The soldiers butcher almost every man woman and child, and burn the fuck out of everything.

Zagreb is, unfortunately, pretty fucking shit. Well, apart from its nearby iron supply.

Oh, would you look at that? Our honourable councillor has become more ruthless and dreaded than his father because of that. Executing prisoners and Exterminating populace have negative effects on a characters honour, making enemies they face in battle lose morale much quicker. On the other hand, freeing prisoners and peacefully occupying settlements promotes ones honour, making them more chivalrous and their troops fight harder with their added morale bonus.
Choosing to sack a settlement or ransom captured enemies has no effect on honour, however.
Now, Zagreb has a real shit load of nothing, and furthermore lacks the population to build anything apart from clearing the local lands or turning the entire settlement into a moat and bailey castle. Except without the moat, because they didn't to include that for some reason.
Militia reinforcements are on route to provide a more stable garrison over the village, and our army will be hitting Venice to reinforce its numbers.
In the mean time we could:
a) Try creating a marriage alliance with either The Holy Roman Empire, The Papal States, Hungary, or Milan.
b) Try and get our princess to marry an opposing general into our family as a big "Fuck You" to whoever we steal him from.
c) Go all heathen and blitzkrieg the shit out of Milan, our closest neighbour.
Or any combination really.