 (A=2,722)
                                                 (B=6,838)

Common               Robert V Macklin            26,806(3)            1.32%
                     (Director & Chief           -------
                     Executive Officer)          (B= 6,806)
                                                 (E=20,000)

Common               Antonio Resendes            9,828                .48%
                     (Director)                  -----
                                                 (B=9,600)
                                                 (C=  228)

Common               Thomas F Reynolds           280                  .01%
                     (Director)                  ---
                                                 (B=280)

Common               Robert Scala                12,632(3)            .62%
                     (Director and               -------
                     Asst. Secretary)            (A=1,506)
                                                 (B=7,960)
                                                 (C=  284)
                                                 (D=2,882)

Common               James R Umbarger, Jr        25,992(3)            1.28%
                     (Director and               -------
                     Executive Officer)          (B=10,992)
                                                 (E=15,000)


(A)  equals number of shares with sole voting power.

(B)  equals number of shares with shared voting power.

(C)  equals number of shares with sole investment power.

(D)  equals number of shares with shared investment power.

(E)  equals number of shares  exercisable  by option within sixty (60) days (See
     "Options").



                                       51
<PAGE>

     1. To the best knowledge and belief of  management,  there are no shares to
which such persons have the right to acquire beneficial ownership within 60 days
except the President,  Robert V. Macklin  (20,000);  Executive  Vice  President,
James R. Umbarger,  Jr.  (15,000) and other employee  option shares  aggregating
47,500. (See "Options")

     2. Includes  option to purchase  82,500 shares within sixty (60) days. (see
"Options").

     3. The following Directors,  Executive Officers, and owners of more than 5%
of voting securities have bought or sold Bancorp  securities within the past two
fiscal years. All voting securities reflect a two (2) for one (1) stock dividend
issued in November, 1997.

     (a) Lewis J. Finch disposed 2,759 shares on December 15, 1997 which were in
his name and his wife's name.

     (b) John  Sheldon  Clark  filed a Schedule  13-D dated  February  12,  1998
reporting  100,110 shares are  beneficially  owned. Mr. Clark reports 38,192 are
personally owned, 47,918 shares are owned by the Trust under the Will of Charles
M. Clark,  Jr., of which he is Trustee,  and 14,000 shares are owned by his wife
Marquerite J. Clark.

     (c) Enrico J.  Addessi  acquired  1,000  shares on February 27, 1997 and 80
shares on March 5, 1997 in his wife's name.

     (d) Nicholas R.  DiNapoli  acquired  beneficial  ownership of 200 shares in
February, 1997, all by title in his name and his wife's.

     (e) Edward J. Hannafin had held 6,630 shares through a related party, Lloyd
Cutsumpas, who as of January 1, 1998 is no longer a related party.

     (f) Robert V. Macklin  acquired  ownership of 9,800 shares in February 1998
through the  exercise of a stock  option grant and sold 3,000 shares on February
6, 1998 and sold 1,800  shares in April  1998,  all by title in his name and his
wife's name.

     (g) Robert Scala  acquired  ownership of 100 shares in December 10, 1997 in
his name.

     (h) James R. Umbarger, Jr., acquired ownership of 7,800 shares in July 1998
through the exercise of a stock option grant.

     (i) Certain  Directors  and/or Officers have or may elect to participate in
the  Corporation's  Dividend  Reinvest Stock Purchases Plan ("DRIP").  This plan
reinvests cash dividends in open market  purchases of the  Corporation's  stock.
American Stock Transfer and Trust, the transfer agent, administers the DRIP.


Item 13. Certain Relationships and Related Transactions

                          TRANSACTIONS WITH MANAGEMENT

     Bancorp and VBT have had no transactions and have no proposed  transactions
with their Directors,  Officers, any of their relatives, or firm, corporation or
other entity, in which they may have an interest, directly or indirectly; except
as noted below.

     All  Directors  and Officers of Bancorp and VBT are  depositors  of VBT and
several  have had credit  extended  to them in varying  degrees in the  ordinary
course of business.



                                       52
<PAGE>

     VBT has had and expects to have in the future,  banking transactions in the
ordinary  course  of  business,  with  its  and  Bancorp's  Directors,  Advisory
Directors,   Officers,   principal   stockholders,   their  immediate  families,
corporations,  organizations,  and associates,  on substantially the same terms,
including interest rates,  collateral and repayment terms as those prevailing at
the same time for comparable transactions with others, which do not involve more
than the normal risk of collectability or present unfavorable features.

     There are no  arrangements or  understandings  between the Officers and any
other persons pursuant to which he is to be selected as an officer.  There is no
family relationship between any Director,  Executive Officer or person chosen to
be  a  Director  or  Executive  Officer.  There  are  no  employment  contracts,
compensation  plans or arrangements with the Executive Officers other than their
respective  interests in the Corporations  401(k)  Incentive  Savings and Salary
Reduction  Plan,  Stock  Option  Plan,  insurance  and  an  agreement  regarding
termination resulting from a change in control of Bancorp or VBT.

     See  Item  11  for  further   information   regarding   relationships   and
transactions.





                                     PART IV

Item 14. Exhibits, Financial Statements

             (a) (1) The following  consolidated  financial  statements  and the
Independent  Auditors' Report included in the Form 10-K of Village Bancorp, Inc.
and  Subsidiaries  for the year ended  December 31, 1998,  are  incorporated  by
reference in Item 8:

          Consolidated Balance Sheets - December 31, 1998 and 1997.
          Consolidated Statements of Income - Years Ended December
            31, 1998, 1997 and 1996. 
          Consolidated Statements of Comprehensive Income - 
            Years Ended December 31, 1998, 1997 and 1996
          Consolidated Statements of Changes in Stockholders' Equity -
            Years Ended December 31, 1998, 1997 and 1996.
          Consolidated Statements of Cash Flows -
            Years Ended December 31, 1998, 1997 and 1996.
          Notes to Consolidated Financial Statements.

     (a)(2)  Schedules  to the  Consolidated  Financial  Statements  required by
Article  9 of  Regulation  S-X are not  presented  because  the  information  is
included in the Consolidated Financial Statements or Notes thereto.

     (a)(3) Exhibits.

     The exhibits which are filed with this Form 10-K or which are  incorporated
herein by reference are set forth in the Exhibit Index on Page 6.

     (b) There  were no  reports  on Form 8-K filed for the three  months  ended
December 31, 1998.

     (c) Exhibits.

     The exhibits which are filed with this Form 10-K or which are  incorporated
herein by reference are set forth in the Exhibit Index on Page 6.

     (d) Financial Statement Schedules - None.




                                       53
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, therunto duly authorized.

Village Bancorp, Inc.

By              /s/ James R. Umbarger                       March 31, 1999
------------------------------------------------------------------------------
           James R. Umbarger - Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated.


                                                                  DATE
                                                                  ----

           /s/ Edward J. Hannafin                           March 31, 1999
------------------------------------------------------------------------------
  Edward J. Hannafin - Chairman of the Board & Director

           /s/ Nicholas R. DiNapoli                         March 31, 1999
------------------------------------------------------------------------------
  Nicholas R. DiNapoli - Vice Chairman of the Board & Director

           /s/ Robert V. Macklin                            March 31, 1999
------------------------------------------------------------------------------
  Robert V. Macklin - President, Chief Executive Officer & Director

           /s/ Enrico J. Addessi                            March 31, 1999
------------------------------------------------------------------------------
  Enrico J. Addessi - Secretary of the Board & Director

           /s/ Robert Scala                                 March 31, 1999
------------------------------------------------------------------------------
  Robert Scala - Assistant Secretary of the Board & Director

           /s/ Jose P. Boa                                  March 31, 1999
------------------------------------------------------------------------------
  Jose P. Boa - Director

           /s/ Richard O. Carey                             March 31, 1999
------------------------------------------------------------------------------
  Richard O. Carey - Director

           /s/ Jeanne M. Cook                               March 31, 1999
------------------------------------------------------------------------------
  Jeanne M. Cook - Director

           /s/ Carl Lecher                                  March 31, 1999
------------------------------------------------------------------------------
  Carl Lecher - Director

           /s/ Joseph L. Knapp                              March 31, 1999
------------------------------------------------------------------------------
  Joseph L. Knapp - Director

           /s/ Antonio M. Resendes                          March 31, 1999
------------------------------------------------------------------------------
  Antonio M. Resendes - Director

           /s/ Thomas F. Reynolds                           March 31, 1999
------------------------------------------------------------------------------
  Thomas F. Reynolds - Director

           /s/ James R. Umbarger                            March 31, 1999
------------------------------------------------------------------------------
  James R. Umbarger - Executive Vice President & Director



                                       54
<PAGE>




                              VILLAGE BANCORP, INC.

                                  EXHIBIT INDEX


EXHIBIT                                                             SEQUENTIALLY
NUMBER        DESCRIPTION                   REFERENCE              NUMBERED PAGE

3(i)    Articles of Incorporation       Exhibit 3(a) to Registration
                                        Statement No. 2-81879
                                        June 1, 1983

3(ii)   By-Laws                         Exhibit 3(b) to Registration
                                        Statement No. 2-81879
                                        June 1, 1983

4       Specimen Common                 Exhibit 4 to Form 10-K
        Stock Certificate               December 31, 1986

10(a)   Lease Dated April 18, 1985      Exhibit 10(a) to Form 10-K
                                        December 31, 1986

10(b)   Lease Dated March 31, 1988      Exhibit 10(b) to Form 10-K
                                        December 31, 1988

10(c)   Lease Dated April 28, 1997      Exhibit 10(c) to Form 10-K
                                        December 31, 1997

21      Subsidiaries of the Registrant  Filed Herewith                   56







                                       55