SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549




                                  FORM 10-Q

              QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTER ENDED SEPTEMBER 30, 2000
                       COMMISSION FILE NUMBER 0-11595


                         MERCHANTS BANCSHARES, INC.
                          (A DELAWARE CORPORATION)
                   EMPLOYER IDENTIFICATION NO. 03-0287342


                  164 College Street, Burlington, VT 05401

                          Telephone: (802) 658-3400


Indicate by check mark whether the registrant 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 has been subject to such
filing requirement for the past 90 days.

                            YES    X    NO
                                 -----      -----

     4,154,784 Shares Common Stock $.01 Par Outstanding November 10, 2000


                         MERCHANTS BANCSHARES, INC.

                             INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
<S>                                                                       <C>
PART I
  ITEM 1    FINANCIAL STATEMENTS

            Consolidated Balance Sheets
            September 30, 2000 and December 31, 1999                          1

            Consolidated Statements of Operations
            For the three months ended September 30, 2000 and 1999 and
            the nine months ended September 30, 2000 and 1999                 2

            Consolidated Statements of Comprehensive Income
            For the three months ended September 30, 2000 and 1999 and
            the nine months ended September 30, 2000 and 1999                 3

            Consolidated Statement of Changes in Stockholders' Equity
            For the year ended December 31, 1999, and the nine months
            ended September 30, 2000 and 1999                                 4

            Consolidated Statements of Cash Flows
            For the nine months ended September 30, 2000 and 1999             5

            Footnotes to Financial Statements as of September 30, 2000      6-8

  ITEM 2    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                           9-14

PART II - OTHER INFORMATION

  ITEM 1    Legal Proceedings                                             15-16

  ITEM 2    Changes in Securities                                          NONE

  ITEM 3    Defaults upon Senior Securities                                NONE

  ITEM 4    Submission of Matters to a Vote of Security Holders            NONE

  ITEM 5    Other Information                                              NONE

  ITEM 6    Exhibits and Reports on Form 8-K                               NONE

SIGNATURES                                                                   17
</TABLE>


                         Merchants Bancshares, Inc.
                         Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                 September 30,    December 31,
(In thousands except share and per share data)                       2000             1999
----------------------------------------------------------------------------------------------
                                                                   Unaudited

<S>                                                 <C>            <C>              <C>
ASSETS
  Cash and Due from Banks                                          $ 32,529         $ 23,746
  Investments:
    Debt Securities Held for Sale                                    86,687           72,229
    Debt Securities Held to Maturity                                121,249          126,281
     (Fair Value of $118,896 and $122,305)
    Trading Securities                                                1,083            1,075
----------------------------------------------------------------------------------------------
      Total Investments                                             209,019           199,585
----------------------------------------------------------------------------------------------
  Loans                                                             477,282           453,692
  Reserve for possible loan losses                                   10,536            11,189
----------------------------------------------------------------------------------------------
      Net Loans                                                     466,746           442,503
----------------------------------------------------------------------------------------------
  Federal Home Loan Bank Stock                                        3,362             2,951
  Federal Funds Sold                                                  7,500                --
  Bank Premises and Equipment, Net                                   12,853            13,175
  Investment in Real Estate Limited Partnerships                      2,770             2,751
  Other Real Estate Owned                                               444               133
  Other Assets                                                       12,200            16,519
----------------------------------------------------------------------------------------------
      Total Assets                                                 $747,423          $701,363
==============================================================================================

LIABILITIES
  Deposits:
    Demand                                                         $ 93,449          $ 86,160
    Savings, NOW and Money Market Accounts                          407,938           369,929
    Time Deposits $100 thousand and Greater                          29,245            25,590
    Other Time                                                      136,793           131,564
----------------------------------------------------------------------------------------------
      Total Deposits                                                667,425           613,243
----------------------------------------------------------------------------------------------
  Demand Note Due U.S. Treasury                                       3,596             4,000
  Other Short-Term Borrowings                                            --             7,000
  Other Liabilities                                                   7,765             6,013
  Long-Term Debt                                                      1,536             6,371
----------------------------------------------------------------------------------------------
      Total Liabilities                                             680,322           636,627
----------------------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)
STOCKHOLDERS' EQUITY
  Preferred Stock Class A Non-Voting
   Authorized - 200,000, Outstanding 0                                   --                --
  Preferred Stock Class B Voting
   Authorized - 1,500,000, Outstanding 0                                 --                --
  Common Stock, $.01 Par Value                                           44                44
    Shares Authorized                               7,500,000
    Outstanding,         Current Period             4,031,576
                         Prior Period               4,194,810
  Capital in Excess of Par Value                                     33,072            33,072
  Retained Earnings                                                  40,497            35,368
  Treasury Stock (At Cost)                                           (7,990)           (4,699)
                         Current Period               403,044
                         Prior Period                 239,810
  Deferred Compensation Arrangements                                  2,493             2,372
  Unrealized losses on Securities Available for Sale, Net            (1,015)           (1,421)
----------------------------------------------------------------------------------------------
      Total Stockholders' Equity                                     67,101            64,736
----------------------------------------------------------------------------------------------
      Total Liabilities and Stockholders' Equity                   $747,423          $701,363
=============================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                         Merchants Bancshares, Inc.
                    Consolidated Statements of Operations
                                  Unaudited

<TABLE>
<CAPTION>
                                                Quarter Ended September 30,    Nine Months Ended September 30,
(In thousands except per share data)                 2000         1999                2000         1999
--------------------------------------------------------------------------------------------------------------

<S>                                                <C>          <C>                 <C>          <C>
INTEREST AND DIVIDEND INCOME
  Interest and Fees on Loans                       $10,601      $ 9,312             $30,901      $27,267
  Interest and Dividends on Investments
    U.S. Treasury and Agency Obligations             3,005        2,603               8,821        7,890
    Other                                              604          431               1,760          974
---------------------------------------------------------------------------------------------------------
      Total Interest Income                         14,210       12,346              41,482       36,131
---------------------------------------------------------------------------------------------------------

INTEREST EXPENSE
  Savings, NOW and Money Market Accounts             3,605        2,555              10,028        7,313
  Time Deposits $100 Thousand and Greater              439          366               1,244        1,028
  Other Time Deposits                                1,703        1,449               4,848        4,549
  Other Borrowed Funds                                  78           79                 450          373
  Debt                                                  14          118                 184          351
---------------------------------------------------------------------------------------------------------
      Total Interest Expense                         5,839        4,567              16,754       13,614
---------------------------------------------------------------------------------------------------------
  Net Interest Income                                8,371        7,779              24,728       22,517
  Provision for Possible Loan Losses                  (128)        (134)               (542)        (134)
---------------------------------------------------------------------------------------------------------
  Net Interest Income after Provision
   for Loan Losses                                   8,499        7,913              25,270       22,651
---------------------------------------------------------------------------------------------------------

NONINTEREST INCOME
  Trust Company Income                                 415          426               1,328        1,339
  Service Charges on Deposits                          893          774               2,639        2,171
  Settlement proceeds                                   --           --                  --        1,326
  Gain on Sale of Investments, Net                      --           --                   1           --
  Other                                                460          325               1,191          889
---------------------------------------------------------------------------------------------------------
      Total Noninterest Income                       1,768        1,525               5,159        5,725
---------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
  Salaries and Wages                                 2,759        2,508               8,040        7,185
  Employee Benefits                                    596          547               2,053        1,806
  Occupancy Expense, Net                               550          473               1,661        1,714
  Equipment Expense                                    626          568               1,901        1,690
  Legal and Professional Fees                          242          587                 859        1,579
  Marketing                                            262          315                 907          889
  Equity in Losses of Real Estate
   Limited Partnerships                                158          143                 443          397
  Expenses (Income) - Other Real Estate
   Owned, net                                           21         (280)                 96         (133)
  Other                                              1,334        1,197               4,031        3,411
---------------------------------------------------------------------------------------------------------
      Total Noninterest Expenses                     6,548        6,058              19,991       18,538
---------------------------------------------------------------------------------------------------------
Income Before Income Taxes                           3,719        3,380              10,438        9,838
  Provision for Income Taxes                           942          779               2,638        2,249
---------------------------------------------------------------------------------------------------------
NET INCOME                                         $ 2,777      $ 2,601             $ 7,800      $ 7,589
=========================================================================================================

Basic Earnings Per Common Share                    $  0.66      $  0.59             $  1.84      $  1.73
Diluted Earnings Per Common Share                  $  0.66      $  0.59             $  1.84      $  1.73
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                         Merchants Bancshares, Inc.
               Consolidated Statements of Comprehensive Income
                                  Unaudited

<TABLE>
<CAPTION>

                                                            Three Months Ended       Nine Months Ended
                                                               September 30,           September 30,
(In thousands)                                               2000        1999        2000        1999
------------------------------------------------------------------------------------------------------

<S>                                                         <C>         <C>         <C>         <C>
Net Income as Reported                                      $2,777      $2,601      $7,800      $7,589
Change in Net Unrealized Appreciation (Depreciation)
 of Securities, Net of Tax                                     524         557         337        (845)
------------------------------------------------------------------------------------------------------
Comprehensive Income Before Transfers
 From Available for Sale to Held to Maturity                 3,301       3,158       8,137       6,744
Impact of transfer of Securities from Available
 for Sale to Held to Maturity                                   22        (648)         69        (650)
------------------------------------------------------------------------------------------------------
Comprehensive Income                                        $3,323      $2,510      $8,206      $6,094
======================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                         Merchants Bancshares, Inc.
         Consolidated Statements of Changes in Stockholders' Equity
                  For the Year Ended December 31, 1999 and
              the Nine Months ended September 30, 2000 and 1999
                                  Unaudited

<TABLE>
<CAPTION>
                                                                                                      Net Unrealized
                                                                                                       Appreciation
                                                   Capital in                            Deferred     (Depreciation)
                                          Common   Excess of    Retained    Treasury   Compensation   of Investment
(In thousands)                            Stock    Par Value    Earnings     Stock     Arrangements     Securities    Total
--------------------------------------------------------------------------------------------------------------------------

<S>                                        <C>      <C>         <C>         <C>           <C>            <C>         <C>
Balance, December 31, 1998                 $44      $33,073     $28,308     $(3,133)      $2,166         $   371     $60,829
  Net Income                                --           --       7,589          --           --              --       7,589
  Purchase of Treasury Stock                --           --          --      (1,127)          --              --      (1,127)
  Issuance of Stock under Deferred
   Compensation Arrangements                --           --          --          31          (31)             --          --
  Dividends Paid                            --           --      (2,504)         --           --              --      (2,504)
  Deferred Compensation
   Arrangements                             --           --          --          --          190              --         190
  Unearned Compensation --
   Restricted Stock Awards                  --           --          --          --           (8)             --          (8)
  Change in Net Unrealized
   Appreciation (Depreciation) of
   Securities Available for Sale,
   Net of Tax                               --           --          --          --           --            (845)       (845)
  Change in Net Unrealized
   Appreciation of Securities
   Transferred to the Held to
   Maturity Portfolio, Net of Tax           --           --          --          --           --            (650)       (650)
----------------------------------------------------------------------------------------------------------------------------

Balance September 30, 1999                  44       33,073      33,393      (4,229)       2,317          (1,124)     63,474
  Net Income                                --           --       2,861          --           --              --       2,861
  Purchase of Treasury Stock                --           --          --        (493)          --              --        (493)
  Issuance of Stock under Employee
   Stock Option Plans                       --           (1)         --          23           --              --          22
  Dividends Paid                            --           --        (886)         --           --              --        (886)
  Deferred Compensation Arrangements        --           --          --          --           61              --          61
  Unearned Compensation --
   Restricted Stock Awards                  --           --          --          --           (6)             --          (6)
  Change in Net Unrealized
   Appreciation (Depreciation) of
   Securities Available for Sale,
   Net of Tax                               --           --          --          --           --            (322)       (322)
  Effect of transfers of Securities
   Available for sale to the Held to
   Maturity Portfolio, Net of Tax           --           --          --          --           --            (665)       (665)
  Change in Net Unrealized
   Appreciation of Securities
   Transferred to the Held to
   Maturity Portfolio, Net of Tax           --           --          --          --           --             690         690
----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999                  44       33,072      35,368      (4,699)       2,372          (1,421)     64,736
  Net Income                                --           --       7,800          --           --              --       7,800
  Purchase of Treasury Stock                --           --          --      (3,341)          --              --      (3,341)
  Issuance of Stock under
   Deferred Compensation Arrangements       --           --          --          50          (50)             --          --
  Dividends Paid                            --           --      (2,671)         --           --              --      (2,671)
  Deferred Compensation Arrangements        --           --          --          --          179              --         179
  Unearned Compensation --
   Restricted Stock Awards                  --           --          --          --           (8)             --          (8)
  Change in Net Unrealized
   Appreciation (Depreciation) of
   Securities Available for Sale,
   Net of Tax                               --           --          --          --           --             337         337
   Change in Net Unrealized
   Appreciation of Securities
   Transferred to the Held to
   Maturity Portfolio, Net of Tax           --           --          --          --           --              69          69
----------------------------------------------------------------------------------------------------------------------------

Balance, September 30, 2000                $44      $33,072     $40,497     $(7,990)      $2,493         $(1,015)    $67,101
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                         Merchants Bancshares, Inc.
                    Consolidated Statement of Cash Flows
                                  Unaudited

<TABLE>
<CAPTION>
For the nine months ended September 30,                                     2000          1999
-----------------------------------------------------------------------------------------------
(In thousands)

<S>                                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                               $  7,800      $  7,589
Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
    Provision for Possible Loan Losses                                       (542)         (134)
    Provision for Depreciation and Amortization                             1,998         1,862
    Net Gains on Sales of Investment Securities                                (1)           --
    Net Gains on Sales of Loans and Leases                                     (6)           --
    Net Losses on Sales of Premises and Equipment                              37           148
    Net Gains on Sales of Other Real Estate Owned                              (7)         (330)
    Equity in Losses of Real Estate Limited Partnerships                      443           396
  Changes in Assets and Liabilities:
    Increase in Interest Receivable                                          (421)         (336)
    Increase (Decrease) in Interest Payable                                    46          (501)
    Decrease (Increase) in Other Assets                                     4,740          (596)
    Increase (Decrease) in Other Liabilities                                1,705        (1,556)
-----------------------------------------------------------------------------------------------
      Net Cash Provided by Operating Activities                            15,792         6,542
-----------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from Sales of Investment Securities Available for Sale         8,998            --
    Proceeds from Maturities of Securities Available for Sale               9,495         9,507
    Proceeds from Maturities of Securities Held to Maturity                 7,556        21,894
    Purchases of Available for Sale Investment Securities                 (32,383)      (23,303)
    Purchases of Held to Maturity Investment Securities                    (2,487)      (21,919)
    Loan Originations in Excess of Principal Repayments                   (25,256)      (20,595)
    Proceeds from Sales of Loans and Leases                                 1,191            --
    Purchases of Federal Home Loan Bank Stock                                (411)         (468)
    Proceeds from Sales of Other Real Estate Owned                              7           947
    Investments in Real Estate Limited Partnerships                          (440)         (416)
    Purchases of Premises and Equipment                                    (1,527)         (694)
-----------------------------------------------------------------------------------------------
      Net Cash Used in Investing Activities                               (35,257)      (35,047)
-----------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net Increase in Deposits                                               54,182        27,414
    Net Increase (Decrease) in Other Borrowed Funds                        (7,404)        3,717
    Principal Payments on Debt                                             (5,068)          (35)
    Cash Dividends Paid                                                    (2,671)       (2,504)
    Acquisition of Treasury Stock                                          (3,291)       (1,104)
-----------------------------------------------------------------------------------------------
      Net Cash Provided by Financing Activities                            35,748        27,488
-----------------------------------------------------------------------------------------------

Increase (Decrease) in Cash and Cash Equivalents                           16,283        (1,017)
Cash and Cash Equivalents Beginning of Year                                23,746        30,528
-----------------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                                  $ 40,029      $ 29,511
===============================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Total Interest Payments                                                $ 16,709      $ 14,115
  Total Income Tax Payments                                                    --         3,800
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
  Distribution of Stock Under Deferred Compensation Arrangements               50            31
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                         MERCHANTS BANCSHARES, INC.
                             SEPTEMBER 30, 2000

NOTES TO FINANCIAL STATEMENTS:
See the Form 10-K filed as of December 31, 1999, for additional information.

NOTE 1: RECENT ACCOUNTING DEVELOPMENTS

The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No.
138. This statement establishes standards for reporting and accounting for
derivative instruments ("derivatives") and hedging activities. The statement
requires that derivatives be reported as assets or liabilities in the
Consolidated Balance Sheets and that derivatives be reported at fair value.
The statement establishes criteria for accounting for changes in the fair
value of derivatives based on the intended use of the derivatives. The
statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Based on Merchants Bank's (the Bank's) current use of
derivatives Merchants Bancshares, Inc. (the Company) does not expect the
adoption of SFAS No. 133, as amended, to have a material impact on the
Company's financial position or results of operations.

NOTE 2: EARNINGS PER SHARE
The following table presents a reconciliation of the calculations of basic
and diluted earnings per share for the quarter and nine-months ended
September 30, 2000:

<TABLE>
<CAPTION>

                                                     Net                                 Per Share
      Quarter Ended September 30, 2000              Income            Shares              Amount
      --------------------------------              ------            ------             ---------
                                                    (In thousands except share and per share data)

      <S>                                           <C>              <C>                   <C>
      Basic Earnings Per Common Share:
        Income Available to Common
         Shareholders                               $2,777           4,185,313             $0.66
      Diluted Earnings Per Common Share:
         Options issued to Executives                   --               4,489
         Income available to Common Shareholders
          Plus Assumed Conversions                  $2,777           4,189,802             $0.66

<CAPTION>

                                                     Net                                 Per Share
      Nine Months Ended September 30, 2000          Income            Shares              Amount
      ------------------------------------          ------            ------             ---------
                                                    (In thousands except share and per share data)

      <S>                                           <C>              <C>                   <C>
      Basic Earnings Per Common Share:
        Income Available to Common
         Shareholders                               $7,800           4,244,241             $1.84
        Diluted Earnings Per Common Share:
          Options issued to Executives                  --               3,908
          Income available to Common Shareholders
           Plus Assumed Conversions                 $7,800           4,248,149             $1.84
</TABLE>

Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
quarter. The computation of diluted earnings per share for the quarter and
nine months ended September 30, 2000, excludes the effect of assuming the
exercise of certain outstanding stock options because the effect would be
anti-dilutive. As of September 30, 2000, there were 210,344 of such options
outstanding with exercise prices ranging from $20.438 to $30.500.

NOTE 3: STOCK REPURCHASE PROGRAM
On April 20, 2000, the Company announced that its Board of Directors had
decided to rescind the existing stock repurchase plan. The Board adopted a
new stock repurchase program, which authorized the Company to repurchase,
through April 2001, up to 200 thousand shares of its own securities. Under
the repurchase plan the stock may be purchased from time to time, subject to
prevailing market conditions. Purchases are to be made on the open market
and funded from available cash. The Company purchased 83 thousand of its own
shares at a total cost of $1.8 million under the former program. The Company
had repurchased 110 thousand of its own shares, at a total cost of $2.2
million, under the new repurchase program, as of October 31, 2000.

NOTE 4: COMMITMENTS AND CONTINGENCIES:
The Bank is a counterclaim defendant in a litigation entitled "Pasquale and
Vatsala Vescio, Counterclaim Plaintiffs v. The Merchants Bank, Counterclaim
Defendant", now pending in the United States Bankruptcy Court for the
District of Vermont.

In this litigation, the Vescios have made a number of "lender liability"
claims dealing with a commercial development known as Brattleboro West in
Brattleboro, Vermont. The pending litigation arose out of a suit to
foreclose on several real estate mortgages and personal property delivered
to the Bank as collateral by the Vescios in connection with the financing of
a supermarket in the Brattleboro West project and various other projects.

Among other things, the Vescios have alleged that the Bank or its
representatives violated supposed oral promises in connection with the
origination and funding of the project, and have claimed that the Bank is
liable to them for damages based on the Bank's supposed "control" of the
project and its alleged breach of covenants of "good faith" which the
plaintiffs believe are to be implied from the loan documents. In addition,
the plaintiffs have contended that the Bank breached a duty of care they
believe it owed to them, and have claimed that the Bank should not have
exercised its contract rights when the loan went into default, but should
have resolved the default in a way that was more favorable to the borrowers.
Trial concluded in United States Bankruptcy Court in November 1998. In June
1999 before entry of any findings or a decision on the merits, the trial
judge recused himself from all cases involving the Bank. He completed his
term as bankruptcy judge on July 31, 1999. On September 30, 1999, United
States District Court Judge William Sessions withdrew the reference of the
case to the Bankruptcy Court and ruled that he would decide the case himself
on the basis of a combination of the Bankruptcy Court trial record and
rehearing certain testimony of certain witnesses. The parties subsequently
stipulated to waive any rehearing of testimony and submission of further
evidence and to submit the case to the District Court for a decision on the
merits based on the existing trial record. The timing of a decision on the
merits of the case at the trial level cannot be predicted at this time.
Although it is not possible at this stage to predict the outcome of this
litigation, the Bank believes that it has meritorious defenses to the
plaintiffs' allegations. The Bank intends to vigorously defend itself
against these claims.

On March 25, 1999, Merchants Trust Company received, as trustee, a recovery
of $4.8 million on account of settlement of a 1994 class action suit filed
in the United States District Court for the District of Minnesota relating
to investments made by the Trust Company and others in the so-called Piper
Jaffray Institutional Government Income Portfolio ("Piper Jaffray"). In the
first quarter of 1999, the Company realized $1.3 million as the result of
that payment. During the third quarter of 1999, the Trust Company disbursed
the amount received, partly to itself and the balance in accordance with
instructions provided by the Company's insurance carrier pursuant to an
agreement made with the carrier in December, 1994, in each case in partial
reimbursement of payments made by the Trust Company and the carrier in 1994,
totaling an aggregate of approximately $9.2 million, on account of losses
suffered by Trust Company customers on Piper Jaffray investments.

On March 22, 2000, lawyers representing the beneficiaries of two Trust
Company accounts filed an action in Chittenden, Vermont Superior Court
against Merchants Bancshares and others, asserting that their clients and
others similarly situated were not fully reimbursed for damages allegedly
suffered in connection with certain investments made by Merchants Trust
Company in Piper Jaffray during 1993 and 1994, and complaining, among other
matters, that the disbursement described in the immediately-preceding
paragraph was improper. The Complaint asserts, among other matters, that the
Trust Company and others violated the Vermont Consumer Fraud Act, were
negligent and made negligent misrepresentations, and breached duties of
trust. The Complaint seeks certification of the action as a class action,
unspecified damages, and other relief. The litigation is at an early stage.
While it is not possible to predict its outcome, the Company believes full
reimbursement of any Piper Jaffray losses was provided, that such
disbursement was proper, that class certification is inappropriate, and that
the claims for relief lack merit.

The Company and certain of its subsidiaries have been named as defendants in
various other legal proceedings arising from their normal business
activities. Although the amount of any ultimate liability with respect to
such proceedings cannot be determined, in the opinion of management, based
upon the opinion of counsel on the outcome of such proceedings, any such
liability will not have a material effect on the consolidated financial
position of the Company and its subsidiaries.

NOTE 5: RECLASSIFICATION
Certain amounts reported for prior periods have been reclassified to be
consistent with the current period presentation.



                         MERCHANTS BANCSHARES, INC.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

All adjustments necessary for a fair statement of the three and nine months
ended September 30, 2000 and 1999, have been included in the financial
statements. The information was prepared from the unaudited financial
statements of Merchants Bancshares, Inc. (the Company) and its subsidiaries,
Merchants Bank (the Bank) and Merchants Properties, Inc.

OVERVIEW
Merchants Bancshares, Inc. earned net income of $2.78 million, or basic and
diluted earnings per share of $.66 for the quarter ended September 30, 2000,
compared to $2.60 million, or basic and diluted earnings per share of $.59
for the same period a year earlier. The return on average assets and return
on average equity for the third quarter of 2000 were 1.51% and 16.89%,
respectively, compared to 1.58% and 16.58% for the third quarter of 1999.
The Company earned net income of $7.80 million, or basic and diluted
earnings per share of $1.84 for the nine months ended September 30, 2000,
compared to $7.59 million, or basic and diluted earnings per share of $1.73
for the same period in 1999. The return on average assets and return on
average equity for the nine months ended September 30, 2000 were 1.44% and
16.03%, respectively.

RESULTS OF OPERATIONS
Net Interest Income: Net interest income for the first nine months of 2000
was $24.7 million, compared to $22.5 million for the first nine months of
1999. The Bank has continued to experience margin compression resulting from
the interest rate environment during 2000. Many of the Bank's deposits are
priced at the short end of the yield curve, which has increased by 50-75
basis points over the course of 2000. At the same time the Bank's interest
earning assets are generally priced out toward the longer end of the curve,
which has decreased 40-70 basis points over the course of the year. The
Bank's net interest margin has decreased by 19 basis points from the quarter
ended September 30, 1999, to the quarter ended September 30, 2000, and has
decreased by 13 basis points for the comparable nine month periods. The
increase in net interest income is a result of higher levels of average
earning assets, which helped to offset the decline in the spread and the
margin. The Bank's average interest earning assets were $75 million higher
for the first nine months of 2000 than they were for the first nine months
of 1999 and were $76 million higher for the third quarter of 2000 compared
to the third quarter of 1999. At the same time, the Bank's interest bearing
liabilities were $67 million higher for the first nine months of 2000
compared to the same period in 1999, and were $64 million higher for the
third quarter of 2000 compared to 1999. The Bank's average yield on interest
earning assets increased 23 basis points and 13 basis points for the quarter
and nine months ended September 30, 2000, compared to the same periods in
1999; while the cost of funds for the same periods has increased by 50 basis
points and 28 basis points, respectively. These changes have resulted in a
decrease in the interest rate spread of 27 basis points when comparing the
quarter ended September 30, 2000, to the same period one year earlier, and
16 basis points when comparing the first nine months of 2000 to the first
nine months of 1999. The schedule on pages 12 and 13 shows the yield
analysis for the periods reported.

Provision for Loan Losses: The improved asset quality achieved over the last
few years continues to be maintained as the portfolio grows in adherence to
the strong underwriting standards that have been established. Management's
analysis of the reserve adequacy concluded that a provision for possible
loan losses was not necessary during the first nine months of 2000.
Additionally, the Bank recorded $128 thousand and $542 thousand,
respectively, for the quarter and nine months ended September 30, 2000, as a
credit loan loss provision. These amounts represent individual recoveries on
previous obligations, which were partially charged off. It is the Bank's
practice to record significant recoveries as an offset to the loan loss
provision in the income statement. See the discussion of Non-Performing
Assets on pages 10 to 11 for more information on the loan loss reserve.

Non-interest income: Excluding certain litigation settlement proceeds of
$1.3 million received in 1999, non-interest income increased by $760
thousand for the first nine months of 2000 compared to 1999 and by $243
thousand for the third quarter. (For more information on the settlement
proceeds see Part II, Item 1, Legal Proceedings.) The increase in
noninterest income is primarily a result of increases in the Bank's
overdraft revenue and increases in ATM and debit card usage and fees. The
increase in overdraft revenue has been partially offset by a decrease in
monthly service charge revenue. Monthly service charges decreased by $81
thousand for the first nine months of 2000 compared to 1999, and by $20
thousand for the third quarter; while net overdraft revenue increased by
$128 thousand and $501 thousand for the three and nine months ended
September 30, 2000. The decrease in monthly service charge revenue is due
primarily to the success of the Bank's FreedomLYNX(R) checking account
product, which generally charges no monthly fees. Other noninterest income
increased by $302 thousand for the first nine months of 2000 compared to
1999, and by $135 thousand for the third quarter, primarily due to increased
ATM and debit card transaction volumes and resultant fees.

Non-interest expenses: Total non-interest expenses for the three and nine
month periods have increased $490 thousand and $1.45 million over the same
periods in 1999. Salaries and wages and Employee benefits have increased by
$300 thousand for the quarter and $1.1 million for the first nine months of
2000 compared to 1999. The Bank completed its purchase of its two new
locations in Rutland and Bellows Falls, Vermont, during the fourth quarter
of 1999, resulting in the addition of 11 new full-time equivalent employees.
Additionally, the Bank has experienced higher wage and incentive costs as a
result of its successful sales efforts and overall increased profitability
of its core activities. Other non-interest expenses increased $187 thousand
for the third quarter and $731 thousand for the first nine months of 2000.
This increase is primarily attributable to the Bank's amortization of the
core deposit intangible created in conjunction with the branch purchase
mentioned above. Core Deposit intangible amortization, a component of Other
non-interest expenses, increased $107 thousand for the third quarter and
$319 thousand for the first nine months of the year. Legal and professional
fees have decreased $720 thousand for the first nine months of the year and
$345 thousand for the third quarter. The higher amount during 1999 resulted
primarily from the timing of expenses incurred by the Bank as it defends
itself in certain litigation. For more information on this litigation see
Part II, Item 1, Legal Proceedings.

BALANCE SHEET ANALYSIS
Average deposits for the third quarter of 2000 were $48.5 million higher
than during the fourth quarter of 1999. Deposit balances at quarter-end were
$54.2 million higher than balances at December 31, 1999. The Bank has
continued to see strong and sustained deposit growth over the course of
2000. The Bank's continued focused sales efforts have fueled this growth.
Due to the efforts of our sales staff more than 19,000 new FreedomLYNX(R)
and MoneyLYNX(TM) deposit accounts were opened during the first nine months
of the year.

Total loans, net of loan sales of $1.2 million, have increased $23.6 million
for the first nine months of the year. The Bank's commercial loan portfolio
increased $5.2 million for the nine months ended September 30. This increase
is due to the Bank's continued emphasis on lending to operating businesses
and the ramping up of the Bank's CommerceLYNX(TM) program, which is designed
to appeal to small businesses. The Bank's commercial mortgage portfolio
increased $11.3 million during the first nine months of the year. The Bank
also continued to experience growth in its streamlined portfolio mortgage
product, ReaLYNX(TM), during the third quarter. Balances grew $3.9 million
during the first nine months of the year. Installment loans and Homelines
increased by a small amount during the first nine months of the year, a
reflection of the current highly competitive environment for these types of
credits. The Bank's investment portfolio has grown $9.4 million during 2000
as a portion of the deposit growth has been deployed into the investment
portfolio.

In the ordinary course of business, Merchants Bank makes commitments for
possible future extensions of credit. On September 30, 2000, the Bank was
obligated to fund $8.7 million of standby letters of credit. No losses are
anticipated in connection with these commitments.

YEAR 2000
The Company, like most users of computers, computer software, and equipment
utilizing computer software, faced a critical challenge regarding the Year
2000 date change. The bank regulatory agencies which regulate the conduct of
the Company and the Bank, through the auspices of the Federal Financial
Institutions Examination Council (FFIEC) issued compliance guidelines
requiring financial institutions to develop and implement plans to address
the Year 2000 issue. During the past two and a half years, the Company
devoted substantial time and resources toward ensuring that the Company's
and its subsidiaries' operations would not be adversely impacted by the
pending date change. The Bank's primary regulator, the Federal Deposit
Insurance Corporation monitored the Bank's planning and implementation
process on a regular basis. The Company also contracted with a national
accounting firm to perform independent reviews of the Company's Year 2000
preparations. These reviews were completed during 1998 and 1999.

The Company is pleased to report that the Year 2000 date change was managed
with no reported problems. Computer systems all functioned as expected and
there were no interruptions in service. The Bank experienced no substantial
deposit run-off, and none of the Bank's contingency plans had to be
implemented. The Bank is not aware of any significant borrowers who have
been negatively impacted by the Year 2000 date change such that it would
impair their ability to repay their loans. The Bank's Year 2000 preparedness
plan includes monitoring certain key dates in 2000. The Bank has experienced
no problems to date.

RISK MANAGEMENT
There have been no significant changes in the Company's risk profile, or
management's risk management practices, since year-end.

INCOME TAXES
The Company recognized $920 thousand in low income housing tax credits for
the first nine months of 2000 and $1.1 million for the same period in 1999,
representing the amount of the income tax credits earned during those
quarters. The recognition of low income housing tax credits has reduced the
Company's effective tax rate to 25% for the nine months ended September 30,
2000.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity, as it pertains to banking, can be defined as the ability to
generate cash in the most economical way to satisfy loan demand, deposit
withdrawal demand, and to meet other business opportunities, which require
cash. The Bank has a number of sources of liquid funds; including $25
million in available Federal Funds lines of credit at September 30, 2000; an
overnight line of credit with the Federal Home Loan Bank (FHLB) of $15
million; an estimated additional borrowing capacity with FHLB of $100
million; and the ability to borrow through the use of repurchase agreements,
collateralized by the Bank's investments, with certain approved
counterparties.

NON-PERFORMING ASSETS AND THE RESERVE FOR POSSIBLE LOAN LOSSES
--------------------------------------------------------------

The following tables summarize the Bank's non-performing assets as of
September 30, 2000, December 31, 1999, and September 30, 1999:

<TABLE>
<CAPTION>
  (In thousands)                        September 30, 2000    December 31, 1999    September 30, 1999
  --------------                        ------------------    -----------------    ------------------

  <S>                                         <C>                  <C>                   <C>
  Nonaccrual Loans                            $3,261               $2,800                $2,021
  Loans Past Due 90 Days or More and
   Still Accruing                                 93                  199                    24
  Restructured Loans                             217                  689                   703
                                              -------------------------------------------------
  Total Non-performing Loans (NPL)             3,571                3,688                 2,748
  Other Real Estate Owned                        444                  133                    28
                                              -------------------------------------------------
  Total Non-performing Assets (NPA)           $4,015               $3,821                $2,776
                                              =================================================

<FN>
Note: Included in nonaccrual loans are certain loans whose terms have been
substantially modified in troubled debt restructuring.
</FN>
</TABLE>

Discussion of events affecting NPA: Significant events affecting the
categories of NPA are discussed below:

Nonaccrual Loans:
-----------------
      During the third quarter of 2000 approximately $600 thousand in
      reductions to nonaccrual loans were offset in part by approximately
      $1.9 million of additions. Of the reported increase $1.6 million was
      concentrated in one commercial account. The $1.6 million addition is
      attributable to an assisted living facility located in southern
      Vermont. Lease up on the facility has been slower than expected. At
      present the loan appears to be well secured.

Loans Past Due 90 Days:
-----------------------
      Loans past due 90 days increased $23 thousand in the third quarter,
      after dropping $53 thousand in the quarter ended June 30, 2000.

Restructured Loans:
-------------------
      There was a net decrease of $93 thousand in restructured loans during
      the third quarter of 2000 primarily attributable to the transfer of
      one loan to nonaccrual and scheduled amortization of loan balances.

Other Real Estate Owned:
------------------------
      During the third quarter Other Real Estate Owned ("OREO") increased
      $272 thousand. The increase was primarily attributable to the transfer
      of the Bank's branch building located in Bellows Falls, Vermont, to
      OREO, which resulted from management's decision to sell, and lease
      back the branch area of, the building.

The reserve for possible loan losses is based on management's estimate of
the amount required to reflect the risks in the loan portfolio, based on
circumstances and conditions at each reporting date. Merchants Bank reviews
the adequacy of the Reserve for Possible Loan Losses ("RPLL") at least
quarterly. Factors considered in evaluating the adequacy of the reserve
include previous loss experience, current economic conditions and their
effect on the borrowers, the performance of individual loans in relation to
contract terms and estimated fair values of properties to be foreclosed. The
method used in determining the amount of the RPLL is not based on
maintaining a specific percentage of RPLL to total loans or total
nonperforming assets. Rather, the methodology is a comprehensive analytical
process of assessing the credit risk inherent in the loan portfolio. This
assessment incorporates a broad range of factors, which indicate both
general, and specific credit risk, as well as a consistent methodology for
quantifying probable credit losses. Losses are charged against the RPLL when
management believes that the collectibility of principal is doubtful. To the
extent management determines the level of anticipated losses in the
portfolio have significantly increased or diminished, the RPLL is adjusted
through current earnings. As part of the Bank's analysis of specific credit
risk, detailed and extensive reviews are done on larger credits and
problematic credits identified on the watched asset list, nonperforming
asset listings and internal credit rating reports. Loans deemed impaired at
September 30, 2000, totaled $2.9 million, of this total $2.6 million are
included as non-performing assets in the table above. Impaired loans have
been allocated $479 thousand of the RPLL.

The continued high level of the RPLL reflects management's current
strategies and efforts to maintain the reserve at a level adequate to
provide for loan losses based on an evaluation of known and inherent risks
in the loan portfolio. Among the factors that management considers in
establishing the level of the reserve are overall findings from an analysis
of individual loans, the overall risk characteristics and size of the loan
portfolio, past credit loss history, management's assessment of current
economic and real estate market conditions and estimates of the current
value of the underlying collateral.

The following table reflects the Bank's non-performing asset and coverage
ratios as of September 30, 2000, December 31, 1999, and September 30, 1999:

<TABLE>
<CAPTION>

                                            September 30, 2000    December 31, 1999    September 30, 1999
                                            ------------------    -----------------    ------------------

  <S>                                             <C>                   <C>                  <C>
  Percentage of Non-performing Loans
   to Total Loans                                 0.74%                 0.81%                0.64%
  Percentage of Non-performing Assets
   to Total Loans plus Other Real Estate
   Owned                                          0.84%                 0.84%                0.65%
  Percentage of RPLL to Total Loans               2.21%                 2.47%                2.66%
  Percentage of RPLL to NPL                        295%                  303%                413%
  Percentage of RPLL to NPA                        262%                  293%                409%
</TABLE>

Management considers the balance of the RPLL adequate at September 30, 2000.
Management's assessment of the adequacy of the RPLL concluded that a
provision was not necessary during the third quarter of 2000.


                         Merchants Bancshares, Inc.
                          Supplemental Information
                                  Unaudited

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                  -----------------------------------------------------------------------
(In thousands except share and per share data)            September 30, 2000                    September 30, 1999
                                                                Interest                              Interest
                                                  Average       Income/     Average     Average       Income/     Average
(Fully Taxable Equivalent)                        Balance       Expense      Rate       Balance       Expense      Rate
                                                  ---------------------------------     ---------------------------------

<S>                                               <C>           <C>          <C>        <C>           <C>          <C>
INTEREST EARNING ASSETS
  Loans (1)                                       $474,066      $10,626      8.92%      $425,230      $ 9,326      8.70%
  Taxable Investments                              213,041        3,569      6.66%       185,648        2,992      6.39%
  Federal Funds Sold and Securities Purchased
      Under Agreements to Resell                     2,417           40      6.58%         3,307           42      5.04%
                                                  -------------------------------       -------------------------------
Total Interest Earning Assets                     $689,524      $14,235      8.21%      $614,185      $12,360      7.98%
                                                  ===============================       ===============================

INTEREST BEARING LIABILITIES
  Savings, NOW and Money Market Deposits          $400,974       $3,605      3.58%      $346,892      $ 2,555      2.92%
  Time Deposits                                    163,509        2,142      5.21%       147,825        1,815      4.87%
                                                  -------------------------------       -------------------------------
      Total Savings and Time Deposits              564,483        5,747      4.05%       494,717        4,370      3.50%

  Federal Funds Purchased                            1,183           20      6.73%           932           13      5.53%
  Other Borrowed Funds                               3,584           58      6.44%         5,192           67      5.08%
  Debt (2)                                           1,537           14      3.62%         6,637          117      6.99%
                                                  -------------------------------       -------------------------------
Total Interest Bearing Liabilities                 570,787        5,839      4.07%       507,478        4,567      3.57%

Other Liabilities & Stockholders' Equity
  (Net of Non-Interest Earning Assets)             118,737                               106,707
                                                  --------                              --------

Total Liabilities & Stockholders' Equity
  (Net of Non-Interest Earning Assets)            $689,524                              $614,185
                                                  ========                              ========

Rate Spread                                                                  4.14%                                 4.41%
                                                                             ====                                  ====

Net Yield on Interest Earning Assets                                         4.84%                                 5.03%
                                                                             ====                                  ====

<FN>
--------------------
<F1>  Includes principal balance of non-accrual loans and fees on loans.
<F2>  Excludes prepayment fee of $102 related to the early repayment of
      certain long-term debt.
</FN>
</TABLE>


                         Merchants Bancshares, Inc.
                          Supplemental Information
                                  Unaudited

<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                  -----------------------------------------------------------------------
(In thousands except share and per share data)            September 30, 2000                    September 30, 1999
                                                                Interest                              Interest
                                                  Average       Income/     Average     Average       Income/     Average
(Fully Taxable Equivalent)                        Balance       Expense      Rate       Balance       Expense      Rate
                                                  ---------------------------------     ---------------------------------

<S>                                               <C>           <C>          <C>        <C>           <C>          <C>

INTEREST EARNING ASSETS
  Loans (1)                                       $465,206      $30,801      8.84%      $416,966      $27,311      8.76%
  Taxable Investments                              209,189       10,439      6.67%       183,118        8,791      6.42%
  Federal Funds Sold and Securities Purchased
   Under Agreements to Resell                        3,085          142      6.15%         2,012           73      4.85%
                                                  -------------------------------       -------------------------------
Total Interest Earning Assets                     $677,480      $41,382      8.16%      $602,096      $36,175      8.03%
                                                  ===============================       ===============================

INTEREST BEARING LIABILITIES
  Savings, NOW and Money Market Deposits          $389,078      $10,028      3.44%      $330,535      $ 7,313      2.96%
  Time Deposits                                    161,523        6,092      5.04%       149,025        5,578      5.00%
                                                  -------------------------------       -------------------------------
      Total Savings and Time Deposits              550,601       16,120      3.91%       479,560       12,891      3.59%

  Federal Funds Purchased                            1,038           50      6.43%         1,499           58      5.17%
  Other Borrowed Funds                               8,756          400      6.10%         8,530          315      4.94%
  Debt (2)                                           2,240           81      4.83%         6,655          350      7.04%
                                                  -------------------------------       -------------------------------
Total Interest Bearing Liabilities                 562,635       16,651      3.95%       496,244       13,614      3.67%

Other Liabilities & Stockholders' Equity
  (Net of Non-Interest Earning Assets)             114,845                               105,852
                                                  --------                              --------

Total Liabilities & Stockholders' Equity
  (Net of Non-Interest Earning Assets)            $677,480                              $602,096
                                                  ========                              ========

Rate Spread                                                                  4.21%                                 4.37%
                                                                             ====                                  ====

Net Yield on Interest Earning Assets                                         4.88%                                 5.01%
                                                                             ====                                  ====

<FN>
--------------------
<F1>  Includes principal balance of non-accrual loans and fees on loans.
<F2>  Excludes prepayment fee of $102 related to the early repayment of
      certain long-term debt.
</FN>
</TABLE>


                         MERCHANTS BANCSHARES, INC.
                             SEPTEMBER 30, 2000


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings
The Bank is a counterclaim defendant in a litigation entitled "Pasquale and
Vatsala Vescio, Counterclaim Plaintiffs v. The Merchants Bank, Counterclaim
Defendant", now pending in the United States Bankruptcy Court for the
District of Vermont.

In this litigation, the Vescios have made a number of "lender liability"
claims dealing with a commercial development known as Brattleboro West in
Brattleboro, Vermont. The pending litigation arose out of a suit to
foreclose on several real estate mortgages and personal property delivered
to the Bank as collateral by the Vescios in connection with the financing of
a supermarket in the Brattleboro West project and various other projects.

Among other things, the Vescios have alleged that the Bank or its
representatives violated supposed oral promises in connection with the
origination and funding of the project, and have claimed that the Bank is
liable to them for damages based on the Bank's supposed "control" of the
project and its alleged breach of covenants of "good faith" which the
plaintiffs believe are to be implied from the loan documents. In addition,
the plaintiffs have contended that the Bank breached a duty of care they
believe it owed to them, and have claimed that the Bank should not have
exercised its contract rights when the loan went into default, but should
have resolved the default in a way that was more favorable to the borrowers.
Trial concluded in United States Bankruptcy Court in November 1998. In June
1999 before entry of any findings or a decision on the merits, the trial
judge recused himself from all cases involving the Bank. He completed his
term as bankruptcy judge on July 31, 1999. On September 30, 1999, United
States District Court Judge William Sessions withdrew the reference of the
case to the Bankruptcy Court and ruled that he would decide the case himself
on the basis of a combination of the Bankruptcy Court trial record and
rehearing certain testimony of certain witnesses. The parties subsequently
stipulated to waive any rehearing of testimony and submission of further
evidence and to submit the case to the District Court for a decision on the
merits based on the existing trial record. The timing of a decision on the
merits of the case at the trial level cannot be predicted at this time.
Although it is not possible at this stage to predict the outcome of this
litigation, the Bank believes that it has meritorious defenses to the
plaintiffs' allegations. The Bank intends to vigorously defend itself
against these claims.

On March 25, 1999, Merchants Trust Company received, as trustee, a recovery
of $4.8 million on account of settlement of a 1994 class action suit filed
in the United States District Court for the District of Minnesota relating
to investments made by the Trust Company and others in the so-called Piper
Jaffray Institutional Government Income Portfolio ("Piper Jaffray"). In the
first quarter of 1999, the Company realized $1.3 million as the result of
that payment. During the third quarter of 1999, the Trust Company disbursed
the amount received, partly to itself and the balance in accordance with
instructions provided by the Company's insurance carrier pursuant to an
agreement made with the carrier in December, 1994, in each case in partial
reimbursement of payments made by the Trust Company and the carrier in 1994,
totaling an aggregate of approximately $9.2 million, on account of losses
suffered by Trust Company customers on Piper Jaffray investments.

On March 22, 2000, lawyers representing the beneficiaries of two Trust
Company accounts filed an action in Chittenden, Vermont Superior Court
against Merchants Bancshares and others, asserting that their clients and
others similarly situated were not fully reimbursed for damages allegedly
suffered in connection with certain investments made by Merchants Trust
Company in Piper Jaffray during 1993 and 1994, and complaining, among other
matters, that the disbursement described in the immediately-preceding
paragraph was improper. The Complaint asserts, among other matters, that the
Trust Company and others violated the Vermont Consumer Fraud Act, were
negligent and made negligent misrepresentations, and breached duties of
trust. The Complaint seeks certification of the action as a class action,
unspecified damages, and other relief. The litigation is at an early stage.
While it is not possible to predict its outcome, the Company believes full
reimbursement of any Piper Jaffray losses was provided, that such
disbursement was proper, that class certification is inappropriate, and that
the claims for relief lack merit.

The Company and certain of its subsidiaries have been named as defendants in
various other legal proceedings arising from their normal business
activities. Although the amount of any ultimate liability with respect to
such proceedings cannot be determined, in the opinion of management, based
upon the opinion of counsel on the outcome of such proceedings, any such
liability will not have a material effect on the consolidated financial
position of the Company and its subsidiaries.

Item 2 - Changes in Securities - NONE

Item 3 - Defaults upon Senior Securities - NONE

Item 4 - Submission of Matters to a Vote of Security Holders - NONE

Item 5 - Other Issues - NONE

Item 6 - Exhibits and Reports on Form 8-K - NONE


                         MERCHANTS BANCSHARES, INC.

                                  FORM 10-Q

                             SEPTEMBER 30, 2000

                                 SIGNATURES

      Pursuant to the requirements 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.


                                       Merchants Bancshares, Inc.


                                       /s/ Joseph L. Boutin
                                       --------------------
                                       Joseph L. Boutin, President


                                       /s/ Janet P. Spitler
                                       --------------------
                                       Janet P. Spitler, Treasurer

                                       November 10, 2000
                                       -----------------
                                       Date