SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                                 SPECIAL REPORT
       (Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934)
          (Contains only financial statements for the 1998 fiscal year)

(Mark One)
[X]      Annual  report  pursuant  to  section  13 or 15 (d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended December 31, 1998
                                       OR
[ ]      Transition  report  pursuant  to section 13 or 15(d) of  the Securities
         Exchange Act of 1934
         For the transition period from              to             .
                                        ------------    ------------

Commission File No. 333-63987

                          Village Financial Corporation
               --------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

New Jersey                                                       23-2925762
--------------------------------------                     ---------------------
(State or Other Jurisdiction of                               I.R.S. Employer
 Incorporation or Organization)                              Identification No.

590 Lawrence Square Boulevard, Lawrenceville, New Jersey           08648 
--------------------------------------------------------   ---------------------
(Address of Principal Executive Offices)                         (Zip Code)

Issuer's Telephone Number, Including Area Code:                (609) 689-1010   
                                                           ---------------------

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

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

                                      None
                                      ----
                                (Title of Class)

         Check  whether  the issuer:  (1) has filed all  reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
for such shorter  period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES      NO  X .
    ---     ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year.   $18,196

         The aggregate  market value of the voting and non-voting  common equity
held by non-affiliates of the Registrant, based on the initial offering price of
the Registrant's Common Stock ($10.00 per share) was $940,850.

         As of March 31, 1999,  there were issued and outstanding  94,850 shares
of the Registrant's Common Stock.

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

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>

                              EXPLANATION OF FILING

General

         The Registrant's Registration Statement on Form SB-2, as filed with the
Securities and Exchange  Commission in connection with the Registrant's  initial
public offering,  became effective on February 3, 1999. Because the Registration
Statement on Form SB-2 did not contain audited financial statements for the last
completed  fiscal year  (December 31, 1998),  the Registrant is required by Rule
15d-2  under the  Securities  Exchange  Act of 1934,  as  amended,  to file this
Special  Report  on Form  10-KSB  within  90 days of the  Effective  Date of the
Registration  Statement on Form SB-2.  The  Registrant's  Special Report on Form
10-KSB is required to contain only  audited  financial  statements  for the just
completed fiscal year,  unless otherwise  required by the rules of any exchange.
The  Registrant's  Common  Stock is not traded on any  exchange or on the NASDAQ
Stock Market.  Accordingly,  the Registrant's Special Report on Form 10-KSB does
not include any other narrative items or tabular  information which are normally
required to be filed in an Annual Report on Form 10-KSB.

         The   Registrant  is  in  the  process  of  forming   Village  Bank,  a
wholly-owned  subsidiary  federal  stock  savings  bank,  in  organization.  The
Registrant was incorporated to become the holding company of Village Bank. As of
the date of filing of this Special Report,  Village Bank is not an organized and
operating entity. Accordingly,  the financial statements filed with this Special
Report on Form 10-KSB are those of the Registrant only.


Item 7.  Financial Statements
-----------------------------

         The  Registrant's  financial  statements are filed  herewith.  See also
"Item 13. Exhibits, List and Reports on Form 8-K."


                                        1

<PAGE>


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

         (a)      The following documents are filed as a part of this report:

                  1. The following  financial  statements of the  Registrant and
the report of independent  accountants  of the Registrant  included under Item 7
are incorporated herein by reference.

         Independent Auditors' Report

         Balance Sheet at December 31, 1998.

         Statements of Operations for the Year Ended December 31, 1998.

         Statements  of  Changes  in  Stockholders' Equity  for  the  Year Ended
         December 31, 1998.

         Statements of Cash Flows for the Year Ended December 31, 1998.

         Notes to Financial Statements.

                  2. Financial  Statement  Schedules for which provision is made
in the applicable  accounting  regulations of the SEC are not required under the
related instructions or are inapplicable and therefore have been omitted.

                  3. The following exhibits are included in this Report:

                  (a)      List of Exhibits:

                  27       Financial Data Schedule

         (b)      Reports on Form 8-K.

                  None.

                                        2

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------



Organizers and Stockholders
Village Financial Corporation

We have audited the accompanying balance sheet of Village Financial  Corporation
as of December 31, 1998, and the related statements of operations and cash flows
for the period from January 16, 1998  (inception)  to December  31, 1998.  These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Village Financial  Corporation
as of December 31, 1998,  and the results of its  operations  and its cash flows
for the period from  January 16, 1998  (inception)  to  December  31,  1998,  in
conformity with generally accepted accounting principles.


/s/ S.R. Snodgrass, A.C.
----------------------------
S.R. Snodgrass, A.C.


Wexford, PA
March 12, 1999

                                       3
<PAGE>

                          VILLAGE FINANCIAL CORPORATION
                                  BALANCE SHEET


                                                                   December 31,
                                                                       1998     
                                                                   ------------
ASSETS
Cash                                                                $  16,475
Short-term investments                                                418,312
Premises and equipment                                                140,123
Deferred offering costs                                               114,894
Other assets                                                          103,428
                                                                     --------

              Total assets                                          $ 793,232
                                                                     ========

LIABILITIES
Accounts payable and accrued expenses                               $  38,358
                                                                     --------

STOCKHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares authorized;
        none outstanding                                                    -
Common stock, par value $.10; 5,000,000 shares authorized;
        94,850 issued and outstanding                                   9,485
Additional paid-in capital                                            939,015
Retained deficit                                                     (193,626)
                                                                     --------
              Total stockholders' equity                              754,874

              Total liabilities and stockholders' equity            $ 793,232
                                                                     ========


See accompanying notes to the financial statements.

                                       4
<PAGE>

                          VILLAGE FINANCIAL CORPORATION
                             STATEMENT OF OPERATIONS

                                                             Period From
                                                          January 16, 1998
                                                           (Inception) to
                                                          December 31, 1998
                                                          -----------------


INTEREST INCOME                                               $  18,196  
                                                              
EXPENSES                                                      
     Salaries and employee benefits                              76,466
     Occupancy and equipment                                     33,195
     Professional services                                       70,074
     Other                                                       32,087
                                                               --------
              Total expenses                                    211,822
                                                               --------
   
Loss before income taxes                                       (193,626)
Income taxes                                                          -
                                                               -------- 
NET LOSS                                                      $(193,626)
                                                               ========
                                                              
LOSS PER SHARE                                                   ($2.04)
                                                              
AVERAGE SHARES OUTSTANDING (From May 20, 1998)                   94,850
                                                         


See accompanying notes to the financial statements.

                                       5
<PAGE>


                          VILLAGE FINANCIAL CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                               Additional
                                                  Common        Paid-in      Retained                      Comprehensive
                                                  Stock         Capital       Deficit         Total             Loss       
                                                 --------      ----------    ---------      ---------      -------------       

<S>                                            <C>           <C>           <C>             <C>             <C>   
Balance, January 16, 1998 (Inception)            $     -       $      -      $       -      $       -

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

Net loss for the period                                                       (193,626)      (193,626)      $(193,626)
                                                  ------        -------        -------        -------         =======

Balance, December 31, 1998                       $ 9,485       $939,015      $(193,626)     $ 754,874
                                                  ======        =======        =======       ========

</TABLE>

See accompanying notes to the financial statements.

                                       6
<PAGE>

                          VILLAGE FINANCIAL CORPORATION
                             STATEMENT OF CASH FLOWS


                                                               Period From
                                                             January 16, 1998
                                                              (Inception) to
                                                            December 31, 1998
                                                            -----------------

OPERATING ACTIVITIES
Net loss                                                       $(193,626)
Adjustments to reconcile net loss to net cash provided
  by operating activities:
     Depreciation and amortization                                 5,103
     Net increase in prepaid organization expenses               (87,570)
                                                                -------- 
         Net cash used for operating activities                 (276,093)
                                                                --------

INVESTING ACTIVITIES
Purchase of premises and equipment                              (145,226)
                                                                -------- 
FINANCING ACTIVITIES
Deferred offering costs paid                                     (92,394)
Proceeds from sale of common stock                               948,500
                                                                --------
         Net cash provided by financing activities               856,106
                                                                --------

         Increase in cash and cash equivalents                   434,787

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                       -
                                                                --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $ 434,787
                                                                ========


See accompanying notes to the financial statements.

                                       7
<PAGE>

                          VILLAGE FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Village Financial  Corporation (the  "Corporation")  was incorporated  under the
laws of the State of New Jersey on January 16, 1998, for the purpose of becoming
a holding company, which will own all of the outstanding shares of capital stock
of a  proposed  federal  stock  savings  bank  with the name  Village  Bank (the
"Bank").  As of December 31, 1998, the  Corporation is capitalized to the extent
currently  considered  necessary  to provide  adequate  funding  of the  ongoing
organization  efforts of  management  in the  formation of the Bank.  Additional
funds  necessary to  adequately  capitalize  the Bank will be raised  through an
initial public offering  ("IPO"),  which is discussed in greater detail in these
notes. Upon satisfaction of the conditions of the IPO, the Bank will operate two
offices as a community-oriented bank concentrating on consumer, residential, and
installment  loan  products and deposit  services and will be  headquartered  in
Lawrenceville, New Jersey.

Effective March 11, 1999, the Corporation received approval,  subject to certain
conditions,  from the  Office  of  Thrift  Supervision  of its  applications  to
organize and acquire the Bank. Qualifying bank customer deposit accounts will be
insured  by  the  Federal  Deposit  Insurance  Corporation  ("FDIC").  Effective
December 8, 1998,  the  Corporation  received  approval of its  application  for
Federal  deposit  insurance  of  prospective  depositor  accounts  from the FDIC
subject to certain conditions.  Two of the more significant  conditions that the
Bank must meet are a) a minimum initial  capitalization of at least five million
dollars and b) maintenance of a Tier I Capital to total assets ratio of at least
eight percent during its first three years of existence.

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

The  accounting  and  reporting  policies of the  Corporation  will conform with
generally accepted accounting principles ("GAAP").  The preparation of financial
statements in conformity  with GAAP  requires  management to make  estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
balance sheet date and income and expenses  during the reported  period.  Actual
results could differ from those estimates.

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

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

                                       8
<PAGE>


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

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

Cash equivalents include short-term investments.

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

The Corporation has not provided for a federal or state income tax provision for
the period ended  December 31, 1998,  as the  Corporation  represents  an entity
in-formation  and has  incurred a  cumulative  operating  loss since the date of
inception.  As such, a 100 percent valuation  allowance for the net deferred tax
asset,  comprised  primarily of the tax benefit  generated from the  accumulated
start-up period operating loss, has been recorded.

Comprehensive Loss
------------------

Comprehensive  loss is the change in the  Corporation's  equity  during a period
from  transactions  and other events  excluding those resulting from investments
from or distributions to investors. Comprehensive loss includes the net loss and
any other  changes in assets or  liabilities  that are not  reported  in the net
loss, but instead are reported as a separate component of stockholders'  equity.
The  Corporation has elected to report its  comprehensive  loss as a part of the
Statement of Changes in Stockholders' Equity.

                                       9
<PAGE>


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Initial  capitalization of the Corporation has occurred through the subscription
and issuance of common stock in a private placement during the second quarter of
1998. As of December 31, 1998, a total of 94,850 shares, at an offering price of
$10.00 per share, have been subscribed to and issued.

The Corporation  intends to issue between 425,000 and 1,200,000 shares of common
stock at  $10.00  per  share in the IPO.  The  registration  of the IPO with the
Securities and Exchange Commission became effective February 3, 1999. The period
of offering will initially  expire on March 26, 1999;  however,  the Corporation
has the ability to extend it through December 7, 1999.  Current shares of common
stock owned by  investors  from the  private  placement  will remain  issued and
outstanding.  The Corporation  anticipates purchasing all of the common stock to
be issued by the Bank with the net proceeds remaining from the private placement
and the IPO.

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

Effective August 1, 1998, the Corporation  entered into an Employment  Agreement
with the President of the  Corporation  which includes the initiation of a stock
option  plan  for  him.  The  stock  option  plan  becomes  effective  once  the
Corporation's   actions  are  ratified  by  stockholders  at  the  first  annual
stockholders'  meeting,  to be held  sometime  after the opening of the Bank. In
September  1998, the  Corporation  granted  options to purchase 10,000 shares of
common  stock at an exercise  price equal to the IPO price per share and subject
to stockholder's  ratification.  The options will have an expiration term of ten
years and will become exercisable over a three-year vesting period.

Because  the  exercise  price of the  Corporation's  stock  options  equals  the
approximate  market  price of the  underlying  stock at the  time of  grant,  no
compensation expense would be recognized by the Corporation.  If the Corporation
were to account for the  compensation  cost impact of these options based on the
fair value of underlying shares at year end, there would have been no adjustment
to such costs or the net loss disclosed in these financial statements.

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

For the period ended December 31, 1998,  loss per share is calculated  using the
weighted-average  number of shares  outstanding from May 20, 1998 (initial issue
date) through  December 31, 1998.  For 1998,  the  Corporation  has maintained a
simple capital structure;  therefore,  there are no dilutive effects on loss per
share computations.

                                       10
<PAGE>


LEASE COMMITMENTS

On July 17, 1998, the Corporation  entered into an operating  lease  arrangement
for office  space  located in  Pennington,  New Jersey.  This site served as the
Corporation's   temporary   headquarters   until  a  full-service   banking  and
administration   site  became   available.   Effective  October  22,  1998,  the
Corporation  entered  into an  operating  lease  arrangement  for a banking  and
administrative   office  facility  at  a  former  Summit  Bank  branch  site  in
Lawrenceville,  New Jersey. A preliminary  lease term runs through May 31, 2000,
at which time an  initial  five-year  lease term  begins.  This  agreement  also
contains a five-year  renewal option if elected by the Corporation.  At December
31, 1998, the minimum rental commitment for this noncancellable  operating lease
is as follows:

              1999                          $    59,885
              2000                               64,071
              2001                               69,228
              2002                               72,432
              2003                               75,329
              2004 and thereafter               111,516
                                            -----------

                   Total                    $   452,461
                                            ===========

Occupancy and equipment  expense  includes  rental  expenditures  of $21,183 for
1998.


                                       11
<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,  thereunto duly authorized as of April 19, 1999.

                                       VILLAGE FINANCIAL CORPORATION



                                       By:/s/Kenneth J. Stephon
                                          --------------------------------------
                                          Kenneth J. Stephon
                                          President and Chief Executive Officer
                                          (Duly Authorized Representative)


         Pursuant to the  requirement  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 indicated as of April 19, 1999.



/s/Kenneth J. Stephon                             /s/William C. Hart
-------------------------------------------       ------------------------------
Kenneth J. Stephon                                William C. Hart
President and Chief Executive Officer             Chairman of the Board
(Principal Executive and Financial Officer)


/s/William V.R. Fogler                            /s/Paul J. Russo
-------------------------------------------       ------------------------------
William V.R. Fogler                               Paul J. Russo
Director                                          Director


/s/Jonathan R. Sachs                              /s/George M. Taber
-------------------------------------------       ------------------------------
Jonathan R. Sachs                                 George M. Taber
Vice President and Director                       Director