UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
                                FORM 10-K/A
     
      [X]	Annual report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934	For the fiscal year ended December 31, 1997

     
      [   ]	Transition report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934	For the transition period from ________________
            to _________________             

     
                       Commission file number 0-11012    
     
                       VERMONT FINANCIAL SERVICES CORP.
               (Exact name of registrant as specified in its charter.)

		                         DELAWARE	03-0284445
		      (State or other jurisdiction of	(IRS Employer identification No.)
		       incorporation or organization)
     
		                100 MAIN STREET, BRATTLEBORO, VT	 05301
		         (Address of principal executive offices)	(zip code)

                  Registrant's telephone number:  802-257-7151

         Securities registered pursuant to Section 12(g) of the Act:
                Common Stock, $1.00 par value per share
                          (Title of Class)
     
     Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 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 reports), 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 registrant's knowledge, in definitive proxy or any amendment to
the Form 10-K.  [X]   	As of March 31, 1998, 13,275,971 shares of
Registrant's Common Stock were outstanding, and the aggregate market value of
the shares of such Common Stock held by non-affiliates (based upon the closing
sale price on the NASDAQ National Market System over-the-counter market) was
approximately $364,363,140.
     
DOCUMENTS INCORPORATED BY REFERENCE:
                                        
None

                 - The index for exhibits is on Page __.
                 
                  CAUTIONARY STATEMENT FOR PURPOSES OF THE
              PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
     
     The Company desires to take advantage of the "safe harbor"  provisions of
the Private  Securities Litigation Reform Act of 1995.   This Report contains
certain "forward-looking statements"  including statements concerning plans,
objectives, future events  or performance and assumptions and other statements
which are other than  statements  of historical fact.   The Company wishes to
caution readers that the  following important factors,  among others, may have
affected and could in the future affect the Company's  actual results and
could cause the Company's actual results for  subsequent periods to differ
materially from those expressed in any forward-looking statement made by  or
on behalf of the Company herein:  (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which the Company and  its banking subsidiaries must comply,  the cost of such
compliance and the potentially  material adverse effects if the Company or any
of its banking subsidiaries were not in substantial compliance either currently
or in the future as applicable; (ii) the effect of changes in accounting
policies and practices,  as may be adopted by the regulatory  agencies as well
as by the Financial Accounting Standards Board,  or of changes in the Company's
organization,  compensation and benefit plans; (iii) the effect on the Company's
competitive position within its market area of increasing consolidation within
the banking industry and increasing competition from larger "super  regional"
and other out-of-state banking organizations as well as nonbank providers of
various financial services;  (iv) the effect of unforeseen changes in interest
rates; and (v) the effect of changes in the business cycle and downturns in
the local,  regional or national economies.

                    VERMONT FINANCIAL SERVICES CORP.
                           BRATTLEBORO, VERMONT
     
PART I
     
Item 1 - Business
     
     Vermont Financial Services Corp. (VFSC), a Delaware corporation organized
in 1990, is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended, and its main office is located in Brattleboro, Vermont.  
Assets of VFSC were $2,097 million at December 31, 1997.  VFSC owns 100 percent
of the stock of Vermont National Bank (VNB) and United Bank (UB).  On June 27,
1997 VFSC acquired Eastern Bancorp., Inc. (Eastern) and its subsidiary Vermont 
Federal Bank (VFB) based in Burlington, Vermont.  VFB was merged into VNB on
September 22, 1997.  VFSC also owns Vermont Service Corporation (VSC) , a real
estate development company which it acquired from Eastern.  VSC and its 
subsidiary company, Vermont East Coast Company (VECC), are join venture partners
in the ownership of development rights in a mobile home association known as
"Williston Woods".   VFSC has no other active subsidiaries and engages in no
activities other than holding the stock of VNB and UB (the Banks) and VSC.
     
Vermont National Bank

     VNB, a national banking association, is the successor to the original Bank
of Brattleborough, which was chartered in 1821.  VNB is the largest bank in the
State of Vermont with total deposits of $1,457 million, total loans of $1,109
million and total assets of $1,825 million at December 31, 1997.  VNB conducts
business through 42 offices located in nine of Vermont's 14 counties, including
the cities of Brattleboro, Burlington, Rutland and Montpelier and 16 offices
located in four of New Hampshires 10 counties situated in the southeastern part
of the state.  The offices of VNB are in good physical condition with 
modern equipment and facilities adequate to meeting the banking needs of
customers in the communities served.
     
     VNB offers a wide range of personal and commercial banking services,
including the acceptance of demand, savings, and time deposits; making and
servicing secured and unsecured loans; issuing letters of credit; and offering
fee based services.  In addition, VNB offers a wide range of trust and trust
related services, including services as executor, trustee, administrator, 
custodian and guardian.  VNB lending services include making real estate,
commercial, industrial, agricultural and consumer loans.  VNB also offers data
processing services consisting primarily of payroll and automated clearing house
for several outside clients.  VNB provides financial and investment counseling
to municipalities and school districts within its service area and also 
provides central depository, lending payroll and other banking services for
such customers.  VNB also provides safe deposit facilities, Master Card and
Visa credit card services.  Over ninety percent of VNB's loans are made to
individuals and businesses which are located in or have properties in Vermont
or southeastern New Hampshire. In addition, VNB is a member of the Plus, 
NYCE, and VISA networks and has access to the Honor, Cirrus, Discover, American
Express and Master Card networks.
     
     According to the State Department of Banking, Insurance and Securities,
as of December 31, 1996, 1 federally chartered savings and loan, 1 federally
chartered savings bank, 4 state-chartered savings banks, 13 state-chartered
commercial banks and 2 national banks are located and do business in the State
of Vermont, the area in which VFSC conducts most of its business.  As of such
date, VNB had 12.2%, 12.0% and 12.5% of the total assets, loans and deposits,
respectively, of these 31 banking institutions and VFB had 10.2%, 8.4% and 9.2%,
respectively.
     
United Bank

     UB is a Massachusetts chartered stock savings bank originally incorporated
in 1855 as the Shelburne Falls Five Cent Savings Bank, which subsequently
changed its name to the Shelburne Falls Savings Bank.  In 1975, the Shelburne
Falls Savings Bank merged with the Conway Savings Bank under the name of United
Savings Bank (USB).  In 1978, USB merged with the Haydenville Savings Bank.
USB centralized its operations in Greenfield in 1981.  In April, 1988, USB
purchased the deposits, real estate, furniture and equipment of four (4) branch
offices of First National Bank of Boston located in Shelburne Falls, 
Greenfield (2) and South Deerfield, all in Franklin County, Massachusetts. 
The deposits of these four offices totaled $40.4 million.  In 1995 United
Savings Bank changed its name to United Bank.  UB maintains full service banking
offices in Greenfield (2), Conway, Hatfield, Haydenville, Shelburne Falls and
South Deerfield.  UB's market area is centered in Franklin County which abuts
the southern borders of both Vermont and New Hampshire.  At December 31, 1997
UB had total assets of $258 million, total loans of $205 million and total
deposits of $230 million.
     
     UB is primarily engaged in the business of attracting deposits from the
general public and originating loans secured by first liens on residential real
estate.  UB also makes mortgage loans on commercial real estate and originates
consumer loans, most of which are collateralized.  UB maintains a portion of
its assets in federal government and agency obligations, various types of 
corporate securities and other authorized investments.  UB provides traditional
deposit services as well as money market deposit instruments, demand deposits
and NOW accounts.  In addition, UB offers a wide range of trust and trust
related services, including services as executor, trustee, administrator,
custodian and guardian.  UB has installed a proprietary system of "Money 
Mover24" ATMs in all its branch offices; the ATMs are part of the Cirrus
system, which operates nationally, and the NYCE network with members throughout
New England.
     
     UB has a wholly-owned subsidiary, Hayburne, Inc., which is incorporated
in the Commonwealth of Massachusetts.  Hayburne, Inc., owns the "Hayburne
Building", a 26,000 square foot office building located at 55 Federal Street,
Greenfield, Massachusetts, in which office space is leased to various tenants.
VFSC owns and operates 60 automated teller machines (ATMs) at its branch
locations and 19 ATMs in other locations.

     The Banks compete on the local and the regional levels with other
commercial banks and financial institutions for all types of deposits, loans
and trust accounts.  Current principal competitors include metropolitan banks
and financial institutions based in southern New England and New York City, many
of which have greater financial resources.  The continuing consolidation of 
the banking industry, together with changes in interstate banking and branching
laws, increases the likelihood that the Banks will face increasing competition
from national as well as regional competitors.
	
     In the retail market for financial services, competitors include other
banks, credit unions, finance companies, thrift institutions and, increasingly,
brokerage firms, insurance companies, and mortgage loan companies.
	
    In the personal and commercial trust business, competitors include mutual
funds, insurance companies and investment advisory firms.
     
     VFSC and its subsidiaries, on December 31, 1997, employed approximately
1,040 persons.  They enjoy good relations with their employees.  A variety of
employee benefits are available to officers and employees, including health,
group life and disability income replacement insurance, a funded, non-
contributory pension plan and an incentive savings and profit sharing plan.
     
     Impact of Inflation.  The Consolidated Financial Statements and related
consolidated financial data presented herein have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation.  The primary impact of inflation on the operation of the Company is
reflected in increased operating costs. Unlike industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature.  As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.  Interest rates generally move in the same direction and with the
same magnitude as the expected rate of inflation.  Management believes that
continuation of its efforts to manage the rates, liquidity and interest
sensitivity of the Company's assets and liabilities is necessary to generate
an acceptable return.
     
     Supervision and Regulation.  VFSC and the Banks are subject to extensive
regulation under federal and state law.  VFSC is a bank holding company subject
to supervision and regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956,
as amended.  VNB, a national banking association under the National Bank Act,
is subject to regulation, supervision and examination by the Comptroller of the
Currency (the "OCC").  UB, a Massachusetts-chartered savings bank, is subject
to examination, regulation and supervision by the Massachusetts Commissioner
of Banks.  In addition, deposits at both VNB and UB are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent permitted by law, and
both Banks are accordingly subject to supervision and regulation by the FDIC.
Both Banks are also members of the Federal Home Loan Bank of Boston.

     Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress and state legislatures and before
bank regulatory agencies.  In addition, VFSC and the Banks are subject to other
laws and regulations and to supervision and examination by other regulatory
agencies, all of which directly or indirectly affect VFSC's operations, 
management and ability to make distributions.
    
Regulation of VFSC
     
     General.  VFSC is a bank holding company subject to supervision and
regulation by the  Federal Reserve Board.   The Federal Reserve Board has
authority to issue cease and desist orders and to assess civil money penalties
against bank holding companies and their nonbank subsidiaries, officers,
directors and other affiliated parties and to remove officers, directors and 
other affiliated parties in order to terminate or prevent unsafe or unsound
banking practices or violations of laws or regulations.

     The activities of VFSC and the companies that it controls or in which it
holds more than 5% of the voting stock are limited to banking or managing or
controlling banks or furnishing services to or performing services for its
subsidiaries, or any other activity that the Federal Reserve Board determines
to be so closely related to banking or managing or controlling banks as to be 
a proper incident thereto.  In making any such determination, the Federal
Reserve Board is required to consider whether the performance of such activities
by a bank holding company or its subsidiaries can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition or gains in efficiency, that outweigh possible adverse effects such 
as undue concentration of resources, decreased or unfair competition, conflicts
of interest or unsound banking practices.  Generally, bank holding companies
such as VFSC are required to obtain prior approval of the Federal Reserve
Board to engage in any new activity not previously approved by the Federal
Reserve Board or to acquire more than 5% of any class of voting stock of any
company, including any bank that is not already majority-owned by the bank
holding company.

     The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branching Act") permits a bank holding company to
acquire banks in states other than its home state notwithstanding contrary
provisions of state law, subject to the requirement that the bank holding
company, before and after the proposed acquisition, control no more than 
10% of the total amount of deposits of insured depository institutions in the
United State and no more than 30% of such deposits in that state (or such lesser
or greater amount set by state law) and to any state requirement that the bank
have been organized and operating for a minimum period of time, not to exceed
five years.

     The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches.  In addition, a bank
may now open new branches in a state in which it does not already have banking
operations, if the laws of the state permit such de novo branching.  Although
the effect of such changes cannot be predicted precisely, they are likely to
make it easier for out-of-state banks to compete in the states where VFSC and
the Banks operate.
     
     Dividends and Distributions.  VFSC's ability to pay dividends depends upon
the dividend income it receives from the Banks, which may be affected or limited
by regulatory restrictions.  The Federal Reserve Board generally prohibits a
bank holding company from declaring or paying a cash dividend that would impose
undue pressure on the capital of subsidiary banks or that would be funded only
through borrowing or other arrangements that might adversely affect a bank
holding company's financial position.  The Federal Reserve Board has determined
that it may be an unsound practice for a bank holding company to pay dividends
unless its net income over the preceding year is sufficient to fund fully each
dividend and its prospective rate of earnings retention appears consistent with
its capital needs, asset quality and overall financial condition.  At December
31, 1997 the Banks had available approximately $4.2 million for payment of
dividends to VFSC under regulatory guidelines.  VFSC has a policy to pay out
over time 30%-35% of net income to shareholders in the form of cash dividends.
Earnings for prior years as well as prospective earnings are analyzed to
determine compliance with this policy.  Dividend payout rates for any one year
may vary from this long term payout policy based on these analyses and
projections of future earnings and future capital needs.  For the three-year
period ended December 31, 1997, an aggregate of $1.56 per share of dividends
were declared.  Diluted earnings per share for the same period was $4.87. 
     
     Transactions with  Affiliates.  Various legal restrictions limit the
extent to which bank holding companies and their nonbank subsidiaries may
borrow, obtain credit from or otherwise engage in "covered transactions" with
their insured depository institution subsidiaries.  "Covered transactions" are
defined by statute to include loans or extensions of credit to and from 
affiliates, purchases of or investments in securities issued by affiliates,
purchases of assets from affiliates unless exempted by the Federal Reserve
Board, acceptance of securities issued by affiliates as collateral for a
loan or extension of credit to any person or company, and the issuance of
guaranties, acceptances or letters of credit on behalf of affiliates.  The
aggregate amount of such covered transactions between an insured depository
institution (and its subsidiaries) and its nondepository affiliates is limited
to not more than 10% (in the case of any single affiliate) and not more than
20% (in the case of all affiliates) of the capital stock and surplus of the
insured depository institution.  Covered transactions are also subject to
certain collateral security requirements.

     In addition, a bank holding company and its subsidiaries are generally
prohibited from engaging in certain tie-in arrangements in connection with
extensions of credit, leases or sales of property or furnishing of services
unless the Federal Reserve Board, pursuant to authority available under
applicable law, permits an exception to the tying prohibitions.  A Federal 
Reserve Board rule, effective September 2, 1994, amended the antitying
provisions to permit a bank or bank holding company to offer a lower price on
a loan, deposit or trust service (a "traditional bank product") or on securities
brokerage services, on the condition that the customer obtain a traditional
bank product from an affiliate.  In addition, effective January 23, 1995,
a bank holding company or a nonbank subsidiary may offer lower prices on any of
its products or services on the condition that the customer obtain another
product or service from such company or any of its nonbank affiliates, provided
that all products offered in the package arrangement are separately available
for purchase.

 
     Support of Subsidiary Banks.  Under Federal Reserve Board policy, VFSC is
expected to act as a source of financial strength to the Banks and to commit
resources to support them.  This support of the Banks may be required at times
when VFSC may not be able to provide it.  If the FDIC suffers or anticipates
a loss-either as a result of default by a banking or thrift subsidiary of VFSC
or related to FDIC assistance provided to such subsidiary in danger of default-
other banking subsidiaries of VFSC may be assessed for the FDIC's loss, subject
to certain exceptions.  Applicable law defines "default" generally as the 
appointment of a conservator or receiver, and "in danger of default" as the
existence of certain conditions indicating that, absent federal regulatory
assistance, a default is likely to occur.  In addition, capital loans by a bank
holding company to its subsidiary banks are subordinate in right of payment to
depositors and certain other indebtedness of such subsidiary banks.  In the
event of bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to
priority of payment.
     
Regulation of VNB and UB
     
     General.  As a national bank, VNB is subject to supervision of and
regulation by the Office of the Comptroller of the Currency (the "OCC").  UB
is a stock-owned Massachusetts-chartered savings bank whose deposits are insured
by the Federal Deposit Insurance Corporation (FDIC)up to applicable legal limits
and the Depository Insurance Fund  (DIF) of Massachusetts, a private industry-
sponsored insurer of excess deposits.  Accordingly, UB is subject to
examination, regulation and supervision by both the FDIC and the Massachusetts
Commissioner of Banks.  The Banks are also members of the Federal Home Loan Bank
of Boston.
    
     The operations of the Banks, including but not limited to their capital
adequacy, reserves, loans, investments, earnings, liquidity, compliance with
laws and regulations, record of performance under the Community Reinvestment
Act and management practices are subject to regular examination by, in the case
of VNB, the OCC, and, in the case of UB, the FDIC and the Massachusetts
Commissioner of Banks.  In addition, the Banks' various corporate activities,
including mergers and acquisitions and branch openings and closings, require
the approval of the Banks' respective regulators.  The Banks are also 
required to furnish quarterly and annual reports of income and condition to the
FDIC and VNB files periodic reports with the OCC.  
     
     The enforcement authorities of the Bank's primary federal banking
regulators include the power to impose civil money penalties, remove officers
and directors and issue cease-and-desist orders to prevent unsafe or unsound
practices or violations of laws or regulations governing their business
activities.  In addition, the FDIC has authority to terminate federal deposit
insurance coverage with respect to banks that do not satisfy applicable
regulatory capital requirements.  
     
     The Banks' authority to pay dividends is subject to both specific statutory
limitations and general safety and soundness regulatory constraints.  In
addition, federal legislation prohibits FDIC-insured depository institutions
from paying dividends or making capital distributions that would cause the
institution to fail to meet minimum capital requirements.   
     
     Affiliate Transactions.  The Banks are subject to restrictions imposed by
federal law on extensions of credit to, purchases from, and certain other
transactions with, affiliates, and on investments in stock or other securities
issued by affiliates.  Such restrictions prevent the Banks from making loans
to affiliates unless the loans are secured by collateral in specified amounts
and have terms at least as favorable to the Banks as the terms of comparable
transactions between the Banks and non-affiliates.  Further, federal laws
significantly restrict extensions of credit by the Banks to their directors,
executive officers and principal stockholders and related interests of such
persons.
     
     Deposit Insurance.  The Banks' deposits are insured by the Bank Insurance
Fund ("BIF") of the FDIC to the legal maximum of $100,000 for each insured
depositor.  The FDIA provides that the FDIC shall set deposit insurance
assessment rates on a semi-annual basis to ensure adequate BIF reserves to
cover BIF-insured deposits.  
     
     Federal Reserve Board Policies.  The monetary policies and regulations of
the Federal Reserve Board have had a significant effect on the operating results
of banks in the past and are expected to continue to do so in the future. 
 Federal Reserve Board policies affect the levels of bank earnings on loans and
investments and the levels of interest paid on bank deposits through the Federal
Reserve System's open-market operations in United States government securities,
regulation of the discount rate on bank borrowings from Federal Reserve Banks
and regulation of non-earning reserve requirements applicable to bank deposit
account balances.
     
    Consumer Protection Regulation; Bank Secrecy Act.  Other aspects of the
lending and deposit business of the Banks that are subject to regulation by
the OCC in the case of VNB and the FDIC and the Massachusetts Commissioner of
Banks, in the case of UB, include disclosure requirements with respect to
interest, payment and other terms of consumer and residential mortgage loans
and disclosure of interest and fees and other terms of and the availability
of funds for withdrawal from consumer deposit accounts.  In addition, the Banks
are subject to federal and state laws and regulations prohibiting certain forms
of discrimination in credit transactions, and imposing certain record keeping,
reporting and disclosure requirements with respect to residential mortgage loan
applications.  In addition, the Banks are subject to federal laws establishing
certain record keeping, customer identification, and reporting requirements
with respect to certain large cash transactions, sales of travelers checks or 
other monetary instruments and the international transportation of cash or
monetary instruments.
     
     Federal Home Loan Bank System.  The Banks are members of the Federal Home
Loan Bank of Boston, one of 12 regional Federal Home Loan Banks ("FHL Banks"),
each subject to Federal Housing Finance Board ("FHFB") supervision and 
regulation.  The FHL Banks provide a central credit facility for member-
insured institutions.  As members of the FHLB of Boston, the Banks are required
to own shares of capital stock in the FHLB of Boston in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts, and similar obligations at the 
beginning of each year, or 1/20 of its advances (borrowings) from the FHL Bank,
whichever is greater.  The Banks are in compliance with this requirement with
an investment in FHLB stock at December 31, 1997 of $13.1 million.  The maximum 
amount which the FHLB of Boston will advance for purposes other than meeting
withdrawals fluctuates from time to time in accordance with changes in policies
of the FHFB and the FHLB of Boston, and the maximum amount is reduced by
borrowings from any other source except debentures with more than one year to
maturity and/or debentures covered by a sinking fund.
     
Capital Requirements
     
     General.  The OCC and the FDIC have established requirements with respect
to the maintenance of appropriate levels of capital by national banks and state
chartered banks that are not members of the Federal Reserve System ("state
nonmember banks"), respectively.  The Federal Reserve Board has established
substantially identical guidelines with respect to the maintenance of
appropriate levels of capital, on a consolidated basis, by bank holding
companies.  If a banking organization's capital levels fall below the minimum
requirements established by its primary federal banking regulator, a bank or
bank holding company will be expected to develop and implement a plan acceptable
to such regulator to achieve adequate levels of capital within a reasonable
period, and may be denied approval to acquire or establish additional banks
or non-bank businesses, merge with other institutions or open branch facilities
until such capital levels are achieved.  Federal law also requires federal bank 
regulators to take "prompt corrective action" with respect to insured
depository institutions that fail to satisfy minimum capital requirements and
imposes significant restrictions on such institutions.  
    
     Leverage Capital Ratio.  The regulations of the FDIC require national and
state nonmember banks, such as VNB and UB, to maintain a minimum "Leverage
Capital Ratio" or "Tier 1 Capital" (as defined in the Risk-Based Capital
Requirements discussed in the following paragraphs) to total assets of 3.0%.
The regulations of the OCC and the FDIC further provide, however,  that only
banks with the highest federal bank regulatory examination rating and that are
not experiencing or anticipating significant growth will be permitted to
maintain a leverage capital ratio of only 3.0%.  All other banks are required 
to maintain an additional margin of capital, equal to at least 1% to 2% of total
assets, above the minimum ratio.    The Federal Reserve Board's capital
adequacy guidelines impose substantially similar leverage capital requirements
on bank holding companies on a consolidated basis.

     Risk-Based Capital Requirements.  The regulations of the OCC and the FDIC
also require national and state nonmember banks to maintain minimum capital
levels measured as a percentage of such banks' risk-adjusted assets.  A bank's
capital for this purpose may include two components - "Core" (Tier 1) Capital
and "Supplementary" (Tier 2) Capital.  Core Capital consists primarily of
common stockholders' equity, which generally includes common  stock, related
surplus and retained earnings, and certain non-cumulative perpetual preferred
stock and excludes all intangible assets.  Supplementary Capital elements
include, subject to certain limitations, a portion of the allowance for losses
on loans and leases, perpetual preferred stock that does not qualify for
inclusion in Tier 1 capital, long-term preferred stock with an original
maturity of at least 20 years for issuance and related surplus, certain forms
of perpetual debt and mandatory convertible securities, and certain forms of
subordinated debt and intermediate-term preferred stock.
     
     The risk-based capital rules of the OCC and the FDIC a bank's balance
sheet assets and the credit equivalent amounts of the bank's off-balance sheet
obligations to one of four risk categories, weighted at 0%, 20%, 50% or 100%,
respectively.  Applying these risk-weights to each category of the bank's
balance sheet assets and to the credit equivalent amounts of the bank's off-
balance sheet obligations and summing the totals results in the amount of the
bank's total Risk-Adjusted Assets for purposes of the risk-based capital
requirements.  Risk-Adjusted Assets can either exceed or be less than reported
balance sheet assets, depending on the risk profile of the banking organization.
 Risk-Adjusted Assets for institutions such as VNB and UB will generally be
less than reported balance sheet assets because their retail banking activities
include proportionally more residential mortgage loans with a lower risk
weighting and relatively smaller off-balance sheet obligations.
     
     Current risk-based capital regulations require all banks to maintain a
minimum  ratio of Total Capital to Risk-Adjusted Assets of 8.0%, of which at
least one-half (4.0%) must be Core (Tier 1) Capital.  For the purpose of
calculating these ratios:  (i) a banking organization's Supplementary Capital
eligible for inclusion in Total Capital is limited to no more than 100% of Core 
Capital; and (ii) the aggregate amount of certain types of Supplementary Capital
eligible for inclusion in Total Capital is further limited.  The regulations
limit the portion of the allowance for loan losses eligible for inclusion in
Total Capital to 1.25% of Risk-Adjusted Assets.  

     The Federal Reserve Board has established substantially identical risk-
based capital requirements to be applied to bank holding companies on a
consolidated basis.
     
     Consequences of Failing to Meet Capital Requirements.  A number of
sanctions may be imposed on banking organizations that are not in compliance
with the capital regulations, including, among other things, issuance of a
cease and desist order and/or imposition of a capital directive.  Under such
circumstances, the organization's primary federal banking regulator may
require, among other things, an increase in regulatory capital, restrictions
on asset growth, reduction of rates paid on savings accounts, cessation of or
limitations on deposit-taking, lending, purchasing loans, making specified
investments, or issuing new accounts, limits on operational expenditures, an
increase in liquidity and such other restrictions or corrective actions 
as the organization's primary federal banking regulator may deem necessary or
appropriate.  In addition, any banking organization that is not meeting its
capital requirements must provide its primary federal banking regulator with
prior notice before the addition of any new director or senior officer.
     
     Any insured depository institution that fails to meet any of its minimum
capital requirements must, within 45 days of the date as of which it fails to
comply with such requirements, submit to its primary federal banking regulator
for review and approval a reasonable plan describing the means and timing by
which such insured depository institution shall achieve its minimum capital
requirements.  Any such capital plan must include a limited guaranty of the
parent holding company, if any, of the insured depository institution.  The
capital regulations also provide that any insured depository institution with
a Tier 1 leverage capital ratio that is less than 2% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is
subject to potential termination of deposit insurance.  Such an institution,
however, will not be subject to an enforcement proceeding thereunder solely
on account of its capital ratios if it has entered into and is in compliance
with a written agreement with its primary federal banking regulator to increase
its Tier 1 leverage capital ratio to such level as such regulator deems
appropriate and to take such other action as may be necessary for the
institution to be operated in a safe and sound manner.  
     
     Any material failure by a banking organization to comply with the
provisions of any capital plan, regulation, written agreement, order or
directive may subject the organization to additional enforcement actions,
including the imposition of  civil money penalties and, in the case of an
insured depository institution, termination of deposit insurance.
 
     Each of the Banks is also subject to the prompt corrective action framework
established by the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA").  The federal banking agencies have promulgated substantially
similar regulations to implement the system of prompt  corrective action.
Under the regulations, a bank is deemed to be (i) "well capitalized" if it has
total risk-based capital of 10% or more, a Tier 1 risk-based capital ratio of
6% or more, a Tier 1 leverage capital ratio of 5% or more and is not subject
to any written agreement, order, capital directive, or corrective action
directive, (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more and Tier
1 leverage capital ratio of 4% or more (3% under certain circumstances) and
does not meet the definition of "well capitalized", (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-
based capital ratio that is less than 4% or a Tier 1 leverage capital ratio
that is less than 4%  (3% under certain circumstances), (iv) "significantly 
undercapitalized" if it has a total risk-based capital ratio that is less than
6%, a Tier 1 risk-based capital ratio that is less than 3% or a Tier 1 leverage
capital ratio that is less than 3%, and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less
than 2%. 
     
     At December 31, 1997, VFSC's consolidated Total and Tier 1 risk-based
capital ratios and Tier 1 Leverage ratios were 13.24%, 11.98% and 7.27%,
respectively.  These ratios exceeded applicable regulatory requirements.  VNB
and UB are considered "well capitalized" by their respective primary federal
banking regulators.
     

PART II

     Item 5 - Market for Registrant's Common Equity and Related Stockholde
Matters

     As of March 31, 1998, VFSC Common Stock consisted of 20,000,000
authorized shares, $1.00 par value per share, of which 13,275,971 were issued
and outstanding (exclusive of treasury shares).  VFSC Common Stock is traded
on NASDAQ-NMS.  The transfer agent and registrar for VFSC Common Stock is VNB.
    
     Presented below is the range of market prices paid on Common Stock of
Vermont Financial Services Corp. for each quarter in 1997 and 1996.     
	                                                    Dividends
Year	         Quarte	          High       Low        Declared
1997	           4th 	          $29 	     $22-7/8	    $.15
	               3rd 	           27-3/16	  22-7/16	    .15
	               2nd	            23-9/16	  19-11/16	   .15
	               1st	            22-1/2	   17-5/8	     .15

1996	           4th	            18-1/4	   17-1/8	     .13
	               3rd	            17-9/16	  15-5/8	     .13
	               2nd            	17	       15-1/2	     .13
	               1st	            17-1/2	   15-3/4     	.12

Per the Company's stockholder reports, the approximate number of stockholders
as of March 31, 1998 was 2,850.


Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operation

For the years ended December 31, 1997, 1996 and 1995.
     
Overview

     Net income for 1997 was $17.1 million, up from the $16.6 million and $14.9
million earned in 1996 and 1995, respectively. 
     Return on average assets was 1.00% in 1997, 1.31% in 1996 and 1.23% in
1995.  Return on average stockholders' equity was 10.22% in 1997, 14.51% in
1996 and 14.69% in 1995.
     Basic earnings per share was $1.52, $1.79 and $1.60 in 1997, 1996 and
1995, respectively.  Diluted earnings per share was $1.51, $1.77 and $1.59 for
the same periods.
     On June 26, 1997 the Company acquired Eastern Bancorp, Inc. ("Eastern")
and its subsidiary Vermont Federal Bank, FSB ("VFB"), based in Burlington,
Vermont.  Many of the fluctuations noted in this discussion were significantly
impacted by this transaction ("merger").   See note 2 to the Consolidated
Financial Statements for details.
     
Results Of Operations
     
Net Interest Income

     The following table presents the major categories of earning assets and
interest-bearing liabilities with their corresponding average balances, related
interest income or expense and resulting yields and rates on a fully taxable
equivalent basis for the years indicated.  Foot notes (1) through (5) following
1997, 1996, 1995 schedules.
     
                                            1997
                                          Interest        Rate
                             Average      Income/         Earned/
                             Balance      Expense(1)      Paid (1)
                                    (Dollars in thousands)
ASSETS
 Earning assets:
   Loans, net of unearned
    income (2)               $1,117,325   $100,722        9.01%
   Taxable securities (3)       409,817     26,649        6.50
   Tax exempt securities (3)     10,371        789        7.61
   Federal funds sold and
    securities purchased 
    under agreement to resell    13,140        723        5.50
   Interest-bearing bank
    deposits                      1,260         48        3.81
   Total earning assets       1,551,913    128,931        8.31%
   Noninterest-earning
    assets:
   Cash and due from banks       61,335 
   Premises and equipment,net    35,850
   Other assets                  90,372
   Allowance for loan losses    (17,469)
   Total assets               1,722,001

LIABILITIES AND STOCKHOLDER' EQUITY
 Interest-bearing Liabilities:
  Savings and transactional
   deposits                  $  770,556     25,097        3.26%
  Certificates of deposit:
   $100,000 or more              54,587      2,830        5.18
   Under $100,000               392,474     21,157        5.39
  Federal funds purchased
   and securities sold under
   agreement to repurchase       76,135      3,639        4.78
  Other borrowed funds           57,974      3,239        5.59
  Total interest-bearing
   liabilities                1,351,726     55,962        4.14
 Noninterest-bearling
  liabilities:
  Demand deposits               185,174
  Other liabilities              16,338
  Total liabilities           1,553,238
  Stockholders' equity          168,763
  Total liabilities and
   stockholders' equity      $1,722,001

Net interest income 
 (fully taxable equivalent)                 72,969
Less fully taxable equivalent
 adjustments                                (1,053)
Net interest income                        $71,916
Net interest spread (4)                                   4.17%
Net interest margin (5)                                   4.70%           


                                            1996
                                            Interest     Rate
                               Average      Income/      Earned/
                               Balance      Expense (1)  Paid (1)
                                      (Dollars in thousands)
ASSETS
 Earning assets:
  Loans, net of unearned 
  income (2)                   $  896,417   $82,113      9.16%
  Taxable securities (3)          250,590    15,449      6.17
  Tax exempt securities (3)        11,099       809      7.29
  Federal funds sold and
   securities purchased
   under agreements to 
   resell                          14,869       842      5.66
  Interest-bearing bank
   deposits                            34         2      5.88
  Total earning assets          1,173,009    99,215      8.46 
  Noninterest-earning
   assets:
  Cash and due from banks          46,165
  Premises and equipment,net       24,146
  Other assets                     33,683
  Allowance for loan losses       (14,461) 
  Total assets                  1,262,542

LIABILITIES AND STOCKHOLDERS' EQUITY
 Interst-bearing liabilities:
  Savings and transactional
   deposits                    $  612,780    20,353      3.32
  Certificates of deposit
   $100,000 or more                38,343     2,025      5.28
   Under $100,000                 264,043    14,679      5.56
  Federal funds purchased and
   securities sold under
   agreements to repurchase        68,446     3,181      4.65
  Other borrowed funds             18,678     1,113      5.96
  Total interest-bearing 
   liabilities:                 1,002,290    41,351      4.13
 Noninterest-bearing liabilities:
  Demand deposits                 135,158     
  Other liabilities                 9,077
  Total liabilities             1,146,525   
  Stockholders' equity            116,017  
  Total liabilities and
   stockholders' equity        $1,262,542

Net interest income
 (fully taxable equivalent)                  57,864
Less fully taxable equivalent
 adjustments                                 (1,110)
Net interest income                         $56,754
Net interest spread (4)                                  4.33%
Net interest margin (5)                                  4.93%
  

                                            1995
                                            Interest     Rate
                               Average      Income/      Earned/
                               Balance      Expense (1)  Paid (1)
                                      (Dollars in thousands)
ASSETS
EArning assets:
  Loans, net of unearned
   income (2)                  $  910,799   $84,431      9.27%
  Taxable securities (3)          190,764    11,441      6.00
  Tax exempt securities (3)        10,289       752      7.31
  Federal funds sold and
   securities purchased
   under agreement to resell       16,684     1,029      6.17
  Interest-bearing bank
   deposits                            61         3      4.92
  Total earning assets          1,128,597    97,656      8.65
  Noninterest-earning
   assets:
  Cash and due from banks          43,707
  Premises and equipment,net       23,517
  Other assets                     32,359
  Allowance for loan losses       (14,834)
  Total assets                  1,212,346

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Savings and transactional
   deposits                    $  607,202    21,497      3.54
  Certificates of deposit
  $100,000 or more                 33,538     1,766      5.27
  Under $100,000                  252,920    13,682      5.41
  Federal funds purchased
   and securities sold under
   agreements to repurchase        67,896     3,317      4.88
  Other borrowed funds             27,138     1,707      6.33
  Total interest-bearing
   liabilities                    988,694    41,969      4.24
 Noninterest-bearing 
  liabilities:
  Demand deposits                 109,631
  Other liabilities                 8,605
  Total liabilities             1,106,930
  Stockholders' equity            105,416
  Total liabilities and
   stockholders' equity        $1,212,346

Net interest income
 (fully taxable equivalent)                  55,687
Less fully taxable equivalent
 adjustments                                 (1,199)
Net interest income                         $54,488
Net interest spread (4)                                  4.41%  
Net interest margin (5)                                  4.92% 

                                                    
(1)	Includes a fully taxable equivalent adjustment based on a 35% federal
    income tax rate.  
(2)	Average balances include nonaccrual loans but do not include deferred
    loan fees.
(3)	Taxable and tax-exempt securities are recorded at amortized cost.
(4)	The difference between the average rate earned on total earning assets
    and the average rate paid on total interest-bearing liabilities.
(5)	Represents net interest income divided by average earning assets.
     
     Net interest income increased $15.2 million or 26.7% to $71.9 million in
1997 from $56.8 million in 1996.  This compared to a $2.3 million or 4.2%
increase in 1996 from 1995.  On a fully taxable equivalent basis, net interest
income increased $15.1 million, or 26.1%, from 1996 to 1997 and $2.2 million,
or 3.9%, from 1995 to 1996.  The growth in 1997 was primarily due to a $378.9
million increase in average earning assets.  The fluctuations in the yields on
securities, the net interest spread and net interest margin in 1997 were
primarily influenced by the earning assets and the interest-bearing liabilities
purchased from Eastern.  The increase in 1996 was also mostly due to a $44.4
million increase in average earning assets.  Management anticipates that the
Company's net interest margin in 1998 will continue to decline and that net
interest income will increase due to higher levels of average earning assets
offset somewhat by the decrease in margin.  	Nearly all the growth in the
Company's earning assets and financial resources came as a result of the merger
with Eastern.  Comparing combined balances at December 31, 1997 with December
31, 1996, earnings assets decreased $158.4 million, or 7.9%.  Most of the
decrease came from a $92.8 million decrease in the loan portfolio which was
the result of the sale of approximately $60 million in mobile home loans which
were sold as a result of credit quality concerns and the sale of $30 million
in portfolio mortgages.  In addition, the securities portfolio decreased $59.7
million, or 10.2%, and short-term investments decreased $6.6 million, or 99.3%,
in an effort to reduce the short-term borrowings acquired in the Eastern merger.
During the same period, financial resources decreased $119.4 million, or 6.0%.
Most of this decrease came from a $95.1 million, or 35.3%, decrease in fed funds
purchased and other short-term borrowings.  Management decided that in order to 
achieve a more balanced GAP position and a better mix of assets and liabilities
it would be prudent to reduce the long-term securities acquired from Eastern
that were funded by short-term liabilities.  As a result $95.3 million of
securities were sold in 1997, approximately the decrease in federal funds
purchased and other short-term borrowings.  


     The following table provides an analysis of the variances in net interest
income, on a fully taxable equivalent basis, attributable to changes in volume
and rate.  Volume variances are calculated by multiplying the preceding year's
rate by the current year's change in the average balance.  Rate variances are
calculated by multiplying the current year's change in rate by the prior year's
average balance.

                                1997 vs 1996                  1996 vs 1995
                         Net                           Net
                      Increase  Due to Changes in   Increase  Due to Changes in
                     (Decrease) Volume(1) Rate (1) (Decrease) Volume(1) Rate (1)
                                           (in thousands)
INTEREST INCOME:
	Loans(2)	 		           $18,609  $19,971  $(1,362)		$(2,318)	 $(1,323)  $ (995)
	Taxable securities	 	  	11,200	  10,330	       870		   4,008	    3,676   	332
	Tax exempt securities 	  		(20)	    (20)	        0		      57	       59	    (2)	
 Federal funds sold
  and securities
	 purchased under
  agreements to resell   		(119)    	(96)	      (23)		   (187)	    (106)	  (81)
	Interest-bearing bank 
  deposits			                46	      47	        (1)		     (1)	      (2)    	1	
	Total interest
  income                 29,716	  30,232	     (516)   	1,559    	2,304	  (745)
	
INTEREST EXPENSE:
	Savings and
  transactional
  deposits			             4,744	   5,120	     (376)		 (1,144)	     197	(1,341)	
	Certificates of deposit:
	--$100,000 or more      			805	     844	      (39)		    259	      256	     3	
	--Under $100,000			      6,478	   6,940	     (462)		    997	      611	   386	
	Federal funds purchased
  and securities sold
  under agreements to
  repurchase			             458	     367	       91		    (136)	      26	  (162)	
	Other borrowed funds   		2,126   	2,199      	(73)	   	(594)    	(500)  	(94)	
   Total interest
    expense			           14,611	  15,470	     (859)		   (618)	     590	(1,208)	
	Change in net
  interest income    			$15,105 	$14,762      	343 		 $2,177	   $1,714	$  463


(1)	The effect of changes due to both volume and rate have been allocated to
the change in volume and change in rate categories in proportion to the
relationship of the absolute dollar amounts of the change in each category.
(2)	Includes nonaccrual loans.

Provision For Loan Losses

     The provision for loan losses charged to operating expense is based upon
management's judgment of the amount necessary to maintain the allowance for
loan losses at a level adequate to absorb probable losses.  The factors
evaluated include, but are not limited to:  the size, composition, growth and
quality of the loan portfolio, specific and potential problem loans, current 
economic conditions and their effect on a borrower's performance in relation
to contract terms, historical loss experience by loan type and loan
collectibility.
     The provision for loan losses in 1997 was $3.3 million compared to $3.4
million in 1996 and $3.9 million in 1995.  Net loans charged off were $5.4
million, $4.5 million and $5.4 million for the respective years.  The provision
was reduced $0.1 million in 1997 and $0.5 million in 1996.  Nonperforming asset
levels and the Company's local economy continued to improve offsetting the need
for a larger provision normally associated with a growing loan portfolio.  Net
charged-off loans exceeded the provision in 1997 due to the charge-off of one
loan for approximately $2.0 million.
     
Other Operating Income And Other Operating Expense

     In 1997, other operating income (net of securities gains) increased $8.7
million, or 45%, from 1996.  Increases of $1.7 million in trust department
income and $4.1 million in service charges on deposit accounts comprised 65%
of this increase.  Management anticipates that the Company will continue to
achieve increases in other operating income in 1998 as a result of the 
increase in customers and business from the Eastern acquisition.
     In 1996, other operating income (net of securities gains) increased $1.7
million, or 9%, from the $17.5 million earned in 1995.   Increases of $0.9
million in trust department income and $0.4 million in service charges on
deposit accounts comprised 76.5% of this increase.  The 28% improvement in
trust department income was largely due to the purchase of the Green Mountain
Bank Trust Department on August 31, 1996, which accounted for $0.6 million of
this increase.

     Total other operating expense increased $22.6 million, or 48%, in 1997
after increasing $1.4 million, or 3%, in 1996.  The increase in 1997 was
primarily a result of the merger.  Expenses in the second half of 1997 versus
the last six months of 1996 were up $19.6 million.  Approximately $4.6 million
of the increase in other operating expenses was due to expenses incurred as 
a result of unanticipated operational and back office problems associated with
the integration of VFB into VNB.  Operating expenses for 1997 were also
impacted by approximately $.4 million in connection with a shareholder appraisal
case.  The merger with a Company approximately two thirds the former size of
VFSC largely accounted for the remainder of the increase.  Amortization of the
goodwill acquired in the merger which is being amortized over a fifteen year
period results in expense of approximately $1 million per quarter.  Based on
the current business plan, and without any unforeseen changes to such plan, 
management anticipates that other operating expense will be running at a rate
of approximately $20 million per quarter by the end of 1998, below the $24.8
million level of the fourth quarter of 1997.  The increase in other operating
expense for 1996 over 1995 was primarily due to inflation and the purchase of
the Green Mountain Bank Trust Department.

Applicable Income Taxes

     During 1997, 1996 and 1995 the Company recorded income tax expense of $10.0
million, $8.5 million and $7.2 million, respectively.  The changes were almost
entirely due to the level of pre-tax earnings and the increase in goodwill
amortization in 1997 which is a nondeductible expense for tax purposes.  See
also footnote 12 to the financial statements.

Financial Condition
     
Loans

     The loan portfolio increased $404 million, or 44%, in 1997 following a
$17.0 million, or 2%, increase in 1996.  In structuring the composition of its
loan portfolio, the Company considers the following factors:  profitability,
liquidity, risk, rate sensitivity and service in its market area.  It tries to
maintain a balance between commercial lending (commercial , commercial 
real estate and construction loans) and consumer lending (residential real
estate and consumer loans) with each representing between 40% and 60% of the
total loan portfolio.  Over the last two years the commercial lending sector
decreased from 42% of the loan portfolio to 33%, primarily as a result of the
mix of loans acquired from Eastern.  It is management's intention to focus 
on increasing the commercial lending sector of the loan portfolio.
     Through its subsidiary Banks the Company makes commercial business loans
to small and medium sized businesses in Vermont, Massachusetts and New
Hampshire.  Vermont National Bank is the leading commercial lender in the State
of Vermont.
     Construction and commercial loans collateralized by real estate include
loans collateralized by residential and commercial properties, office and
industrial buildings, condominium development and land development properties.
The Company limits both of these types of lending activities and the properties
collateralizing these loans to its primary market areas in Vermont,
Massachusetts, New Hampshire and adjacent communities in neighboring states. 
Approximately 53% of the commercial real estate portfolio represents loans on
owner occupied properties.  Management's goal is to keep the construction loan
portion of the loan portfolio below 5% of total loans.  As of December 31, 1997
this sector represented 3% of the portfolio.
     In 1997, the Company originated $135.2 million of residential mortgage
loans and sold $117.7 million of loans in the secondary market, compared to
$119.2 million originated and $56.0 million sold in 1996 and $111.4 million
originated and $33.1 million sold in 1995.  The 15% increase in originations
in 1997 was primarily due to the merger and the additional opportunities it
afforded the Company.  The 7% increase in mortgage loan originations in 1996
was primarily due to slightly lower interest rates.      
     At year end 1997, the mortgage portfolio serviced for others totaled
$1,056.6 million compared to $412.2 million at year end 1996 and $420.6
million at year end 1995 and currently generates income of approximately $2.1
million per year.  The increase in 1997 was almost entirely due to the merger.
The $8.3 million, or 2% reduction in 1996 was due to net amortization of
existing balances.  Of the residential real estate portfolio, 61% were
adjustable rate loans and 39% were fixed rate loans at December 31, 1997.
Residential real estate loans represented 58%, 47% and 47% of gross loans at
year end 1997, 1996 and 1995, respectively.
     Consumer loans represented 8% of gross loans at December 31, 1997 and 11%
at December 31, 1996 and 1995.     
     The following table summarizes the composition of the Company's loan
portfolio at the dates indicated.

			                                           December 31,                     
		                         1997      	1996	       1995	     1994       1993 		
                                     		    (in thousands)
Commercial(1)      		    $166,418	  $181,372	  $170,162	  $207,299	  $203,300	
Real Estate: 
	Residential	     	       765,634	   429,657	   415,468	   389,033	   372,570	
	Commercial		             234,394	   177,339	   182,233	   186,185	   174,881 	
	Construction			           38,695	    25,205	    24,816	    25,033	    25,762
	 Total real estate   		1,038,723   	632,201	   622,517	   600,251	   573,213	
Consumer			               109,360    	96,863	   100,791	   103,953	    95,928
	 Total loans, net
   of unearned income		$1,314,501  	$910,436  	$893,470  	$911,503  	$872,441
         
(1)	Includes loans to Massachusetts and Vermont municipalities and industrial
revenue bonds of $20,730, $46,038, $24,874, $44,669 and $30,339 for years 1997
through 1993, respectively.
     The following table details the loan maturity and interest rate sensitivity
of commercial, commercial real estate and construction loans, at December 31,
1997.

		                                          After One  	After
	                                 Within	   But Within 	Five 
		                                One Year	 Five Years 	Years     	Total	
	                                        (Dollars in thousands)
Loans:
	With fixed interest rates	     	 $ 40,190  	 $49,140	  $49,708	  $139,038 
 With variable interest rates 		  	288,798     	4,286    	7,385   	300,469 
	   Total                      			$328,988 	  $53,426	  $57,093	  $439,507      

Nonperforming Assets And Risk Elements

     Nonperforming assets are assets on which income recognition in the form
of principal and/or interest has either ceased or is limited.  It is the
Company's policy to manage the loan portfolio so as to recognize and respond
to problem loans at an early stage and thereby minimize losses.  All new loan
originations, loan renewals, loans categorized as past due and classified loans 
are reviewed on a weekly basis by the administrative officers in charge of the
commercial, mortgage and consumer loan portfolios.  In turn, the status of
these loans is reported in detail to senior management and the Loan Committee
of the Board of Directors on a monthly basis.  From these reviews,
determinations are made on a case-by-case basis as to the collectibility of 
principal and interest.
     The following table provides information with respect to the Company's
past due loans and the components of nonperforming assets at the dates
indicated.
	 			                                         December 31,                 
                      		     1997	     1996	     1995	     1994	    1993	
			                                 (Dollars in thousands)
Loans 90 days or more
 past due and still
 accruing interest	      		$ 6,055  	$ 1,933  	$  2,008 	$ 1,448 	$ 1,503
Nonperforming assets:
	Nonaccrual loans		        $17,006	   $7,812	  $11,695 	 $16,491 	$25,746	
	Other real estate owned	   	2,794	      697	    2,977	    4,487	   4,678	
	Restructured loans
  - accruing			                  0	      661	      316	      294	   1,532
Total nonperforming
 assets			                 $19,800	   $9,170	  $14,988	  $21,272 	$31,956
Nonperforming assets
 to period end loans,
 net of	unearned income,
 plus other real estate owned	1.50%    	1.01%	    1.67%	    2.32%	   3.64%


     Loans 90 days or more past due and still accruing interest include loans
that are adequately collateralized and are in the process of collection and
loans which have exceeded their contractual maturity and are in the process of
being renewed.  At December 31, 1997, there were three loans, totaling $2.2
million, which were in the process of renewal.  The remainder of the $4,122,000
increase in loans 90 days or more past due and still accruing interest in 1997
was due to loans acquired from Eastern.  
     Additional interest income of $1,342,000, $739,000 and $1,084,000 would
have been recorded in 1997, 1996 and 1995, respectively, if nonaccrual and
restructured loans had been on a current basis in accordance with their original
terms.  Payments, totaling $1,117,000, $1,850,000 and $1,052,000 respectively,
were received on nonaccrual loans during 1997, 1996 and 1995.  All payments,
were applied as principal reductions with the exception of $18,000 recorded as
interest income in 1997.  Interest income is recognized solely on nonaccrual
loans which are subsequently determined to have no doubt as to the ultimate 
collectibility of principal.
     At December 31, 1997, all nonaccrual loans were collateralized.  In
addition, it is the Company's policy to obtain personal guarantees of the
borrowers whenever it is possible.  As of December 31, 1997, 3% of the total
nonaccrual loans are current as to contractual terms.  Loans to three commercial
borrowers, totaling $4.1 million represented 24% of nonaccrual loans.
Management expects to see moderate improvement in 1998 over the 1997 charged-
off loan total with a further decrease in the level of nonperforming assets.
Management is not aware of any current recommendations by regulatory authorities
or suggestions with respect to loans classified as loss, doubtful, substandard
or special mention which, if they were implemented, would have a material effect
on the Company.     

Allowance For Loan Losses

     The allowance for loan losses is available to absorb probable losses
which are inherent in the current loan portfolio.  The adequacy of the allowance
for loan losses, which is formally reviewed on a monthly basis by management,
is evaluated according to the factors outlined in "Provision for Loan Losses".
To maintain the allowance at an adequate level, current earnings are charged
with an amount necessary to restore the allowance to the desired level.  A
loan loss is charged against the allowance when management believes the
collectibility of principal and interest with respect to such loan is unlikely.
The allowance for loan losses equaled $18.9 million, or 1.44% of the total loan
portfolio at December 31, 1997, compared with 1.50% at year end 1996 and 1.65%
at year end 1995.  On December 31, 1997 the allowance for loan losses
represented 96% of total nonperforming assets and 111% of nonperforming loans
(which include nonaccrual and restructured loans), compared to 149% and 161%,
respectively, at year end 1996.     The primary cause of the fluctuations noted
above was the nonperforming assets and allowance acquired in the merger.  On
June 26, 1997 the Company acquired nonperforming assets of $13.0 million, 
nonperforming loans of $9.0 million and an allowance for loan losses of $7.5
million from Eastern.
     The following table provides an analysis of the allowance for loan losses
and an analysis of loans charged off and recoveries by type of loan and for the
years indicated.

	                                          Year Ended December 31,              
		                               1997	     1996	     1995	     1994	     1993	
 			                                        (Dollars in thousands)
Allowance for loan
 losses at beginning of year	  $13,647 	 $14,761 	 $16,236   $17,815   $21,047 	
Allowance acquired from Eastern	 7,488         0	        0	        0	        0
Loans charged off:
	Commercial, commercial
 real estate and construction 		(3,637)  	(3,416)  	(4,533)  	(4,895)   (7,361)	
	Real estate-residential	        	(890)  	(1,047)    	(596)    	(650)    	(807)	
	Consumer		                     	(2,178) 	(1,570)  	(1,484)	  (1,240)  	(1,427)
	   Total loans charged off		    (6,705) 	(6,033)  	(6,613)  	(6,785)  	(9,595)	
Recoveries of loans
 previously charged off:
	Commercial, commercial
 real estate and construction	     	743	   1,115	      772	      783	      884	
	Real estate-residential		           57	      36	       40	        0	       96
	Consumer			                        463	     418	      426	      423	      330 
	   Total Recoveries			           1,263	   1,569	    1,238	    1,206	    1,310
Net loans charged off 		         (5,442) 	(4,464)  	(5,375)  	(5,579)  	(8,285)	
Additions to allowance
 charged to earnings			           3,250	   3,350	    3,900	    4,000	    5,053
Allowance for loan losses
 at year end		                  $18,943 	$13,647  	$14,761  	$16,236  	$17,815
Ratio of net charge-offs
 to average loans, net of
 unearned income		                 0.49%	   0.50%	    0.59%	    0.62%	    0.95%
Allowance for loan losses
 to period end loans, net of  
	unearned income		                 1.44% 	  1.50%   	1.65%     	1.78%    	2.04%

             
     Net loans charged off in 1997 totaled $5,442,000 or 0.49% of average loans.
This compares with $4,464,000 or 0.50% in 1996 and $5,375,000 or 0.59% in 1995.
In 1996 charged off loans associated with one lending relationship totaling
$937,000 represented 21% of the net charge-offs for the year.  No other charge-
offs exceeded 10% of the year's net loans charged off.  
     While all segments of the Company's loan portfolio are subject to
continuous quality evaluation, there is no precise method for predicting loan
losses.  An evaluation of the collectibility of a loan requires the exercise
of management's judgment.  Since the determination of the adequacy of the
allowance is necessarily judgmental and involves consideration of various
factors and assumptions, management is of the opinion that an allocation of
the reserve is not necessarily indicative of the specific amount of future
charge-offs or the specific loan categories in which these charge-offs may
ultimately occur.
     The following table summarizes the allocation of the allowance for loan
losses at December 31, 1997, 1996, 1995, 1994 and 1993.  Notwithstanding these
allocations, the entire allowance for loan losses is available to absorb charge-
offs in any category of loans.  Also during the last five years, management
provided an unallocated allowance for expected charge-offs not specifically
identified in the loan portfolio.


			                                       December 31,                         
		               1997	          1996	        1995	        1994	        1993	
                    Loan           Loan         Loan         Loan         Loan
                    Type           Type         Type         Type         Type
                     to             to           to           to           to
             Allo-  Total  Allo-   Total  Allo- Total  Allo- Total  Allo- Total
             cated  Loans  cated   Loans  cated Loans  cated Loans  cated Loans
		                              (Dollars in thousands)        
Commercial	 	$2,178  13% $ 2,637  20%   $2,726 	 19%  $4,226  	23%  $5,027  	23%
Real Estate-
 Commercial	 3,998   18    2,161  19 	   1,010 	 20	   4,597  	20 	  4,324	  20	
Construction   121 	  3      407   3 	   2,033 	  3 	    488   	3  	   519 	  3	
Real Estate-
 Residential	4,440 	 58  	 1,651	 47 	   1,398 	 47	   1,061 	 43 	  1,116  	43	
Consumer		   2,103 	  8	   1,704  11 	   1,399 	 11	   1,644 	 11    1,712  	11
Unallo-
 cated	      6,103    -    5,087   -	    6,195	   -	   4,220	   -    5,117    -	
          	$18,943 	100% $13,647 	100%	$14,761	100%  $16,236 	100% $17,815 	100%

Investment Portfolio

     The investment portfolio is utilized primarily for liquidity and
secondarily for investment income.  As a result, the portfolio is primarily
comprised of short-term U. S. Treasury instruments and high grade municipal
obligations, mortgage-backed securities and corporate bonds with short
maturities.  
   	 The following table summarizes the composition of the Company's investment
portfolio at the dates indicated.  The portfolio is classified as available for
sale and the values noted are therefore both book and market values.

	                                           December 31,        
		                                 1997	         1996	       1995	
  	                                        (in thousands)
U.S. Treasury and other
 U.S. Government agencies		     $295,775	     $194,727	    $145,873	
State and political
 subdivisions		                    9,987	       10,558	      10,343
Mortgage-backed securities		     199,121	       67,055	      75,752	
Other securities (1)			           22,766       	18,780      	17,714
   Total			                     $527,649	     $291,120	    $249,682

(1)	Includes money market overnight investments of $15,417, $9,343 and $4,895
at year end 1997, 1996 and 1995, respectively.
     
     The investment portfolio increased 81%, to $527.6 million, at year end.
During 1996 the portfolio increased 17%, to $291.1 million at year end.  The
total portfolio as a percent of total assets was 25% at year end 1997 compared
to 22% and 20% at year end 1996 and 1995, respectively.
     Securities are carried at fair market value in the above tables.   The
significant change in the portfolio in 1997 was almost entirely due to the
acquisition of the security portfolio of Eastern.  During 1996 excess liquidity,
as a result of sluggish loan demand, was primarily invested in U.S. Treasury
and U.S. Government Agency securities, and mortgage backed securities.  The 
average maturity of the investment portfolio is approximately 2-1/4 years.
     The Company invests a portion of its capital in marketable equity
securities which comprised 2.9%, 3.1% and 4.7% of total investments at December
31, 1997, 1996 and 1995, respectively.  At December 31, 1997, $8.1 million of
the $15.4 million marketable equity security portfolio were investments in the
Federal Reserve Bank and Federal Home Loan Bank.  Investments in these
institutions are carried at par, which equals market.
     The following table sets forth the maturities of the Company's investment
securities at December 31, 1997 and the weighted average yields of such
securities.  Weighted average yields on tax exempt obligations have been
computed on a fully taxable equivalent basis assuming a federal tax rate of 35%.
The yields are calculated by dividing annual interest, net of amortization of
premiums and accretion of discounts, by the amortized cost of the securities
at December 31, 1997.
	
		                                   Maturing (at Market Value)                
		                                  After One But 	After Five But
	                        Within	     Within Five	    Within Ten	      After
		                      One Year	       Years	          Years	      Ten Years	 
		                   Amount	 Yield	 Amount	 Yield	 Amount   	Yield	Amount	Yield	
		                                  (Dollars in thousands)
U.S. Treasury
 and other U.S.
	Government agencies	$10,086  6.22%	$155,240	6.32%  $130,449 	6.98% 	$0   	0.00%
State and political
 subdivisions		        1,381 	6.18     8,606	6.48 	        0  	0.00   0    0.00 
Mortgage-backed
 securities		         13,309 	6.10	  155,751	6.87	    30,062  	7.19   0	   0.00 
Other fixed
 income securities 	   7,348 	5.52		       0	0.00       		 0	  0.00   0	   0.00 
	Total			            $32,124 	6.01 	$319,597	6.59  	$160,511  	7.02 	$0   	0.00 
Tax equivalent adjustment
   for calculation of yield		$28			$175		$56		$0

Does not include equity securities of $15,417 at December 31, 1997.
     
Deposits

     Average total deposits for 1997 of $1,402.8 million represented a $352.5
million, or 34%, increase from 1996's average, which had increased $47.0
million, or 5%, from 1995's average balances.  Almost all of the deposit growth
was due to the merger.  Deposits actually decreased $24.3 million, or 1.4%,
from December 31, 1996 to December 31, 1997 comparing actual 1997 deposit
balances with combined Eastern/VFSC balances for 1996.  Large CDs represented
4% of average total deposits in 1997 and 1996, and 3% in 1995.  The majority
of these deposits was obtained from local Vermont, Massachusetts and New 
Hampshire customers.  Management expects to continue to limit future asset
growth primarily to the growth of core deposits as opposed to the more
volatile large CDs and other borrowed funds.

     The following table summarizes the daily average amount of deposits for
the years indicated, and rates paid on such deposits on the last day of the
respective year.

			                                         December 31,                        
 	                             1997	              1996	               1995     
		                        Amount	  Rate	   Amount	     Rate	    Amount	   Rate
	                                         (Dollars in thousands)
     
Demand deposits		     $  185,174     - %  	$  135,158    -%	 $  109,631	     -%
Interest-bearing
 transactional
 deposits		              576,842	 3.42	       489,363	 3.49	    472,753	  3.70
Savings deposits		       193,714	 2.62	       123,417 	2.46	    134,449	  2.67
Certificates of
 deposit:
	 -$100,000 or more		     54,587	 5.22	        38,343	 5.00	     33,538	  5.19
	 -Under $100,000			     392,474	 5.11		      264,043	 4.86		   252,920	  5.03
	  Total		            $1,402,791         		$1,050,324     			$1,003,291
	
	The following table shows the maturity schedule of certificates of deposit
 of $100,000 or more at December 31, 1997.

                                          	Certificates
	                                          of Deposit 
	                                         (in thousands)
     
     3 months or less		                       $19,081     
     Over 3 through 6 months		                 15,702 
     Over 6 through 12 months		                15,303   
     Over 12 months			                         18,777
	         Total		                            	$68,863
                 
                                    
Capital Resources

     The Company engages in an ongoing assessment of its capital needs in order
to maintain an adequate level of capital to support business growth and ensure
depositor protection.  The Company's two sources of capital are internally
generated funds and the capital markets.  Primary reliance is on internally
generated capital.    
     Stockholders' equity as a percent of assets was 10.18%, 9.12% and 8.97% as
of December 31, 1997, 1996 and 1995, respectively.  Management's goal is to
maintain a 7% equity to asset ratio so that the Company has sufficient capital
to take advantage of expansion or capital opportunities that might arise. 
Average equity to average assets equaled 9.80%, in 1997, 9.19% in 1996 and 8.69%
in 1995.
     As a result of the Federal Deposit Insurance Corporation (FDIC) Improvement
Act of 1991 (FDICIA), bank regulators have established uniform capitalization
standards.  The ratios for the Company and its two subsidiary banks as of
December 31, 1997 and 1996 place them in the "well capitalized" category at
each respective date.  Management's goal is to remain "well capitalized".  
See Note 13 to the Consolidated Financial Statements.  
     FDIC insurance rates vary depending on a bank's capital ratio and
regulatory rating. Well-capitalized institutions will be assessed less than
those that are adequately capitalized, which in turn lower than the other
categories.  Both banks are currently assessed at the lowest available FDIC
rate.  With the merger, the Company acquired $625 million of Oaker deposits
which were assessed at a rate of 6.3 cents per $100 of deposits for 1997. 
The remaining deposits of both Banks were assessed at a rate of 1.3 cents per
$100 of deposits for 1997, The assessment rate for both Banks was $0.00 per
$100 of deposits, subject to a $2,000.00 per year minimum in 1996.  They were
assessed at a rate of $0.23 per $100 of deposits from January, 1993 through
May, 1995 at which time the rate was lowered to $0.04 per $100 of deposits
through December 1995.  No assessment rate changes are anticipated for 1998.

Liquidity And Interest Rate Sensitivity

     Liquidity is the ability of the Company to meet each maturing obligation
or customer demand for funds.  VFSC's main source of liquidity is dividend's
from its bank subsidiaries.  As a result, the liquidity of the Company is
largely dependent upon the liquidity and profitability of the Company's bank
subsidiaries and their ability to pay dividends under applicable laws and 
regulations.
     The Company's primary objective in managing interest rate risk is to
minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital, while adjusting the asset/liability structure to
obtain the maximum yield-cost spread on that structure.  The Company relies on
its asset/liability structure to control interest rate risk.  However, a sudden 
and substantial change in interest rates may adversely impact the Company's
earnings to the extent that the interest rates borne by assets and liabilities
do not change at the same speed, to the same extent, or on the same basis.
     A method used by asset liability management to measure the interest rate
risk exposure of the Company is the interest rate sensitivity "GAP" , which is
the difference between assets and liabilities subject to rate change over
specific time periods.  There are limitations to GAP analysis, however, as
rates on different assets and liabilities may not move to the same extent in
any given time period.  Competition may affect the ability of the Company to
change rates on a particular deposit or loan product.  
     Liquidity measures the ability of the Company to meet its maturing
obligations and existing commitments, to withstand fluctuation in deposit
levels, to fund its operations and to provide for customers' credit needs. 
Liquidity is monitored by the Company on an ongoing basis.  Ready asset
liquidity is provided by cash and due from banks, sales of excess funds, loan 
repayments and an investment portfolio with short maturities and ready
marketability.  In addition, the Company has a strong core deposit base which
supports a significant portion of its earning assets.  Secondary liquidity is
provided by the potential sale of loans and other assets, large certificates
of deposit, short or long-term debt borrowings, federal funds purchased,
repurchase agreements and borrowing from the Federal Reserve Bank.  Both
subsidiary banks are also members of the Federal Home Loan Bank (FHLB) with
combined borrowing capacity of $725 million.  
     Effective asset/liability management includes maintaining adequate
liquidity and minimizing the impact of future interest rate changes on net
interest income.  The Company attempts to manage its interest rate sensitivity
position through the composition of its loan and investment portfolios and by
adjusting the average maturity of and establishing rates on earning 
assets in line with its expectations for future interest rates.  The Company
endeavors to maintain a cumulative gap ratio in all periods under one year of
approximately one to one.
     The following table displays the estimated distribution of the principal
amounts of the Company's interest-earning assets and interest-bearing
liabilities maturing or repricing over various time periods.  The amounts of
assets and liabilities reported in each time period were determined by the
contractual terms of the asset or liability adjusted for projected repayments
and prepayments of principal, where applicable.  The prepayments are estimated
based on the Company's experience.  The actual maturity or repricing could
differ substantially from those estimates if future prepayments differ from
the Company's historical experience.
     The following table summarizes the Company's interest rate sensitivity
over various periods at December 31, 1997.
     
                                           Repricing Date
		                     0-30     31-90     91-180    181-356   1-5      Over 5  
	                      Days      Days      Days      Days    Years     Years
			                                        (in thousands)
Earning assets:
	Loans (1)		          $368,108	 $89,430	 $110,771	 $189,371	 $386,655	 $153,160 
	Investment
  securities (2) (3)		  22,064	  45,591   	63,262	  114,221	  200,564	   66,530
	Other earning assets			 2,514       	0	        0	        0	        0	        0
	   Total		            392,686	 135,021	  174,033	  305,592	  587,219	  219,690
Interest-bearing
 liabilities:
	  MMDA's (4)		        188,989	   8,562	   12,843   	59,714	  165,463	        0
 	 NOW's and
    Super NOW's (4)		    3,387	   6,774	   10,161	   52,675	  121,928	        0
 	 Savings and
    Clubs (4)	          14,650  	36,469   	49,289	   24,900	  160,133	        0
	  Certificates
    of Deposit		        46,561	  86,968  	127,793  	135,819	  137,441	    6,718
	  Borrowed Funds			   129,371	   4,668	      225	   23,666	   10,000	    6,787
	   Total			           382,958	 143,441	  200,311	  296,774	  594,965	   13,505
Net Interest
 Sensitivity Gap			     $9,728 	$(8,420)	$(26,278)  	$8,818  	$(7,746)	$206,185
Cumulative Interest
 Sensitivity Gap			     $9,728  	$1,308	 $(24,970)	$(16,152)	$(23,898)	$182,287 
   
(1)	Does not include non-accrual loans of $17,006 at December 31, 1997.
(2)	Does not include equity securities of $15,417 at December 31, 1997. 
(3)	Repricing dates for mortgage-backed securities are based upon estimated
    actual principal prepayments obtained from third party sources.  
    Amounts differ from maturity distribution in Note 2 to the financial
    statements, which reports the original average life date for mortgage-
    backed securities.
(4)	Estimated based upon historical experience over the last five years.

Market Risk

     The Company is subject to market risk from derivative and other financial
instruments.   Other than the market risk associated with fluctuations in
interest rates, market risk is immaterial.  Management attempts to imitate the
interest rate risk inherent in its balance sheet by purchasing, originating or
selling interest-sensitive assets or liabilities to minimize the impact of 
changes in interest rates.  In order to accomplish this, management attempts
to maintain a ratio of interest-sensitive assets to interest-sensitive
liabilities near 1:1 at each maturity period .
     The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturities or
next repricing date, in the case of variable rate instruments, and the
instruments' fair values at December 31, 1997.  Market risk sensitive
instruments are generally defined as on and off balance sheet derivatives and
other financial instruments.
<TABLE>
<CAPTION>
		                                  Expected Maturity Date at December 31, 1997 (1)	
						                                                             There-	   Total	       Fair 
	                       1998	     1999 	  2000 	  2001	   2002	    after	    Balance	     Value
  	                                             (Dollars in thousands)
<S>                  <C>        <C>      <C>      <C>      <C>      <C>      <C>        <C>       
Interest-sensitive
 assets:
Loans receivable (net
 of	unearned discount,
	gross of allowance:
	Single-family
  1-4 units			        $  380,767	$ 71,938	$ 45,330	$ 16,488	$16,440 	$214,616	$  745,579	$  754,894
	 Average int rate    			  8.62%	   7.25%	   7.91%  	 7.87%	  7.50%	    8.28%	     8.31%   
 	Multi-family and
	  nonresidential  			  170,677	   35,602	  28,625	  12,603	 14,153	   31,989 	  293,649	   294,651
	   Average int rate 			  8.96%	    8.04%	   8.08%	   8.06%	  7.91%	    8.06%	     8.58%     
	Consumer and
	    commercial			      159,355	   47,617	  14,857	  27,131	  2,243	   24,070	   275,273	   286,212
	   Average int rate 			  9.78%	   11.10%	  11.23%	  11.82%	  9.76%	    6.91% 	    9.96%  
Mortgage-backed
 securities			           69,791	   32,335	  29,742	  19,550	 11,625	   33,539	   196,582	   199,121
	   Average int rate 			  6.74%	    6.74%	   6.74%	   6.74%	  6.74%	    6.71% 	    6.74%
Investment
 securities (2) (3)			  174,932	   48,726	  23,254	  15,398	 18,106	   47,322	   327,738	   328,528
	   Average int rate 			  6.68%	    6.31%	   6.40%	   6.13%	  6.44%	    6.50%	     6.54%	
Other earning assets			   2,514	       -	       -	       -	      -	        -	      2,514	     2,514
	   Average int rate 			  5.50%	       -	       -	       -	      -	        -	      5.50%	
Total interest-
 sensitive assets			 $  958,036	$236,218	$141,808	 $ 91,170	$62,567	 $351,536	$1,841,335 $1,865,920

Interest-
 sensitive
 liabilities:
Deposits:
	Checking			         $  117,967	$ 72,092	$ 72,092 	$ 72,091 $23,360 	$ 66,259	$  423,861	  $  423,861
  Average int rate 			    0.48%	   0.77%	   0.77%	    0.77%  	0.05%	    0.05% 	    0.54%
	Savings			             133,117	  50,779	  50,779	   50,763	     -	        -	    285,438	     285,438
	 Average int rate     			4.11%   	2.98%	   2.98%	    2.98%	     -	        -	      3.51%
	Money-market			        244,596	  59,890	  59,890	   59,890	 11,307	       -	    435,573	     435,573
	 Average int rate 			    4.40%	   4.18%	   4.18%	    4.18%	  4.47%	       -	      4.32%
	Certificates			        397,141	  76,035	  39,172	    9,161	  9,873	    9,918	   541,300      539,628
	 Average int rate			     5.10%	   5.86%   	6.04%	    5.43%	  5.50%	    6.21%	     5.31%
Borrowings:
	FHLB			                 70,008	   5,000	      -	     5,000	     -	     5,572	    85,580	      85,652
	 Average int rate 			    6.03%	   5.00%	      -	     5.88%	     -	     5.61%	     5.93%
	Other			                87,922	      -	    1,068	       -	      -	       147     89,137 	     89,148
	 Average int rate			     5.17%	      -	    6.96%       	-	      -	    11.05%  	   5.20%
Total interest
 -sensitive
	liabilities		       $1,050,751	$263,796	$223,001	$196,905	$44,540	   $81,896	$1,860,889	  $1,859,300
</TABLE>

(1)	For assets and liabilities expected maturities are contractual maturities
adjusted for projected repayments and prepayments of principal or next
contractual repricing opportunity in the case of variable rate instruments.  
The Bank uses certain assumptions to estimate fair values and expected
maturities.  The prepayment experience reflected herein is based on the Bank's
historical experience.  The actual maturities of these instruments could vary
substantially if future prepayments differ from the Bank's historical
experience.
(2)	Includes money market overnight investments at amortized cost and fair value
of $7,348.
(3)	Includes equity securities at amortized cost and fair values of $15,325 and
$15,417, respectively.



Recent Developments  

Merger with Eastern  Bancorp, Inc. 

     See Note 2 to the Consolidated Financial Statements for details.
Other

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, on December 31, 1997.  SFAS No. 128 supersedes APB
Opinion No. 15, Earnings per Share, and replaces primary earnings per share
(EPS) and fully diluted EPS with basic EPS and diluted EPS, respectively, and
required the Company to make a dual presentation of basic EPS and diluted EPS
on the face of the income statement.  Basic EPS, unlike primary EPS, excludes
all dilution while diluted EPS, like fully 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 results in the issuance of
common stock that then shares in the earnings of the Company.  The Company has
restated EPS for all prior periods presented to comply with the provisions of
SFAS No. 128.
    The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities".  This statement has
been amended with the issuance of SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of SFAS No. 125".  The effect of these statements did not
have a material impact on the financial statements of the Company.
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income".  SFAS No. 130 establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by and distributions to shareholders.  Net income is a component
of comprehensive income, with all other components referred to in the
aggregate as other comprehensive income.  This statement is effective for 1998
financial statements.
     The Company will be required to adopt SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, in its December 31, 1998
financial statements.  SFAS No. 131 establishes standards for the way public
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected 
information about operating segments in interim financial reports issued to
shareholders.  The Company anticipates providing segment information for its
Trust Department and United Bank.
     The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches.  The
"year 2000" issue is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
 The issue is whether computer systems will properly recognize 
date sensitive information when the year changes to 2000.  Systems that do not
properly recognize such information could generate erroneous data or cause
systems to fail.  The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test the systems for the year 2000
compliance.  It is anticipated that all reprogramming efforts will be complete
by December 31, 1998, allowing  adequate time for testing.  To date,
confirmations have been received from the Company's primary processing vendors
that they have developed systems that address processing transaction in the year
2000.  Testing and conversion of systems applications is expected to cost
between $1.5 million and $2.5 million over the next two years.   The Company
expects its year 2000 date conversion project to be completed on a timely basis.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely or that systems of the Company's borrowing customers
will be timely converted or that any such failure to convert by another company
would not have an adverse effect on the Company's systems or results of 
operations. 
     During 1998, the Company plans a major renovation to its branch operations
in Chittenden County, Vermont at a total cost of $2 to $3 million.  In addition,
the Company plans to purchase a new remittance processing system, upgrade VNB's
credit card software and purchase a new system for originating mortgage loans,
each costing approximately $0.5 million.  No other additions to plant and
equipment are expected to exceed $0.5 million.  All additions will be funded
through the operations of the Company.


Item 8 - Financial Statements and Supplementary Data

Consolidated Balance Sheets

		                                                       December 31,	 
		                                                     1997 	      1996	 
                                  	(Dollars in thousands, except share amounts)
Assets
Cash and due from banks			                        $   95,495 	$   61,962 	
Interest-bearing deposits with other banks			             44	         60	
Federal funds sold and securities purchased under
	agreements to resell			                               2,470	      1,775
	   Total cash and cash equivalents			                98,009	     63,797
Securities available for sale                         
	Mortgage-backed securities			                       199,121	     67,055	
	Other securities			                                 328,528	    224,065
	   Total securities available for sale			           527,649	    291,120
Loans			                                           1,314,501	    910,436
	Less:  allowance for loan losses			                 (18,943)	   (13,647)
	   Net loans			                                   1,295,558    	896,789
Premises and equipment, net			                        46,620      23,618
Real estate held for investment			                     1,298       1,360
Other real estate owned (OREO)                                          
	(Net of valuation reserve of $0 at
 December 31, 1997 and $87 at 
	December 31, 1996)			                                 2,794         697
Goodwill and other intangibles			                     61,729	      6,327
Other assets			                                       63,795	     29,273
	Total assets			                                  $2,097,452	 $1,312,981
               
Liabilities and Stockholders' Equity
Deposits:
	Demand			                                        $  228,935 	$  162,887
	Savings, NOW and money market accounts			           915,937	    620,111
	Time deposits			                                    541,300	    300,260
	   Total deposits			                              1,686,172	  1,083,258
Federal funds purchased and securities sold
	under agreements to repurchase			                    87,818     	77,672
Liabilities for borrowed money			                     86,899	     23,169	
Other liabilities			                                  22,967	      9,165
	Total liabilities			                              1,883,856	  1,193,264

Commitments and contingencies

Stockholders' Equity:
	Preferred stock - $1 par value;
	   Authorized 5,000,000 shares			                         -	          -	
	Common stock - $1 par value;
	   Authorized 20,000,000 shares
	   Issued:  1997 - 13,243,357 
             1996 -   9,784,884 			                   13,243	      9,785
	Capital surplus			                                  116,640	     44,697
	Undivided profits			                                 81,562	     71,151
	Unrealized holding gains (losses), net		 	            2,152	     (1,029)
	Treasury stock, at cost - 1997 - 52 shares
                           1996 - 360,042 shares       			(1)	    (4,887)
	   Total stockholders' equity			                    213,596    	119,717
	   Total liabilities and stockholders' equity			 $2,097,452	 $1,312,981
  
See accompanying notes to consolidated financial statements.


Consolidated Statements of Income

			                                        For the years ended December 31,	   
		                                              1997	     1996	     1995	     
		                                            (Dollars in thousands,
		                                            except per share amounts)
Interest Income
Interest and fees on loans			                $100,013	  $81,281	  $83,506 	
Interest on securities available for sale:    
	Taxable interest income			                    26,638	   15,504	   11,480
	Tax exempt interest income			                    456	      478	      443
	Fed Funds sold and securities purchased
  under resale agreements                      			771	      842	    1,028      
	Total interest income			                     127,878   	98,105	   96,457
Interest Expense
Interest on deposits:
	Certificates of deposit over $100,000			       2,830	    2,025	    1,766	
	Other deposits			                             46,254	   35,032	   35,179	
Interest on federal funds purchased,
 borrowed money and securities
	sold under agreements to repurchase			         6,878	    4,294	    5,024
	Total interest expense			                     55,962	   41,351	   41,969
Net interest income			                         71,916	   56,754	   54,488
Provision for loan losses			                    3,250	    3,350	    3,900
Net interest income after
 provision for loan losses			                  68,666	   53,404   	50,588
Other Operating Income
Securities gains, net			                          688	       11	       79	
Trust Department income			                      5,761	    4,109	    3,218
Service charges on deposit accounts			         10,220	    6,165	    5,746
Credit card fees			                             3,801	    3,219	    2,794
Mortgage servicing income			                    1,800	    1,698	    1,910
Other service charges, commissions and fees			  6,252	    3,959	    3,802
	Total other operating income			               28,522	   19,161	   17,549
Net interest and other operating income			     97,188	   72,565	   68,137
Other Operating Expense
Salaries and wages			                          25,603	   18,677	   17,503
Pension and other employee benefits			          6,302	    5,288	    4,509
Occupancy of bank premises, net			              5,346	    3,447	    3,337
Furniture and equipment			                      6,285	    3,980	    4,155
Goodwill and other intangible amortization			   2,601	      440	      389       
Net OREO and collection expenses and losses			  1,155	    1,780	    2,244
Printing and supplies			                        2,044	    1,157	    1,143
FDIC insurance			                                 331	        4	    1,163
Credit card merchant expense			                 2,506	    2,093	    1,715
Other				                                      17,876	   10,545    	9,841
	Total other operating expense			              70,049   	47,411	   45,999
Income before income taxes			                  27,139	   25,154	   22,138
Applicable income tax expense			               10,013	    8,539	    7,241
Net Income			                                 $17,126	  $16,615  	$14,897
      
Earnings Per Common Share:
	Basic			                                       $1.52	    $1.79	    $1.60
	Diluted			                                     $1.51	    $1.77	    $1.59

See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in Stockholders' Equity

	                         For the years ended December 31, 1997, 1996 and 1995 
					                                                Unrealized		
			                         Common  Capital Undivided Holding	Treasury 
                            Stock   Surplus  Profits (Losses) Stock    Total  
                             	(Dollars in thousands, except per share amounts)

Balance, December 31, 1994		$ 9,581 $ 43,924	$48,615	$(9,604)	$(2,059)	$ 90,457
Net income			                     -	       -	 14,897      	-	       -	   14,897
Issuance of 10,890 shares
 of common	stock under
 employee stock	purchase plan 	  11	     131	      -	      -	       -      	142
Exercise of options 			         174	     489	      -	      -	     109      	772
Change in unrealized gain/loss
 on securities available for
 sale portfolio, net of tax	      -	       -	      -	  9,613	       -	    9,613
Cash dividends
 declared ($0.43)               	 -	       -	 (4,048)	     -	       -	   (4,048)
Balance, December 31, 1995	 		9,766	  44,544 	59,464	      9	  (1,950)	 111,833
Net income			                     -	       -	 16,615	      -	       -	   16,615
Issuance of 8,702 shares
 of common stock under
 employee stock	purchase
 plan                      			9	         135       -	      -	       -  	    144
Exercise of options			        -	        (144)	     -	      -	     618	      474
Purchase of 198,000 shares
 under 1996 stock
 repurchase plan			           -	           -	      -	      -  	(3,555)	  (3,555)
Issuance of 9,774 shares
 of common stock under
 dividend reinvestment plan		10         	162	      -	      -	       -	      172
Change in unrealized
 gain/loss on securities
	available for sale
 portfolio, net of tax			     -	           -	      -	  (1,038)	     -	   (1,038)
Cash dividends
 declared ($.53)			           -	           -	 (4,928)	      -	      -	   (4,928)
Balance,
 December 31, 1996        9,785	      44,697	 71,151	  (1,029)	(4,887)	 119,717
Net income			                 -	           -	 17,126	       -	      -	   17,126
Issuance of 6,230 shares
 of common stock	under
 employee stock
 purchase plan			             6	         138	      -	       -	      -	      144
Exercise of options			      147	       4,929	      -	       -	  4,886	    9,962
Issuance of 35,629 shares
 of common stock	under
 dividend reinvestment
 plan			                     36	         808	      -	      	-       -	      844
Issuance of 3,497,443
 shares in merger
 transaction (Note 2)     3,497	      68,866	      -	       -	      -	   72,363
Retirement of 228,378
 shares related to 
	dissenting WMBS
 shareholder suit			       (228)	     (2,798)	     -	       -	       -	  (3,026)
Change in unrealized
 gain/loss on securities
	available for sale
 portfolio, net of tax			     -	           -	      -	    3,181	      -	   3,181
Cash dividends declared
 ($0.60)			                   -	           -	 (6,715)       	-	      -	  (6,715)
Balance,
 December 31, 1997			   $13,243	    $116,640	$81,562	   $2,152	   $(1) $213,596

See accompanying notes to consolidated financial statements.

Consolidated Statements Of Cash Flows


		                                             For the years ended December 31,	
		                                                     1997	   1996   1995	  
		                                                   (Dollars in thousands)

OPERATING ACTIVITIES 
Net Income		                                       $17,126  	$16,615  	$14,897	
Adjustments to reconcile net income
	to net cash provided by operating activities:
	Provision for loan losses		                         3,250	    3,350  	  3,900
	Provision for depreciation		                        4,878  	  3,007  	  3,233
	Net amortization on investment securities		           543  	    682  	    670
	Deferred income taxes		                            (2,192)	     (56)  	   307
	Net gain on sale of loans		                        (1,114)  	(1,008)  	  (637)
	Security gains, net		                                (688)	     (11)  	   (79)
	Proceeds from sales of loans		                     135,815   57,098  	 36,910
	Loans originated for sale		                       (122,010) (58,860)	 (37,192)
	Net loss on sale of OREO		                             240	     578	      798	
	Changes in assets and liabilities,
 net of effect from the purchase
 of Eastern (Increase) decrease
 in other assets		                                  (14,024)	 (4,236)	      24	
	(Decrease) increase in other liabilities			         (1,070)	    (49)	   1,007
	NET CASH PROVIDED BY OPERATING ACTIVITIES		         20,754	  18,118	   24,475
INVESTING ACTIVITIES
	Proceeds from sales of securities		                 95,397	  19,488	   18,598	
	Proceeds from maturities of securities		           111,782	  62,726	   21,694
	Purchase of securities		                          (164,600)(125,915) (102,135)
	Proceeds from sale of OREO		                         5,942	   4,672	    4,469
	Purchase of mortgage loans		                             -	  (2,555)	       -
	Net cash or cash equivalents from Eastern Bancorp.		13,819	       -	        -
	Net decrease (increase) in loans		                  30,390	 (20,083)	   9,183
	Purchase of premises and equipment			              (10,939)	 (6,259)	  (2,301)
	NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		  81,791	 (67,926)	 (50,492)
FINANCING ACTIVITIES
	Net (decrease) increase in deposits		              (39,619)	 49,301	   21,088
	Net (decrease) increase in other borrowings		      (29,923)	  9,176	   (2,223)
	Issuance of common stock		                          10,950	     790	      914
	Purchase of treasury stock and retirement
  of shares		                                        (3,026)	 (3,555)	       -
	Cash dividends			                                   (6,715)	 (4,928)	  (4,048)
	NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES			(68,333)	 50,784	   15,731
	INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS		                                       34,212	     976	  (10,286)	
Cash and Cash equivalents at beginning of year			    63,797	  62,821	   73,107
CASH AND CASH EQUIVALENTS AT END OF YEAR			         $98,009	 $63,797	  $62,821
   
Non-monetary Transactions:

     Transfer of loans to OREO for the years ended December 31, 1997, 1996 and
1995 totaled $2,903, $2,970 and $3,757, respectively.
     On June 27, 1997, the Company purchased all of the stock of Eastern
Bancorp., Inc. for approximately $99.5 million.  Cash of $26,913 was paid and
3,497,443 shares of common stock with a value of $72,363 were issued in
conjunction with the merger.   


	See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies
     The Company, organized in April 1982, became a registered bank holding
company, acquired controlling interest in Vermont National Bank ("VNB") on
March 1, 1983, upon exchange of all of the outstanding shares of common stock
of VNB for shares of the Company.  In 1990 the Company changed its State of
incorporation from Vermont to Delaware.  On June 14, 1994, a merger with West
Mass Bankshares ("WMBS") was effected as a pooling of interest with WMBS' sole
banking subsidiary, United Savings Bank ("USB"), becoming wholly owned by VFSC.
Subsequent to the merger USB changed its name to United Bank ("UB").  On June
27, 1997, the Company acquired Eastern Bancorp, Inc. (Eastern) and its
subsidiary Vermont Federal Bank, FSB (VFB).  This acquisition was accounted
for under the purchase method of accounting.  On September 22,1997 VFB was
merged into VNB.  All intercompany transactions have been eliminated in the
consolidated financial statements.
     The accounting and reporting policies of Vermont Financial Services Corp.
and its subsidiaries (the "Company" or "VFSC") are in conformity with generally
accepted accounting principles and general practices within the banking
industry.  The following is a description of the more significant policies.
     In preparing the consolidated 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 balance sheet and revenues and expenses
for the period.  Actual results could differ from those estimates.  Material
estimates that are particularly susceptible to change in the near term are the 
determination of the allowance for loan losses, the valuation of other real
estate owned and the valuation of loans held for sale.   
     Cash equivalents include amounts due from banks, interest bearing deposits
with other banks and federal funds sold and securities purchased under
agreements to resell with original maturities of three months or less.  The
Company is required to comply with various laws and regulations of the FRB
which require that the Company maintain certain amounts of cash on deposit and
is restricted from investing those amounts. 
     Securities are classified in one of three categories, held to maturity,
trading or available for sale.  Debt securities for which the Company has the
ability and intent to hold to maturity are classified as held to maturity and
are stated at amortized cost.  Securities bought in anticipation of short-term
market movements, if any, are classified as trading securities and are carried
at market value with unrealized gains or losses reflected in the statement of
income.  Securities that may be sold as part of the Company's asset/liability
or liquidity management or in response to or in anticipation of changes in
interest rates and resulting prepayment risk, or for other similar factors, are
classified as available for sale and are carried at market value with unrealized
gains or losses reported as a separate component of stockholders' equity, net
of income taxes.
     Premiums and discounts on debt securities are amortized into interest
income over the term of the securities in a manner that approximates the
interest method.  Realized gains and losses on sales of securities are computed
using the specific identification method.  Any security with a decline in market
value which is considered other than temporary is written down to its market
value through a charge to income.
     Loans are carried at the principal amounts outstanding reduced by charge-
offs and net deferred loan fees.  Loan origination and commitment fees, net of
direct loan originations costs, are amortized as an adjustment of the related
loan's yield over the contractual life of the related loans by the level yield
method.
     When loans are moved to nonaccrual status, previously accrued interest is
reversed by charging interest income of the current period.  Payments received
on nonaccrual loans are generally applied to reduce principal.  Nonaccrual loans
are not generally returned to accrual status until all principal and interest
payments are current and the customer had demonstrated the ability to keep the
loan current.    
     A loan is considered impaired when it is probable that the Company will
be unable to collect all principal and interest due on a loan in accordance with
the loan's original contractual terms or will collect them in a time frame which
reduces the present value of the expected cash flows from the repayment of the
loan.  Impaired loans have been defined as all nonaccrual loans and commercial
classified assets in excess of $250,000.
     Impaired loans are valued based on the fair value of the related collateral
in the case of a collateral-dependent loan and, for all other impaired loans,
based on the present value of expected future cash flows, using the interest
rate in effect at the time the loan became impaired.  Impairment exists when
the recorded investment in a loan exceeds the value of the loan measured using 
the above-mentioned techniques.  Such impairment is recognized as a valuation
reserve, which is included as a part of the Company's overall allowance for
loan losses.
     Loan losses on impaired loans are charged against the  allowance for loan
and lease losses when management determines the ultimate collectibility of
principal and interest has changed from doubtful to unlikely. The Company
recognizes interest income on impaired loans consistent with its nonaccrual
policy. 
     For all commercial loans and residential mortgage loans, the accrual of
interest is discontinued once loans become 90 days delinquent or earlier if
management determines that the collection of principal may be in doubt.  Loans
may be left in accrual status if they are adequately collateralized or are
expected to result in collection within the next 60 days.  Commercial loans 180 
days or more past due must be recommended for charge-off unless management
determines the collateral is sufficient.  For consumer loans no specific period
of delinquency triggers nonaccrual status.  Unsecured installment loans 90 days
or more past due and collateralized installment loans 180 days or more past
due are generally recommended for charge-off.  Credit card loans are generally
charged off after 180 days without payment.
     The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb probable loan losses through
charges to operating expenses.  Principal factors considered by management
include the historical loan loss experience, the value and adequacy of
collateral, the level of nonperforming (nonaccrual) loans, the growth and
composition of the loan portfolio and examination of individual loans by senior
management.  The allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off, and reduced by
charge-offs on loans.  Arriving at an appropriate level of allowance for loan
losses necessarily involves a high degree of judgment.  Primary considerations
in this evaluation are prior loan loss experience, the character and size of
the loan portfolio, business and economic conditions and management's estimation
of future potential losses.  Although management uses available information to
establish the appropriate level of the allowance for loan losses, future
additions to the allowance may be necessary based on estimates that are 
susceptible to change as a result of changes in economic conditions and other
factors.  In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses.  Such agencies may require the Company to recognize adjustments to the
allowance based on their judgments about information available to them at the
time of their examination.   
     Loans held for sale in the secondary market are carried at the lower of
aggregate cost or market value.  Management estimates the market value of the
held for sale portfolio based on outstanding investor commitments or market
indices for comparable loans.  Net unrealized losses, if any, are recognized
in the statement of income with a corresponding increase to a valuation
allowance.  
     OREO and foreclosed assets are carried at the lower of cost or fair value
less the estimated cost to sell the property.  Fair value is determined using
appraisals, selling prices for similar assets and discounted cash flows using
rates commensurate with the risk involved.  Costs of holding OREO and foreclosed
assets, net of rental income, are charged to income in the period incurred.
     Premises and equipment are stated at cost less accumulated depreciation
and amortization.  Depreciation is computed principally on the straight-line
method over the estimated useful life of the related assets.  Leasehold
improvements are amortized over the lease periods or the useful life of the
improvement, whichever is shorter.  When assets are sold or retired, the 
related cost and accumulated depreciation and amortization are removed from
the respective accounts and any gain or loss is credited or charged to income.
     Long-lived assets, including long-lived assets to be disposed of, are
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable.  An impairment loss is
charged to income in the period in which the asset is deemed to be impaired.
     Gains and losses on sales of loans are recognized at the time of the sale.
In connection with the sale of loans, the Company recognizes as a separate
asset the value of the right to service mortgage loans which have been sold
with servicing retained.  The total cost of the loans sold is allocated to the
mortgage servicing rights and the loans based on their relative fair values.  
Mortgage servicing rights are recorded for both purchased mortgage servicing
rights (PMSRs) and for originated mortgage servicing rights (OMSRs) for loans
originated after December 31, 1995.  These mortgage servicing rights are
amortized over the period of estimated net servicing income and are evaluated
for impairment based on their fair values.   Amortization is recorded as a
charge against mortgage servicing fee income.  The Company's assumptions with
respect to prepayments, which affect the estimated average life of the loan
are adjusted periodically to reflect current circumstances.
     Goodwill and other intangibles are amortized over their estimated lives
by the straight-line method.  As part of its ongoing review, management
evaluates the Company's intangible assets, assesses whether events and changes
in circumstances have occurred that may indicate the carrying value is not
recoverable. 
     The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns.  Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for 
the year in which the differences are expected to reverse.   The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
     Securities and other property held by the Trust Department in a fiduciary
or agency capacity are not included in the accompanying balance sheet, since
such items are not assets of the Company.  Trust Department income is recorded
on the cash basis which is not materially different from income that would be
reported on the accrual basis.	
     On October 14, 1997 the Company paid a two-for-one stock split which was
effected as a stock dividend.  All per share amounts have  been retroactively
restated for the effects of this stock split including cash dividends.
     Dollars in the following footnotes are in thousands except for per share
amounts.

Note 2. Acquisitions

     On June 27, 1997, the Company acquired Eastern Bancorp, Inc. (Eastern)
and its subsidiary Vermont Federal Bank, FSB (VFB), based in Burlington,
Vermont which had approximately $800 million of assets.  VFB operated 15
branches in Vermont and 10 branches in New Hampshire through First Savings of
New Hampshire, an operating division of VFB.  The acquisition was accounted
for as a purchase and accordingly, the results of Eastern from June 27, 1997
are included in the consolidated financial statements of the Company.  VFB was
merged into VNB on September 22, 1997.
     In connection with the merger with Eastern, the Company issued 3,497,443
shares of its common stock and paid $26.9 million in cash for all of the
outstanding shares of Eastern's  common stock.  Under the terms of the merger
agreement, each outstanding share of Eastern's common stock was converted
into .6455 shares of VFSC common stock.   The excess of the purchase price over
the fair value of the net identifiable assets acquired of approximately $58.1
million has been recorded as goodwill and is being amortized on a straight-line
basis over 15 years.
     Presented below is certain proforma information as if Eastern had been
acquired on January 1, 1996.  These results combine the historical results of
Eastern into the Company's consolidated statements of income, and while
adjustments were made for the estimated impact of purchase accounting
adjustments and other acquisition-related activity, they are not necessarily 
indicative of what would have occurred had the acquisition taken place at
that time.

                                      		Pro forma
	                                Years Ended December 31,
		                                     (Unaudited)
	                                   1997		      1996
Interest income		                $158,310	   $159,783
Net interest income	 	             86,913	     86,513
Net income		                       14,432	     19,853
Diluted earnings per share		        $1.27      	$1.54

     In September 1996, the Company acquired the trust department of  Green
Mountain Bank for $4.5 million  in cash.  Goodwill of $4.0 million was recorded
in connection with this transaction and is being amortized over 15 years on a
straight-line basis.

Note 3. Securities
 
     The amortized cost, estimated market value and contractual maturity of
securities available for sale are shown in the following tables.  Actual
maturities will differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without call or prepayment
penalties.  

     			                                             December 31,  	      
		                                             1997			            1996	
	                                         Fair	    Amortized	 Fair	   Amortized
		                                        Value	    Cost 	    Value	   Cost	
Classification and Maturity:
U. S. Treasury Securities:
Within 1 year			                         $  6,595 	$  6,556 	$  5,023	$  5,008	
1-5 years				                              27,784	   27,629	   25,302	  25,304
	Total			                                  34,379	   34,185	   30,325	  30,312
Obligations of Other
 U. S. Government Agencies:
Within 1 year		                             3,491	    3,500	        -	       -
1-5 years			                              127,453	  127,272	  104,540	 104,979
5-10 years			                             130,452	  130,213	   59,862	  60,919
	Total			                                 261,396   260,985	  164,402	 165,898
Obligations of States and
 Political Subdivisions:
Within 1 year		                             1,381	    1,377	    1,005	     997
1-5 years			                                8,606	    8,518	    7,128	   7,103
5-10 years			                                   -	        -	    2,425	   2,452
	Total			                                   9,987	    9,895	   10,558	  10,552
Corporate Securities:
Within 1 year			                                -	        -	      500	     500

Mortgage-backed Securities with current
	estimated average life:
Within 1 year		                            13,309	   13,344	    2,594	   2,588
1-5 years			                              155,751	  153,787	   59,689	  59,782
5-10 years		                               30,062	   29,451	    3,402	   3,437
Over 10 years			                                -	        -	    1,370	   1,403
	Total			                                 199,122	  196,582	   67,055	  67,210
Marketable Equity Securities			            15,417	   15,325	    8,937	   8,883
Money Market Overnight Investments:
Within 1 year			                            7,348	    7,348	    9,343	   9,343
	Total Securities			                     $527,649	 $524,320	 $291,120	$292,698

     Mortgage-backed securities are shown at their estimated final maturity
but are expected to have shorter average lives due to principal prepayments. 
The expected maturities will differ from contractual maturities because
borrowers have the ability to call or prepay obligations with or without call
or prepayment penalties. 

		                                            December 31,		             
		                                      1997	                1996	         
	                                Gross      	Gross	    Gross	     Gross
	                             Unrealized	Unrealized	Unrealized	Unrealized
 		                              Gains	      Losses	    Gains	    Losses	
 Classification:    
U.S. Treasury Securities		       $  269     	$ 75      	$194     	$  181	
Obligations of Other U.S.
 Government Agencies		            1,113    	  702     	  277    	  1,773
Obligations of States
 and Political Subdivisions   	     	95	        3	        61    	     55
Corporate Securities		                -	        -	         -	          -
Mortgage-backed Securities	 	     2,672	      132	       260	        415
Marketable Equity Securities			      92	        -	        61	          7
	Total			                        $4,241	     $912	      $853	     $2,431
                                      
      Proceeds from sales of securities available for sale during 1997, 1996
and 1995 were $95,397, $19,488 and $18,598, respectively. 
     	Gross gains of $2,203, $11 and $124 were realized on those sales in 1997,
1996 and 1995, respectively.  Gross losses of $1,515, $0 and $45 were realized
in the respective periods.
      Securities with a book value of $259,931 as of December 31, 1997 and
$98,172 as of December 31, 1996 were pledged to qualify for fiduciary powers,
to collateralize deposits of public bodies, for borrowed money and for other
purposes as required or permitted by law.  
      Securities that are callable or have callable features had fair values
of $257,603 and $160,673 at December 31, 1997 and December 31, 1996,
respectively.
          
Note 4. Loans

	 Loans classified by type are summarized as follows:
	     	                                            
                                                   December 31,       
		                                               1997	       1996	
Commercial		                                $  166,418 	  $181,372
Real Estate:
	Residential		                                 765,634	    429,657	
	Commercial		                                  234,394	    177,339
	Construction			                                38,695		    25,205
   Total Real Estate		                       1,038,723     632,201 
Consumer			                                    109,360		    96,863
   Total loans, net of unearned income			   $1,314,501		  $910,436

     The Company grants loans to customers primarily in northern New England.
Although the Company has a diversified portfolio, the ability of the Company's
debtors to honor their contracts is substantially impacted by the general
economic conditions of the region.
     At December 31, 1997 the amount of loans outstanding to directors,
executive officers, principal holders of equity securities or to any of their
associates totaled $6,362. The following table summarizes the related party
loan activity:

			                                 1997			 1996	
Balance at beginning of year		    $6,683 	$7,447 
Additions		                        3,290	  1,409
Repayments		                      (3,611)	(2,173)
Balance at end of year		          $6,362	 $6,683 

    Mortgage Banking Activities - During 1997 the Company originated $135,186
of mortgage loans for sale in the secondary market and sold $117,733.  As of
December 31, 1997, $33,218 of mortgage loans were held for sale, included in
other assets, and were carried at the aggregate of the lesser of the loan
balance or market value.  All loans are sold without recourse, except or
certain technical underwriting exceptions and $1,527  in loans sold by UB to
the Federal Home Loan Mortgage Corporation under a recourse agreement.  None
have been presented for recourse.  At December 31, 1997 and 1996 the Company's
serviced mortgage portfolio for others totaled $1,056,555 and $412,259,
respectively.  Loan servicing income was $1,800, $1,698 and $1,910 for 1997,
1996 and 1995, respectively.  The Company acquired $4,229 in purchased mortgage
servicing rights (PMSRs) with the acquisition of Eastern.  The table below
summarizes mortgage servicing right activity for the last two years:

		                                  1997	  1996	
Balance at beginning of year		    $2,734	$2,713
Additions		                        5,259	   495	
Amortization			                     (891)	 (474)	
Balance at end of year			         $7,102	$2,734
	
     The MSRs were carried at the lower of their cost or fair values.  The
fair value of MSRs is measured by discounting the net cash flows of future
mortgage servicing.  The associated cash flows were discounted using current
rates for similar investments and expected prepayment speeds are considered
based on current market data.  The Company stratifies MSRs according to type 
of product, rate and date sold.  Impairment of MSRs of $47 and $11 was recorded
in 1997 and 1996, respectively.   

     The following table represents activity in the valuation allowance during
the respective years:
		                                      1997	1996		
Balance at beginning of year		         $  11	$  -
Additions		                               47	  11	
Repayments			                              -	   -	
Balance at end of year			                $58	 $11

Note 5.  Allowance for Loan and OREO Losses

Transactions in the allowance
 for loan losses are summarized as follows:		 1997	   1996	   1995	 
Balance,  January 1		                       $13,647	$14,761	$16,236
Provision for Loan Losses		                   3,250	  3,350	  3,900
Loans Charged Off		                          (6,705)	(6,033)	(6,613)
Recoveries of Loans Previously Charged Off			 1,263	  1,569	  1,238
Addition of Eastern's Allowance			            7,488	      -	      -
Balance,  December 31			                    $18,943	$13,647	$14,761

Transactions in the OREO valuation
 reserve are summarized as follows:		       1997 	  1996    1995	 
Balance, January 1		                       $  87  	$  47	   $ 710
Provisions for OREO losses		                  23	    249	     503     
OREO Charged Off 			                        (110)  	(209)	 (1,166)
Balance, December 31,			                   $   -  	$  87	   $  47

       Proceeds from sales of OREO were $5,942 in 1997, $4,672 in 1996 and
$4,469 in 1995.  Loans granted in connection with these sales were $354, $873
and $1,468, respectively.  It is the Company's policy that no loan exceed 90%
of the sale price and no unguaranteed commercial, commercial real estate or
condominium loan exceed 80% of the sale price.  


Note 6. Premises and Equipment
 
Premises and equipment, stated at cost,
 consist of the following:                       December 31,     
		                                                1997	   1996	     
                    Land				                   $  4,206	$ 2,504	
                    Premises			                  33,959	 22,222
                    Equipment		  	               43,386	 18,188
                    Leasehold Improvements			     5,338	  1,833
	                      Total			                  86,889	 44,747
                    Accumulated Depreciation
                         and Amortization			    (40,269)(21,129) 
                    Premises and Equipment,
                         Net			                 $46,620	$23,618
          
Note 7. Deposits

     Time certificates of deposit outstanding in denominations of $100 or more
aggregated to $68,863 and $38,833 at December 31, 1997 and 1996, respectively.
Total interest on these deposits amounted to $2,830, $2,025 and $1,766 for the 
years ended December 31, 1997, 1996 and 1995, respectively.
     The Company paid  $48,642, $37,083 and $36,934 in interest on deposits
during 1997, 1996 and 1995, respectively.  

Note 8. Other Borrowings

     The following table shows the distribution of the Company's borrowings
and the weighted average interest rate thereon at the end of each of the last
three years.  The table also shows the maximum amount of borrowings and the
average amount of borrowings as well as weighted average interest rates for
the last three years.  Federal funds purchased and securities and loans 
sold under agreements to repurchase generally mature within 30 days from the
transaction date.
     At December 31, 1997 the Company owned $13,137 of stock in the Federal
Home Loan Bank ("FHLB") which  provided borrowing capacity up to $725 million
from the FHLB at maturities, rates and terms determined by the FHLB.     

	                                               December 31,    
		                                    1997	          1996	       1995	 
Federal funds purchased		          $ 16,000	     $       0    $    450
Securities and loans sold under
 agreements to repurchase			         71,818	        77,672	     79,323
FHLB and other borrowings			         86,899	        23,169	     11,892
	Total			                          $174,717	      $100,841	   $ 91,665
Average amount outstanding
 during the year		                 $134,109	      $ 88,133	   $ 95,034
Maximum amount outstanding
 at any month end		                $198,959	      $106,793 	  $112,370
Weighted average interest
 rate at year end			                  5.38%	         4.81%	      4.85%
Weighted average interest
 rate during the year			              5.12%	         4.86%	      5.21%	

Long-term borrowings from
 the FHLB (included in the above):	               December 31,         
		                                             1997	       1996	        1995	 
Maturing March 2, 1998 5.57%	                $ 4,000	    $     _ 	    $     -
Maturing July 15, 1998 @ 6.03%		              10,000	     10,000	      10,000
Maturing October 27, 1998 @ 4.99%		            4,500	          -	           -
Maturing December 10, 1998 @ 5.64%		           5,000	          -	           -
Maturing December 11, 1998 @ 5.77%		           1,000	          -	           -
Maturing December 14, 1998 @ 5.79%		           3,000	          -	           -
Maturing February 2, 1999 @ 5.50%		            5,000	          -	           -
Maturing February 2, 2001 @ 5.88%		            5,000 	         - 	          -
Maturing August 6, 2007 @ 6.42%		                393		         -            -
Maturing September 21, 2007 @ 6.53%		             35	          -	           -	
Maturing April 19, 2011 @ 3.50%		              1,745	          -	           -
Maturing August 1, 2011 @ 5.00%		                560	        560	         560
Maturing April 2, 2013 @ 5.50%		                 586	        586	         586 
Maturing October 29, 2013 @ 5.50%		               32	         32	          32
Maturing May 1, 2014 @ 6.29%		                   206	          -	           -
Maturing May 6, 2014 @ 7.61%		                   523	        539	         553
Maturing October 20, 2014 @ 8.24%		              593	          -            _	
Maturing August 19, 2016 @ 5.50%		               288	        296	           -
Maturing January 30, 2017 @ 7.27%			             608		         -		          -
     Total			                                $43,069		   $12,013		    $11,731

     The repurchase agreements represent amounts due to customers in connection
with overnight sweep accounts.  They represent a purchase, by customers, of a
fractional portion of the Bank's interest in certain purchased securities and
are an obligation of the Bank to repurchase that portion of the securities based
on terms in a Master Purchase Agreement between the bank and the customer.
     U.S. Treasury and agency securities pledged to secure repurchase agreements
totaled $71,818 at December 31, 1997.  The securities are under the Bank's
control.

Note 9. Fair Market Value of Financial Instruments

     Cash and Cash Equivalents - Cash and cash equivalents had a carrying value
of $98,009 and $63,797 at December 31, 1997 and 1996, respectively.  Due to
their short term and very liquid nature the carrying value is considered to
also represent the fair market value of those balances.
     Securities - Securities are classified as available for sale and are
carried at fair market value based on quoted market prices or dealer quotes.
Securities available for sale had a total fair market value of $527,649 and
$291,120 at December 31, 1997 and 1996, respectively.
     Loans - At December 31, 1997 and 1996 total loans, net of allowance for
loan losses, had a carrying value of $1,295,558 and $896,789, respectively.
The fair value of these loans were $1,316,814 and $908,688, respectively.  For
certain homogeneous categories of loans, such as some residential mortgages,
credit card receivables and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics.  The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at 
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
     Deposits - At December 31, 1997 and 1996 total deposits had carrying values
of $1,686,172 and $1,083,258 and fair values of $1,684,500 and $1,084,304,
respectively.  The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposits is estimated using
the rates currently offered for deposits of similar remaining maturities.
     Other Borrowings - Total other borrowings had carrying values of $174,717
and $100,841 at December 31, 1997 and 1996, respectively.   The fair value of
these borrowings were $174,800 and $100,828, respectively.
     Off-Balance Sheet Financial Instruments - The Company's off-balance sheet
exposure is primarily in the form of commitments to extend credit and standby
letters of credit.  The carrying amount of these arrangements represents
accruals or deferred income (fees) arising from those unrecognized financial
instruments.  Such amounts are minimal and approximate fair value.

10. Impaired Loans

     The following table details the Company's impaired loans as of the periods
indicated:	

		                                                                December 31,
		                                                               1997    1996	  
Commercial (measured using discounted cash flows)		            $ 4,600 $20,900	 
Commercial (measured using collateral values)			                   900	    300
Real Estate - Commercial (measured using discounted cash flows)		4,100 	     -
Real Estate - Commercial (measured using collateral values)			  14,400	  1,500
Real Estate - Residential (measured using collateral values)			  7,200	  5,600
Real Estate - Residential (measured using discounted cash flows)	1,700	      -
Consumer (measured using collateral values)			                     400	      - 
Total impaired loans			                                        $33,300	$28,300

Impaired loans with a specific valuation reserve			             $6,600	  1,600	 
Valuation reserve for impaired loans			                          2,400	    300
Impaired loans without a specific valuation reserve			          26,700	 26,700	
Average impaired loans			                                       31,300	 30,200
Income accrued on impaired loans			                              1,700	  2,100


Note 11.  Commitments and Contingencies and Financial Instruments with Off-
          Balance Sheet Risk

     Leases- The following is a schedule by years of future minimum rental
payments required under operating leases for premises and data processing
equipment that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1997.  Certain operating leases contain various
options to renew.

	               Year Ending		                         December 31:
	                 1998		                                  $2,020        
 	                1999		                                   1,892  
	                 2000		                                   1,501     
	                 2001		                                     874     
	                 2002		                                     554     
	               Later Years			                             2,973
	               Total Minimum Payments Required			        $9,814      

     Operating expenses include approximately $1,086, $872 and $943 in 1997,
1996 and 1995, respectively, for rentals of premises and equipment used for
banking purposes.
     Derivative Financial Instruments - Transactions involving derivative
financial instruments except those described below during the fiscal years 1997,
1996 and 1995 were immaterial.
     Financial Instruments With Off-Balance Sheet Risk - The Company is party
to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers.  These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance sheets.
The contract amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.
     The Company's exposure to credit loss in the event of nonperformance by
the counterparty to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of those
instruments.  The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet instruments.
     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee.  Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.  Total commitments to extend
credit at December 31, 1997 and 1996 were as follows:
			
                                                 1997	          1996	
	                    Home equity lines       	$145,126  	     $52,081
	                    Credit card lines		        98,629	        92,336
	                    Commercial real estate   		16,760        	16,270
	                    Other unused commitments 	135,457	       112,106
 
     The Company evaluates each customer's credit-worthiness on a case-by-case
basis.  The amount of collateral  obtained if deemed necessary upon extension
of credit is based on management's credit evaluation of the counterparty.
Collateral held varies but may include certificates of deposit, accounts
receivable, inventory, property, plant and equipment, residential real estate
and income-producing commercial properties.
     Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party.  Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions.  The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.  The collateral varies but
may include certificates of deposit, accounts receivable, inventory, property,
plant and equipment and residential real estate for those commitments for which 
collateral is deemed necessary.
     As of December 31, 1997, the Company had outstanding commitments for the
following:  financial standby letters of credit - $25,794, performance standby
letters of credit - $4,305 and commercial and similar letters of credit -
$8,896.
     Non-Interest Bearing Deposits and Cash - The Company is required by the
Federal Reserve Bank to maintain a portion of deposits as a cash reserve.  The
Company must maintain cash balances on hand or at the Federal Reserve Bank equal
to its reserve requirement.  At December 31, 1997 the Company's reserve
requirement of $27,077 was met with cash on hand and deposits at the Federal
Reserve Bank.
     Other - The Company is also involved in litigation arising in the normal
course of business.  The Company does not anticipate that any of these matters
will result in the payment by the Company of damages, that in the aggregate,
would be material in relation to the consolidated results of operations or
financial position of the Company.

Note 12. Income Taxes

     The provisions for income tax expense (benefit) included in the statements
of income are as follows:

 		                            Year Ended December 31,   
		                            1997	     1996	     1995
Currently Payable:
	Federal			                 $11,564	   $7,439	   $5,992
	State			                       641	      636	      665
Deferred:
	Federal			                  (2,195)	     421	      569
	State			                         3	       43	       15
	Total			                   $10,013	   $8,539	   $7,241

The Company made income tax payments of $7,965, $7,390 and $6,425 during 1997,
1996 and 1995, respectively.

The components of the net deferred tax asset as of December 31 are as follows:

		                                                  1997	  1996	
Deferred tax assets:
    Pension			                                    $1,070	$  729
 	  Deferred compensation and fees			              2,292	 1,853
 	  Allowance for loan losses			                   6,906	 4,649
 	  Unrealized loss on securities, net			              -	   549
	   Intangibles			                                   560	     -
	   Other			                                       1,330	   283
Total gross deferred tax assets			                12,158	 8,063
Deferred tax liabilities:
	   Accretion			                                     127	    94
	   Unearned income		                               	323	   419
	   Depreciation			                                1,793	 1,216
	   Unrealized gain on securities, net			          1,177      -
	   Intangibles			                                     -	   413
	   Deferred loan fees			                            691	     -	   
Total gross deferred tax liabilities			            4,111	 2,142
Deferred tax asset, net			                        $8,047	$5,921
   
     No valuation allowance is required as there is sufficient taxable income
in the carry back period and through future operating results to be able to
fully realize the deferred tax asset.     

     The provision for income taxes is less than the amount computed by applying
the applicable federal income tax rate to income before taxes.  The reasons
therefore are as follows:

	                                       1997	          1996	         1995      
		                                           % of		         % of		         % of
                                           Pre Tax        Pre Tax        Pre Tax
                                    Amount  Income  Amount Income  Amount Income
Federal Statutory Rate		            $ 9,499 	35.0% 	$8,804 	35.0% 	$7,748 	35.0%
Decreases in Taxes Resulting From:
	Tax exempt interest	                 	(709)	(2.6)	   (786)	(3.1)	   (841)	(3.8)
	State taxes, net of federal benefit		  419	  1.5	     443	  1.8	     444	  2.0	
	Goodwill		                             875	  3.2	       -	    -	       -	    -
	Other, net			                          (71)	(0.2)	     78	  0.3	    (110)	(0.5)
Total				                           $10,013	 36.9%	 $8,539	 34.0%  $7,241	 32.7%
 

Note 13. Employee Benefit Plans

     The Company's two subsidiaries each have separate defined benefit pension
plans.
     VNB has a trusteed non-contributory defined benefit pension plan covering
substantially all of its employees.  The benefits are based on years of service
and the employee's final compensation.  VNB's funding policy is to contribute
annually an amount that can be deducted for federal income tax purposes using
a different actuarial cost method and different assumptions from those used
for financial reporting.  
     UB has a non-contributory defined benefit plan providing pension benefits
through membership in the Savings Banks Employees Retirement Association
("SBERA") covering substantially all of its employees meeting certain
requirements as to age and length of service.  The plan provides a monthly
benefit upon retirement based on compensation during the highest paid 
consecutive three years of employment during the last ten years of credited
service.  It is UB's policy to fund annually an amount equal to the lesser of
the actuarially determined normal cost or the amount allowed by the Internal
Revenue Code Section 412 Full Funding Limitations.  All plan assets are part
of a single pooled fund made up of all participated SBERA members which 
are managed by the SBERA Trustees.
     The following table sets forth the plans' combined funded status and
amounts recognized in the Company's consolidated balance sheets as of
December 31, 1997 and 1996:

	                                                      Year Ended December 31, 
		                                                       1997 	        1996	   
Actuarial present value of benefit obligations:
	Accumulated benefit obligation, including vested
	   benefits of $14,664 and $12,174 for 1997 and
	   1996, respectively			                             $(15,149)	    $(12,326)

Projected benefit obligation ("PBO") for
 service rendered to date			                          $(20,521) 	   $(17,183)	
Plan assets at fair value, comprised of
 guaranteed insurance contacts, mutual,
 real estate and money market funds
	and listed stocks and bonds 			                        20,616	       17,665
PBO less than  plan assets			                               95	          482	
Unrecognized net (gain) loss from past
 experience different from that assumed and
 effects of changes in assumptions			                   (2,003)	      (1,485)	
Unrecognized prior service cost			                         320	          (48)
Unrecognized net asset at period end being
 recognized over 18.64 years 	                          		(782)        	(901)
Accrued pension cost		                                	$(2,370)     	$(1,952)


		                                                     1997	    1996	    1995	
Net pension cost included the following components:
	Service cost - benefits earned during the period			 $   894	 $   870	 $   652	
 	Interest cost on PBO			                              1,348	   1,270	   1,141
	Actual return on plan assets			                      (3,301)	 (2,127)	 (2,974)
	Amortization of net transition asset			                (119)	   (119)	   (119)
	Net amortization and deferral of gains			             1,824	     802	   1,864
	Net pension cost			                                 $   646	  $  696 	$   564


Significant assumptions used in actuarial computations were:

			                                                1997	              1996	     
	Discount rate		                              7.00% - 7.75%     	7.50% - 7.75%
	Rate of increase in compensation levels		    5.00% - 6.00%	     5.00% - 6.00%
	Long-term rate of return on assets		         8.00% - 8.50%	     8.00% - 8.50%	

     The Company also has a Profit-Sharing Plan covering substantially all
employees.  A portion of the annual contribution by the Company is at the
discretion of the Board of Directors.  The discretionary contribution was
approximately $ 750 for 1997 and 1996 and $500 for 1995.  The Plan included a
50% Company match of employee contributions to a 401k portion of the Plan 
for 1997 and 1996 and a 25% match for 1995.  This Plan feature was added in
1993 and the associated expense was $410 for 1997, $340 for 1996 and $140 for
1995.
     The Company also has an Employee Stock Purchase Plan covering substantially
all employees.  The Plan allows the purchase of common stock at a ten percent
discount from the then current fair market value, without payment of any
brokerage commission or service charge.
     The Company sponsors defined benefit postretirement medical and life
insurance plans that cover all of its full time employees and participating
retirees.  Eligible employees who retire and who have attained age 65 with at
least 10 years of service may elect coverage.  Spouses of eligible retirees
are required to contribute 100% of the cost of any medical coverage they 
elect.  A closed group of certain retirees and their spouses who elected to
retire under a special incentive program receive additional medical benefits.
The plans are not funded.    
      The following table sets forth the plan's accumulated postretirement
benefit obligation reconciled with the amount shown in the Company's financial
statements:

		                                                     1997	    1996
 Accumulated postretirement benefit obligation:
	          Retired employees			                       $ 310	   $ 255
	          Active employees			                          304	     168           
	          Total			                                   $ 614	   $ 423
 Plan assets at fair value			                         $   -   	$   -

		                                                     1997	     1996
Unfunded accumulated benefit obligation
 in excess of plan assets			                          $(614)   	$(423)
Unrecognized net loss			                                157	       68
Unrecognized transition obligation			                   171	      182          
Accrued postretirement medical and life benefit cost 	$(286)   	$(173)


Net periodic postretirement benefit cost included
 the following components:     
      Service cost - benefits attributed to service
       during the period			                           $  14	    $  12	     
      Interest cost			                                   35	       32       
      Recognition of transition obligation			            11	       11       
      Unrecognized loss			                               12	        3
      Net periodic postretirement cost			             $  72	    $  58

     
      For measurement purposes, 7.75% and 8.00% annual rates of increase in the
per capita net employer share of covered health care benefits were assumed for
1997 and 1996, respectively.  The rate was assumed to remain at that level
thereafter, but the impact of medical inflation eventually diminishes because
of the $10 per capita lifetime limit on medical benefits and the likelihood
that most current retirees and all future retirees will reach that cap.  The
medical trend rate assumption, therefore, merely affects the timing of the
distribution of the $10 in benefits to each participant, and so has a relatively
small effect on the amounts reported.  To illustrate, increasing the assumed
health care cost trend rate by one percentage point for all future years 
would increase the accumulated postretirement benefit obligation at December 31,
1997, as well as the total of the service cost and interest cost components of
net periodic postretirement cost for 1997 by less than 2%.  The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.00% in 1997 and 7.75% in 1996.  As the plan is 
unfunded, no assumption was needed as to the long term rate of return on assets.


Note 14. Stockholders' Equity

     The Company adopted SFAS No. 128 Earnings per Share, on December 31, 1997.
SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share, and replaces
primary earnings per share and fully diluted earnings per share with basic 
earnings per share and diluted earnings per share, respectively.  The Company
has restated earnings per share for all prior periods presented to comply with
the provisions of SFAS No. 128.
     Following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for the years ended
December 31, 1997, 1996 and 1995:

			                                                 Average Shares	Per-Share
		                                        Income			   Outstanding			 Amount
		                           (in thousands, except share and per share amounts)	
			                                                      1997		
Basic EPS:
	Income Available to common stockholders		$17,126	    11,257,292	    $1.52
Effect of Dilutive Securities:
	Stock options		                                -	       107,628	    (0.01)
Diluted EPS:
	Income available to common stockholders		$17,126	    11,364,920	    $1.51
			                                        
                                                         1996		
Basic EPS:
	Income Available to common stockholders		$16,615	     9,284,890	    $1.79
Effect of Dilutive Securities:
	Stock options		                                -	        79,711	    (0.02)
Diluted EPS:
	Income available to common stockholders		$16,615	     9,364,601	    $1.77
			
                                                         1995		
Basic EPS:
	Income Available to common stockholders		$14,897	     9,295,341	    $1.60
Effect of Dilutive Securities:
	Stock options		                                -	        59,431	    (0.01)
Diluted EPS:
	Income available to common stockholders		$14,897	     9,354,772	    $1.59

     The per share amounts of cash dividends paid on an equivalent share basis
were $.60 for 1997, $0.53 for 1996 and $0.43 for 1995.  At December 31, 1997,
the Banks had available $4,156 for payment of dividends to the Company, under
regulatory guidelines.
     At December 31, 1997, there were 112,527 and 115,475 shares of common
stock reserved for issuance pursuant to the Company's Dividend Reinvestment
and Stock Purchase Plan and pursuant to the Company's Employee Stock Purchase
Plan, respectively.
     Option Agreements -  On April 20, 1987, stockholders approved a non-
qualified stock option plan for 210,000 shares of the Company's common stock
and on April 17, 1990 stockholders approved a non-qualified stock option plan
for 160,000 shares of the Company's common stock.  On October 13, 1993 options
to purchase 72,000 and 24,000 shares, respectively, were granted under these
plans at an exercise price of $9.50 per share and are exercisable for a five
year period;  76,000 have been exercised to date.  On August 31, 1994
stockholders approved the Vermont Financial Services Corp. 1994 Stock Option
plan which reserves 450,000 common shares to be issued in the form of stock
options.  To date 96,000 have been issued at an exercise price of $9.50 per
share, 13,000 have been issued at an exercise price of $10.12 per share, 119,600
have been issued at an exercise price of $11.25 per share and 148,000 have been
issued at an exercise price of $15.75 per share;  115,200 have been exercised
to date.  All options are exercisable for a ten year period.  On August 13, 1997
the Board of Directors approved, subject to approval by stockholders at the
next annual meeting of stockholders, an amendment and restatement of the 1994
plan which reserves an additional 660,000 common shares to be issued in the
form of stock options.  To date, 144,000 have been issued at a price of $24.44
per share subject to approval of the plan as noted above and no shares have
been exercised.  In addition, the Company continues to maintain a stock option
plan originally approved November 6, 1986 by the stockholders of West Mass
Bankshares which authorizes the issuance of up to 276,000 common shares which
are exercisable for a ten year period.  To date 253,920 have been issued at
an exercise price of $3.75 per share all of which have been exercised and
13,800 have been issued at an exercise price of $5.12 per share of which 11,150
have been exercised to date.  In conjunction with the merger with Eastern
Bancorp, the Company acquired 451,772 options at an exercise price of $20.78
which had previously been granted to Eastern's employees and directors at lower
exercise price; 369,590 have been exercised to date.  The following table 
presents the activity in each of the Company's stock option plans:

                      Shares    Shares   Shares   Shares     Shares    Shares
                       Under     Under    Under    Under      Under     Under
                      Option    Option   Option   Option     Option    Option
		                   @ $3.75 -                   @ $9.50 -       
	                      $5.12   @ $9.50  @ $9.50   $15.75    @ $20.78  @ $24.44  
Outstanding,
 December 31, 1994  		190,674	  72,000	  24,000	  109,000	       -	      -
Granted		                   -	       -	       -	  119,600	       -	      -
Expired		                   -	       -	       -	        -	       -	      -
Exercised		           174,184	   8,000	       -	    3,000	       -	      -
Outstanding,
 December 31, 1995  		 16,490	  64,000	  24,000	  225,600	       -	      -
Granted		                   -	       -	       -	  148,000	       -	      -
Expired		                   -	       -	       -	    2,000	       -	      -
Exercised		            11,440	  16,000	  10,000	   18,400	       -	      -
Outstanding,
 December 31, 1996  		  5,050	  48,000	  14,000	  353,200	       -	      -
Acquired		                  -	       -	       -	        -  451,772	      -		
Granted		                   -	       -	       -	        -	       -	     144,000
Exercised		             2,400	  36,000	   6,000	   93,800	 369,590	      -
Outstanding,
 December 31, 1997  	  	2,650	  12,000	   8,000	  259,400	  82,182	144,000
Weighted average  
 remaining maturity
   (years)		              5.4	     0.8	     0.8	      7.5	     5.7	    9.7
Weighted average
 exercise price at 
   January 1, 1997  		  $5.12	   $9.50	   $9.50	   $12.66	       -	      -
Weighted average
 exercise price at 
   December 31, 1997  		$5.12	   $9.50	   $9.50	   $12.65	  $20.78	  $24.44
Weighted average
 exercise price of
 options exercised
 during 1997		          $5.12	   $9.50	   $9.50	   $12.69	  $20.78	       -

     The Company accounts for stock options in accordance with the provisions
of APB Opinion No. 25, Accounting for Stock Issued to Employees.  Accordingly,
compensation expense is recognized only if the fair value of the underlying
stock at the grant date exceeds the exercise price of the option.  Accordingly,
no compensation cost has been recognized for options issued under the plans
described above.  Had compensation cost for the VFSC's stock option plans been
determined based on the fair value at the grant date for awards under those
plans consistent with SFAS Statement No. 123, the Company's net income, earnings
per share and book value per share would have been reduced to the following
pro forma amounts:

		                                                1997			 1996			 1995	
  Net income	                  As reported	     $17,126	$16,615	$14,897
		                             Pro forma	       $16,452	$16,213	$14,586
  Basic earnings per share	    As reported	       $1.52	  $1.79	  $1.60
		                             Pro forma	         $1.46	  $1.75	  $1.57
  Diluted earnings per share	  As reported	       $1.51	  $1.77	  $1.59	
		                             Pro forma	         $1.45	  $1.73	  $1.55
  Diluted tangible book value
    per share	                 As reported 	     $11.48	 $11.87	 $11.24
		                             Pro forma	        $11.43	 $12.50	 $11.90

Significant values and assumptions used in calculating the above proforma
amounts are as follows:

                                             Options    Options    Options
	                                             Issued     Issued     Issued
		                                           8/27/97			 3/13/96	 		5/10/95	
Stock price at date of issuance		             $24.44	    $15.75	    $11.25
Exercise price		                              $24.44	    $15.75	    $11.25
Anticipated remaining life (years)		            7.50	      7.50 	     7.50
Volatility		                                   21.99%	    23.18%	    38.13%
Annual rate of quarterly dividends		            2.45%	     3.18% 	    3.56%
Risk free discount rate		                       6.36%	     6.20%	     6.54%
Grant date fair value of options		             $7.20	     $8.35	     $8.01

     The Superior Court in Greenfield, Massachusetts has issued an order in a
shareholder appraisal case involving former stockholders of WMBS.  As a result
of the court order, which remains appealable by either party, VFSC has accrued
approximately $3.7 million to these former stockholders of WMBS for the shares
of WMBS stock that they still hold.  The WMBS stock involved in this case is the
equivalent of approximately 228,400 shares of VFSC common stock, so the
settlement is equal to $16.35 per VFSC share.  There was approximately $420,000
of pretax expense and a charge to equity capital of approximately $3.3 million
for this settlement representing the retirement of these shares.
	
     The Company is subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements.  Under capital
adequacy guidelines and the regulatory framework for prompt correction action,
the Company and its banking subsidiaries must meet specific capital guidelines
that involve quantitative measures of the assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices.  The
capital amounts and classification are also subject to qualitative judgments 
by the regulators about components, risk weightings, and other factors.
     Quantitative measures established by regulation to ensure capital adequacy
require the Company and its banking subsidiaries to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier 1 Capital to risk-
weighted assets, and Tier 1 Capital to average assets.  Management believes,
as of December 31, 1997, the Company and Banks meet all capital adequacy
requirements to which they are is subject.
     As of December 31, 1997, the most recent notification from the OCC for VNB
and from the FDIC for UB categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action.  To be categorized as well
capitalized the Banks must maintain minimum total risk-based, Tier I risk-based,
Tier I leverage ratios as set forth in the table.  There are no conditions or
events since that notification that management believes have changed the
institutions category.
     The actual capital amounts and ratios as of December 31, 1997 and 1996
are presented in the table:

			                                                              To Be Well
                                                               Capitalized Under
                                                For Capital    Prompt Corrective
                                                  Adequacy         Action
	                                Actual	          Purposes       Provisions
	                            Amount	  Ratio	   Amount	 Ratio	  Amount	  Ratio
As of December 31, 1997
Total Capital
 (to Risk Weighted Assets):
	VFSC		                     $164,899	 13.24%	 $99,673	 8.00%	 $124,591	 10.00%
	VNB		                       130,980	 12.05	   86,959	 8.00	   108,699	 10.00
	UB		                         22,302	 14.54	   12,269	 8.00	    15,336	 10.00
Tier I Capital
 (to Risk Weighted Assets):
	VFSC		                      149,283	 11.98	   49,837 	4.00	    74,755  	6.00
	VNB		                       117,357	 10.80   	43,480	 4.00	    65,219	  6.00
	UB		                         20,385	 13.29	    6,134	 4.00	     9,202	  6.00
	Tier I Capital
 (to Average Assets):
	VFSC		                      149,283	  7.27	   82,090	 4.00	   102,612	  5.00
	VNB		                       117,357	  6.55	   71,707	 4.00	    89,633	  5.00
	UB		                         20,385	  8.77	   10,166	 4.00	    12,708	  5.00

As of December 31, 1996
	Total Capital
 (to Risk Weighted Assets):
	VFSC		                     $124,931	 15.17%	 $65,883	 8.00%	  $82,354	 10.00
	VNB		                        69,451	 10.46	   53,118	 8.00	    66,397	 10.00
	UB		                         19,965	 13.65	   11,705	 8.00	    14,631	 10.00
	Tier I Capital
 (to Risk Weighted Assets):
	VFSC		                      114,595	 13.92	   32,941	 4.00	    49,412	  6.00
	VNB		                        61,115	  9.20	   26,559	 4.00	    39,838	  6.00	
	UB		                         18,136	 12.40	    5,853	 4.00	     8,779	  6.00
	Tier I Capital
 (to Average Assets):
	VFSC		                      114,595	  8.84	   51,853	 4.00	    64,816	  5.00
	VNB		                        61,115	  5.83	   41,931	 4.00	    52,414	  5.00
	UB		                         18,136	  7.48	    9,700	 4.00	    12,125	  5.00

Note 15. Parent Company Financial Information

Condensed financial information for Vermont Financial Services Corp.
(parent company only) is as follows:

CONDENSED BALANCE SHEETS    	                  December 31,   
 		                                           1997	     1996	
ASSETS
Cash				                                   $  9,717	 $  4,085	
Investment Securities			                      4,916	   31,565
Other Assets			                               9,010	      739
Investment in Subsidiaries			               196,090	   84,318
	Total Assets			                           $219,733	 $120,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities			                       $  6,137	 $    990
 	Total Liabilities			                        6,137	      990	
	Total Stockholders' Equity			              213,596  	119,717
	Total Liabilities and
   Stockholders' Equity			                 $219,733	 $120,707


CONDENSED STATEMENTS OF INCOME     	Year Ended December 31,  
			                                           1997	     1996	     1995
INCOME
Income on Securities			                     $ 1,006	  $   334	  $   316
Other Income			                              11,140	   39,000    	3,615
	Total Income			                             12,146	   39,334	    3,931
EXPENSES
	Total Operating Expenses	                  		1,117	      668	      551       
Income Before Tax Benefit and Equity
	in Undistributed Income from Subsidiaries			11,029	   38,666	    3,380	
 Applicable Income Tax (Benefit)			             (40)	    (168)	    (195)
Income Before Equity in Undistributed
	Income of Bank Subsidiaries			              11,069	   38,834	    3,575
Equity in Undistributed Income
 of Subsidiaries			                           6,057	  (22,219)	  11,322
	Net Income			                              $17,126	  $16,615	  $14,897


STATEMENTS OF CASH FLOWS     	                 Year Ended December 31,  
			                                           1997	     1996	     1995
OPERATING ACTIVITIES 
Net Income			                               $17,126	  $16,615	  $14,897
Adjustments to reconcile income
 to net cash provided by
 operating activities:
	Net amortization on investment securities			    37	       22	        2
	Investment security (gains), net			            (79)	      (8)	    (121)
	(Increase) in other assets			               (8,271)	    (633)	     (28)
	Increase (decrease) in other liabilities			  5,147	     (151)	     866
	Equity in undistributed net
 income of bank subsidiaries			              (6,057)	  22,219	  (11,322)
	NET CASH PROVIDED  BY OPERATING ACTIVITIES			7,903	   38,064	    4,294
INVESTING ACTIVITIES
	Proceed from sales and
  maturities of securities			                50,494	    9,973	    1,539
	Investments in subsidiaries			             (30,172)	       -	        -	       
	Purchase of securities			                  (23,802)  (36,762)	  (2,321)
	NET CASH (USED) BY INVESTING ACTIVITIES			  (3,480)	 (26,789)	    (782)    
FINANCING ACTIVITIES                       
	Issuance of common stock			                 10,950	      790	      914	
	Purchase of treasury stock
  and retirement of shares			                (3,026)	  (3,555)	       -
	Cash dividends			                           (6,715)	  (4,928)	  (4,048)
NET CASH PROVIDED (USED) BY FINANCING
	ACTIVITIES			                                1,209	   (7,693)	  (3,134)
INCREASE IN CASH AND CASH EQUIVALENTS			      5,632	    3,582	      378
Cash and cash equivalents at
 beginning of year			                         4,085	      503	      125
CASH AND CASH EQUIVALENTS AT END OF YEAR	  		$9,717	   $4,085	  $   503

Note 16. Supplemental Financial Data

Selected Quarterly Data (unaudited)
The following is a summary of selected consolidated quarterly data of the
Company for the periods presented:

  	                                                  1997               
		                                 Fourth	     Third	    Second	       First
		                               Quarter (1)	Quarter (1)	Quarter      Quarter

Interest income			                  $38,672	    $39,491	   $25,338	   $24,377
Interest expense			                  17,436	     17,748	    10,687	    10,092
Net interest income			               21,236	     21,743	    14,651	    14,285
Provision for possible loan losses			   900	        900	       700	       750
Other operating income			             9,222	      8,371	     5,524	     5,405
Other operating expense (2)			       24,795	     19,991	    12,773	    12,490
Income before income taxes			         4,763	      9,223	     6,702	     6,450
Applicable income taxes			            2,250	      3,519	     2,193	     2,050
Net income			                       $ 2,513  	  $ 5,704	   $ 4,509  	 $ 4,400  
Per share data:
Basic earnings per share			           $0.19	      $0.42	     $0.46	     $0.46

Diluted earnings per share			         $0.19	      $0.42	     $0.46	     $0.46

(1)  Includes the impact of the merger with Eastern Bancorp from June 27, 1997.
(2)  Includes the effect of $3.8 million in merger related losses/expenses and
$0.4 million from a shareholder appraisal case.

	                                              1996               
		                           Fourth	     Third	     Second	    First
		                           Quarter		   Quarter   	Quarter	   Quarter

Interest income			           $24,904	    $24,420	   $24,476	   $24,305
Interest expense			           10,374	     10,387	    10,160	    10,430
Net interest income			        14,530	     14,033	    14,316	    13,875
Provision for possible
 loan losses			                  750 	       800	       900	       900
Other operating income			      5,377	      4,835	     4,432	     4,517
Other operating expense			    12,457	     11,805	    11,715	    11,434
Income before income taxes			  6,700	      6,263	     6,133	     6,058
Applicable income taxes			     2,202	      2,096	     2,124	     2,117
Net income		 	               $ 4,498	    $ 4,167	   $ 4,009	   $ 3,941
Per share data:
Basic earnings per share			    $0.49	      $0.45	     $0.43	     $0.42

Diluted earnings per share			  $0.47	      $0.45     	$0.43	     $0.42


Statement of Management Responsibility

     The management of Vermont Financial Services Corp. is responsible for the
accuracy and content of the financial statements and other financial information
in this annual report.  The financial statements have been prepared in
conformity with generally accepted accounting principals applied on a consistent
basis in all material respects, and data include amounts based upon management's
judgment where appropriate.
     The accounting systems which record, summarize and report financial data
are supported by internal controls which are augmented by written policies,
internal audits and staff training programs.  The Audit Committee of the Board
of Directors, which is made up solely of outside directors who are not employees
of the Company, reviews the activities of the internal audit function and meets
regularly with representatives of KPMG Peat Marwick LLP the Company's
independent auditors.  KPMG Peat Marwick LLP has been appointed by the Board
of Directors to conduct an independent audit and to express an opinion as to 
the fairness of the presentation of the consolidated financial statements of
Vermont Financial Services Corp.


Independent Auditors' Report
     
To the Stockholders and Board of Directors of Vermont Financial Services Corp.:

     We have audited the accompanying consolidated balance sheet of Vermont
Financial Services Corp. and subsidiaries as of December 31, 1997, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended.  These consolidated financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
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 on 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vermont
Financial Services Corp. and subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accounting principles.

KPMG Peat Marwick LLP
     
Hartford, Connecticut
April 3, 1998
     

REPORT OF INDEPENDENT ACCOUNTANTS

     We have audited the accompanying consolidated balance sheet of Vermont 
Financial Services Corp. and subsidiaries as of December 31, 1996, and the 
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the two years in the period ended December 31, 1996.  
These financial statements are the responsibility of the Company's management.
Our responsibility is to express and 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 consolidated financial position
of Vermont Financial Services Corp. and subsidiaries as of December 31, 1996 and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.

     The Company adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" and Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" in 1996.

Coopers & Lybrand L.L.P.

Springfield, Massachusetts
January 21, 1997 



PART IV
     
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
     
	(a) Financial Statements and Exhibits
     
	(1) The following financial statements (including report thereon and notes
     thereto) are filed as part of this Report. 

 Independent Auditors' Report
     
	Report of Independent Certified Public Accountants                             
    
	Consolidated Balance Sheets - December 31, 1997 and 1996                       
     
	Consolidated Statements of Income - For the Years Ended December 31, 1997,
  1996, and 1995                                 
     
	Consolidated Statements of Changes in Stockholders' Equity - For the Years
  Ended December 31, 1997, 1996, and 1995                                       
     
	Consolidated Statements of Cash Flow - For the Years Ended December 31, 1997,
  1996 and 1995        
     
	Notes to Consolidated Financial Statements                 
	(2)  Schedules - None
	(3)  Exhibits:
     
	     3.1  Certificate of Incorporation of Registrant. Incorporated by reference
to Exhibit 3.1 to Registrant's Current Report on Form 8-K dated April 23, 1990.
     
	     3.2  By-Laws of Registrant.  Incorporated by reference to Exhibit 3.2 to
Registrant's Current Report on Form 8-K dated April 23, 1990.
     
	     10.1 Management continuity agreements dated February 9, 1990 with the
           following four executive officers:
     
	          (a)  John D. Hashagen, Jr.
           (b)  Richard O. Madden
           (c)  W. Bruce Fenn
           (d)  Robert G. Soucy
     
	Are incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for
the fiscal year ended December 31, 1990.
     
     Management continuity agreement dated March 17, 1994 with Louis J. Dunham
is incorporated by reference to Exhibit 10.1 to Registrant's Form 10-K for the
fiscal year-ended December 31, 1993.
     
     10.2 Agreement of Merger dated February 28, 1990 between the Company and
Vermont Financial Services Corp., a Delaware corporation.  Incorporated by
reference to Exhibit A of Registrant's Proxy Statement for its 1990 Annual
Meeting of Shareholders, Exhibit 28 to Registrant's Form 10-K for the fiscal
year ended December 31, 1989.
     
     22. Subsidiaries of Registrant.  Filed herewith.
     
    	24. Consent of KPMG Peat Marwick LLP.  Filed herewith.
     
	    (b) Reports on Form 8-K.
     
     During the Registrant's fiscal quarter ended December 31, 1997, the
Registrant filed no Reports on Form 8-K.    


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.
     
VERMONT FINANCIAL SERVICES CORP.
     
					     
Date:  	                      By  /s/________________________________	   
                           	         John D. Hashagen, Jr., President
                                	         and Chief Executive Officer
          
		                            By  /s/________________________________		
    		                               Richard O. Madden, Executive Vice
                	                    President and Chief Financial Officer
     
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
     
Name                      	     Title                              	Date
     
     
/s/________________________		   Director and President	         April 8, 1998
John D. Hashagen, Jr.		        (Principal Executive Officer)
     
    
/s/________________________		   Secretary & Treasurer	          April 8, 1998
Richard O. Madden		            (Principal Financial Officer)
     
     
/s/________________________		   Director	                       April 8, 1998
Anthony F. Abatiell
     
     
/s/________________________		   Director	                       April 8, 1998
Zane V. Akins
     
     
/s/________________________		   Director	                       April 8, 1998
Charles A. Cairns
     
     
/s/________________________		   Director	                       April 8, 1998
William P. Cody
     
     
/s/________________________		   Director	                       April 8, 1998
Allyn W. Coombs
     
     
/s/________________________		   Director	                       April 8, 1998
Philip M. Drumheller
     

/s/________________________		   Director	                       April 8, 1998
John K. Dwight
     

/s/________________________		   Director	                       April 8, 1998
James E. Griffin
     
     

/s/________________________		   Director	                       April 8, 1998
Francis L. Lemay
     
     
/s/________________________		   Director	                       April 8, 1998
Stephan A. Morse
  

/s/________________________			  Director	                       April 8, 1998
Roger M. Pike 
     
     
/s/________________________		   Director	                       April 8, 1998
Ernest A. Pomerleau


/s/________________________		   Director	                       April 8, 1998
Mark W. Richards
     
     
/s/________________________		   Director	                       April 8, 1998
James M. Sutton
 

     
Index to Exhibits
    
     
     Exhibit 22  Subsidiaries of Registrant
     
     Exhibit 23  Consent of Independent Certified Public Accountants
     

Exhibit 22
     
Subsidiaries of Registrant:
     
1.	Vermont National Bank, a national banking association, with a principal
   place of business at 100 Main Street, Brattleboro, VT 05301.
     
2.	United Bank, a Massachusetts state-chartered savings bank, with a principal
   place of business at 45 Federal Street, Greenfield, MA 01301
     
Exhibit 23
     
CONSENT OF INDEPENDENT AUDITORS     
     
The Board of Directors
Vermont Financial Services Corp.

     We consent to incorporation by reference in the registration statements
(No. 2-80833 and No. 2-83361) on Form S-3 and S-8 of Vermont Financial Services
Corp. and subsidiaries of our report dated April 3, 1998, relating to the
consolidated balance sheet of Vermont Financial Services Corp. and subsidiaries
as of December 31, 1997, and the related consolidated statements of income, 
changes in stockholders' equity, and cash flows for the year then ended, which
report appears in the December 31, 1997, annual report of Form 10-K of Vermont
Financial Services Corp.

KPMG Peat Marwick LLP

Hartford, Connecticut
April 14, 1998

   

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
     
     
     We consent to the incorporation by reference in the registration statements
of Vermont Financial Services Corp. on Form S-8 (File No. 2-83361) and Form S-3
(File No. 2-80833) of our report, dated January 21, 1997, on our audits of the
consolidated financial statements as of December 31, 1996 and 1995, and for
each of the three years ended December 31, 1996, which report is included in 
this Annual Report on Form 10-K.


COOPERS & LYBRAND L.L.P.
     
Springfield, Massachusetts
April 14, 1998


VERMONT FINANCIAL SERVICES CORP.
Proxy Solicited on Behalf of Board of Directors
     
     The undersigned hereby appoints John D. Hashagen, Jr., Anthony F. Abatiell
and Richard O. Madden, and each of them, attorneys and proxies with full power
of substitution in each, to vote all of the stock of Vermont Financial Services
Corp. (the "Company") which the undersigned is/are entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at The Quality Inn
and Suites, Brattleboro, VT, on June 11, 1998 at 10:00 a.m. and at any and all
adjournments thereof.  All powers may be exercised by a majority of said
proxyholders or substitutes voting or acting, or if only one votes and acts,
by that one.  Receipt of the Company's Proxy Statement dated April 20, 1998
(the "Proxy Statement") is acknowledged.  If not revoked, this Proxy shall be
voted, unless authority specifically to the contrary is provided, as specified
below, and as to any other business which may legally come before the meeting,
in accordance with the recommendation of the Board of Directors.  IF NO
SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED "FOR" ITEMS #1 AND #2.
     
1.   	Proposal to elect Class II Directors
     
 		   ___ FOR	ALL NOMINEES BELOW	___ WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
                                                                        BELOW

               TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
                     STRIKE A LINE THROUGH HIS NAME ON THE LIST BELOW.
	Nominees:

	Allyn W. Coombs, Philip M. Drumheller, John K. Dwight, Stephan A. Morse
        
2.	To ratify and approve the Vermont Financial Services Corp. 1994 Amended and
   Restated Stock Option Plan.

	  ___ FOR	___ AGAINST	___ ABSTAIN

3.	To act on whatever other business may properly be brought before the Meeting
   or any adjournment thereof.
     
                                     (over)

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" ITEM #1 AND #2 ON THE REVERSE.  
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.


	Date:_____________
  
	                           	 Signature(s)
                              ________________________
                              ________________________
                              ________________________
                              Please sign here exactly as name(s) appear (s) on 
	                             the left.  When signing as attorney, executor, 
	                             administrator, trustee, guardian, or in any other
	                             fiduciary capacity, give full title.  If more
                              than one person acts as trustee, all should sign
	                                      ALL JOINT OWNERS MUST SIGN.
	
___ I/We plan to attend the Annual Meeting: ___ Number
     
PLEASE MARK (ON REVERSE SIDE), SIGN AND DATE, AND MAIL IN THE ENCLOSED POSTAGE
                                                                          PAID 
                                      ENVELOPE