SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549
                                     FORM 10-K
      
      [X]  Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934
      
      For the fiscal year ended December 31, 1995
      
      [ ]  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
       incorporation or organization)              identification No.)
      
          100 MAIN STREET, BRATTLEBORO, VT               05301
      (Address of principal executive offices)         (zip code)
      
      Registrant's telephone number, including area code (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 1, 1996, 4,789,770 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 $155,667,525.
      
                          DOCUMENTS INCORPORATED BY REFERENCE:
                                         
                                       None
      
         - The index for exhibits is on Page 65.
      
                        CAUTIONARY STATEMENT FOR PURPOSES OF THE
                     PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
      
            The Company desires to take advantage of the new "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 be-
      half 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 adopt-
      ed by the regulatory agencies as well as by the Financial Accounting    
      Standards  Board, or of changes in the Company's organization, compen-  
      sation 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 pro-    
      viders of various financial services;  (iv) the effect of unforeseen    
      changes in interest rates;  and (v) the effect of changes in the bus-   
      iness cycle and downturns in the local, regional or national economies.
<PAGE>
                            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 $1,247 million at December
      31, 1995.  VFSC owns 100 percent of the stock of Vermont National Bank  
      (VNB) and United Bank (UB).  VFSC has no other active subsidiaries and  
      engages in no activities other than holding the stock of VNB and UB     
      (the Banks).
      
      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 second largest bank in the State of Vermont with total deposits of  
      $822 million and total assets of $1,002 million at December 31, 1995.   
      VNB conducts business through 31 offices located in seven of Vermont's  
      14 counties, including the cities of Brattleboro, Burlington, Rutland   
      and Montpelier.  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 ser-   
      vices, 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, agri-      
      cultural 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 business which are located in or have      
      properties in Vermont.  VNB owns and operates 28 automated teller      
      machines (ATMs) at its branch locations and 7 ATMs in other locations. 
      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, 1994, 5 state-chartered savings banks, 12
      state-chartered commercial banks and 9 national banks are located and do
      business in the State of Vermont, the area in which VNB conducts its    
      business.  As of such date, VNB had 13.0%, 12.9% and 13.1% of the total
      assets, loans and deposits, respectively, of these 26 banking           
      institutions.
      
      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 totalled $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, 1995 UB had total assets of $241 million, 
      total loans of $209 million and total deposits of $212 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 collater- 
      alized.  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, admini-    
      strator, 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 in-  
      corporated 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.
      
            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.  Competitors include metropolitan banks and 
      financial institutions based in southern New England and New York City,
      many of which have greater financial resources.
      
            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, 1995, employed approxi-
      mately 593 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 banking laws and          
      regulations.  The following discussion of certain of the material      
      elements of the regulatory framework applicable to banks and bank      
      holding companies is not intended to be complete and is qualified in its
      entirety by the text of the relevant state and federal statutes and
      regulations.  A change in the applicable laws or regulations may have a
      material effect on the business of VFSC and/or the Banks.
      
      Regulation of VFSC
      
            General.  As a bank holding company, VFSC is subject to super-   
      vision 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 (the "BHC Act").  Under the BHC Act, bank holding  
      companies generally may not acquire ownership or control of more than 5%
      of any class of voting shares or substantially all of the assets of any
      company, including a bank, without the prior approval of the Federal   
      Reserve Board.  In addition, bank holding companies are generally
      prohibited under the BHC Act from engaging in non-banking activities,
      subject to certain exceptions.  VFSC's activities are limited generally
      to the business of banking and activities determined by the Federal    
      Reserve Board to be so closely related to banking as to be a proper    
      incident thereto.  The Federal Reserve Board has authority to issue    
      cease and desist orders and assess civil money penalties against bank  
      holding companies and their non-bank subsidiaries, officers, directors
      and other institution-affiliated parties and to remove officers, direc-
      tors and other institution-affiliated parties to terminate or prevent  
      unsafe or unsound banking practices or violations of laws or           
      regulations.
      
            Dividends.  The Federal Reserve Board has authority to prohibit  
      bank holding companies from paying dividends if such payment would be an
      unsafe or unsound practice.  The Federal Reserve Board has indicated    
      generally that it may be an unsound practice for bank holding companies
      to pay dividends unless the bank holding company's net income over the 
      preceding year is sufficient to fund the dividends and the expected rate
      of earnings retention is consistent with the organization's capital    
      needs, asset quality, and overall financial condition.  VFSC's        
      ability to pay dividends is dependent upon the flow of dividend income 
      to it from VNB and UB, which may be affected or limited by regulatory  
      restrictions imposed by federal or state bank regulatory agencies.  At 
      December 31, 1995 the Banks had available approximately $30.5 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 pro-  
      spective earnings are analyzed to determine compliance with this policy.
      Dividend payout rates for any one year may vary from this long term pay-
      out policy based on these analyses and projections of future earnings  
      and future capital needs.  For the three-year period ended December 31,
      1995, an aggregate of $1.65 per share of dividends were declared.    
      Earnings per share for the same period were $7.15.
      
            Certain Transactions by Bank Holding Companies with Their      
      Affiliates.  There are various legal restrictions on the extent to which
      bank holding companies and their non-bank subsidiaries can borrow,  
      obtain credit from or otherwise engage in "covered transactions" with  
      their insured depository institution subsidiaries.  Such borrowings and
      other covered transactions by an insured depository institution sub- 
      sidiary (and its subsidiaries) with its non-depository institution
      affiliates are limited to the following amounts:  (a) in the case of any
      one such affiliate, the aggregate amount of covered transactions of the 
      insured depository institutions and its subsidiaries cannot exceed 10% 
      of the capital stock and surplus of the insured depository institution;
      (b) in the case of all affiliates, the aggregate amount of covered    
      transactions of the insured depository institutions and its subsidiaries
      cannot exceed 20% of the stock and surplus of the insured depository
      institution. 
      "Covered transactions" are defined by statute for these purposes to
      include a loan or extension of credit to an affiliate, a purchase of or
      investment in securities issued by an affiliate, a purchase of assets
      from an affiliate unless exempted by the Federal Reserve Board, the 
      acceptance of securities issued by an affiliate as collateral for a loan
      or extension of credit to any person or company, or the issuance of a  
      guarantee, acceptance or letter of credit on behalf of an affiliate. 
      Covered transactions are also subject to certain collateral security
      requirements.  Further, a bank holding company and its subsidiaries are
      prohibited from engaging in certain tying arrangements in connection 
      with any extension of credit, lease or sale of property of any kind, or
      furnishing of any service.
      
            Holding Company 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, absent such Federal 
      Reserve Board policy, VFSC might not otherwise be inclined to provide  
      it.  In addition, any capital loans by a bank holding company to any of
      its subsidiary banks are subordinate in right of payment to deposits and
      certain other indebtedness of such subsidiary banks.  In the event of a
      bank holding company's bankruptcy, any commitment by the bank holding 
      company to a federal bank regulatory agency to maintain capital of a  
      subsidiary bank will be assumed by the bankruptcy trustee and entitled 
      to a priority of payment.  
      
            Under the Federal Deposit Insurance Act, as amended ("FDI ACT"), 
      an FDIC-insured depository institution, such as VNB or UB can be held  
      liable for any loss incurred by, or reasonably expected to be incurred 
      by, the FDIC after August 9, 1989 in connection with (i) the "default" 
      of a commonly controlled FDIC-insured depository institution, or (ii) 
      any assistance provided by the FDIC to any commonly controlled deposit-
      ory institution in "danger of default".  For these purposes, the term  
      "default" is defined generally as the appointment of a conservator or  
      receiver and "in danger of default" is defined generally as the exist- 
      ence of certain conditions indicating that a default is likely to occur
      without Federal regulatory assistance.
      
      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) and the
      Depositors Insurance Fund (DIF).  Accordingly, UB is subject to exam-  
      ination, regulation and supervision by both the FDIC and the Massachu- 
      setts Commissioner of Banks.  The Banks are also members of the Federal
      Home Loan Bank of Boston.
      
            Examinations and Supervision.  As a Massachusetts-chartered  
      savings bank UB is regulated and supervised by the Massachusetts     
      Commissioner of Banks.  The Commissioner is required to examine each  
      state-chartered bank at least once every two years.  The Commissioner's
      approval is required for establishing or closing branches, for merging
      with other banks and other activities.
      
            Any Massachusetts-chartered savings bank that does not operate in
      accordance with the Commissioner's regulations, policies and directives
      may be subject to sanctions for non-compliance.  The Commissioner may, 
      under certain circumstances, suspend or remove directors or officers who
      have violated the law, conducted the Bank's business in a manner which
      is unsafe, unsound or contrary to the depositor's interests, or have  
      been negligent in the performance of their duties.  
      
            Massachusetts-chartered savings banks can exercise powers substan-
      tially equivalent to those of state-chartered commercial banks.  A wide
      variety of mortgage loans, including fixed and variable-rate,      
      renegotiable-rate and graduated payment loans, and construction,      
      condominium and cooperative loans, may be made on the security of real 
      estate located in Massachusetts, or another New England state or New  
      York if the Bank has an office in such state or under certain other
      circumstances.  Certain mortgage loans may be made on the security of
      improved or unimproved real estate located throughout the United States.
      
            Commercial and consumer loans may be made, with or without       
      security, without geographic limitation.  No percentage of assets      
      limitation exists with respect to the aggregate amount of commercial   
      loans that a Massachusetts savings bank may have outstanding; however, 
      as a stock-owned savings bank, loans to one borrower generally will be 
      limited to 20% of the Bank's stockholders' equity.
      
            Investments in debt securities may be made without geographic    
      limitation, subject to the limitations on loans to one borrower.       
      Investments in equity securities are prohibited to state banks under the
      Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
      unless certain "grandfather" provisions of the statute are satisfied or
      the FDIC otherwise permits such investments (see Recent Federal Banking
      Legislation).  In addition, Massachusetts-chartered savings banks may 
      invest in the capital stock of other banks and bank holding companies,
      subject to the limitations of FDICIA and the Federal and      Massachu-
      setts bank holding company statutes.
      
            Subject to applicable regulations and required approvals, Mass- 
      achusetts savings banks may also engage in leasing activities, act as 
      trustee or custodian for tax-qualified retirement plans, establish a  
      trust department, and establish mortgage banking companies and discount
      brokerage operations.  Subject to certain limits, a Massachusetts     
      chartered savings bank may also invest an amount up to 5% of its
      deposits in investments not otherwise legally permitted a savings bank,
      and up to 2% in any one such investment, provided that amounts in excess
      of 3% of deposits must be invested in companies organized for the      
      purpose of acquiring, constructing, rehabilitating, leasing, financing 
      and disposing of housing.  This "leeway" authority cannot be used to  
      alter statutory limits on the aggregate amounts that can be invested in
      any specific class of investment or to otherwise make investments
      prohibited under FDICIA.  See "Recent Banking Legislation".
      
            The OCC regularly examines the operations of VNB, including but 
      not limited to its capital adequacy, reserves, loans, investments,    
      earnings, liquidity, compliance with laws and regulations, record of  
      performance under the Community Reinvestment Act and management       
      practices.  In addition, VNB is required to furnish quarterly and
      annual reports of income and condition to the FDIC and periodic reports
      to the OCC.  
      
            The enforcement authority of the FDIC includes the power to impose
      civil money penalties, terminate insurance coverage, remove officers and
      directors and issue cease-and-desist orders to prevent unsafe or unsound
      practices or violations of laws or regulations governing its business.
      In addition, under federal banking legislation, the FDIC has authority
      to impose additional restrictions and requirements with respect to banks
      that do not satisfy applicable regulatory capital requirements.  
      
            The FDIC has authority to prevent VNB or UB from paying dividends
      if such payment would constitute an unsafe or unsound banking practice 
      or reduce their capital below safe and sound levels.  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 exten- 
      sions 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 Federal Deposit Insurance Act provides that
      the FDIC shall set deposit insurance assessment rates on a semi-annual 
      basis at a level sufficient to increase the ratio of BIF reserves to  
      BIF-insured deposits to at least 1.25% over a 15-year period        
      commencing in 1991.  The FDIC established a framework of risk-based
      insurance assessments to accomplish this increase.  See "Recent Banking
      Legislation-Risk-Based Deposit Insurance Assessments" below.  The BIF  
      insurance assessments may be increased further in the future if      
      necessary to restore and maintain BIF reserves. However, the BIF reserve
      reached its 1.25% goal in 1995 at which time BIF assessments were    
      decreased.  The Banks' assessment rates were reduced to $2,000 per
      year effective January 1, 1996.
      
            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, regula-
      tion 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 FDIC, the Commissioner and the OCC 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 a member of the FHLB
     of Boston, the Banks are required to own shares of capital stock in the
     bank in a 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, 1995 of $7.5 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 FHLB 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 FDIC has established guidelines with respect to the
     maintenance of appropriate levels of capital by FDIC-insured banks.  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 organiza- 
     tion's capital levels fall below the minimum requirements established by
     such guidelines, a bank or bank holding company will be expected to   
     develop and implement a plan acceptable to the FDIC or the Federal
     Reserve Board, respectively, 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
     legislation 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
     FDIC-insured banks to maintain a minimum "Leverage Capital Ratio" or
     "Tier 1 Capital" (as defined in the Risk-Based Capital Guidelines 
     discussed in the following paragraphs) to total assets of 3.0%.  The 
     regulations of the FDIC state 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 guidelines impose
     substantially similar leverage capital requirements on bank holding 
     companies on a consolidated basis.
     
           Risk-Based Capital Requirements.  The regulations of the FDIC also
     require FDIC-insured 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, certain non-cumulative perpetual 
     preferred stock and excludes all tangible 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 convert-
     ible securities, and certain forms of subordinated debt and inter- 
     mediate-term preferred stock.
     
           The risk-based capital rules of the FDIC and the Federal Reserve
     Board assign 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 regula-
     tions 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 FDIC-insured banks that are not in compliance
     with the capital regulations, including, among other things, restrictions
     on asset growth and imposition of a capital directive that may require,
     among other things, an increase in regulatory capital, 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 FDIC may deem 
     necessary or appropriate.  In addition, any FDIC-insured bank that is not
     meeting its capital requirements must provide the FDIC with prior notice
     before the addition of any new director or senior officer.
     
           A bank having less than the minimum Tier 1 leverage capital ratio 
     must, within 60 days of the date as of which it fails to comply with such
     requirements, submit to its FDIC regional director for review and     
     approval a reasonable plan describing the means and timing by which the 
     bank shall achieve its minimum leverage capital requirement.  A bank that
     fails to file such plan with the FDIC is deemed to be operating in an  
     unsafe and unsound manner, which could subject the bank to a cease-and-
     desist order from the FDIC.  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 the FDIC to increase its Tier 1
     leverage capital ratio to such level as the FDIC deems appropriate and to
     take such other action as may be necessary for the institution to be     
     operated in a safe and sound manner.  The capital regulations also       
     provide, among other things, for the issuance by the FDIC or its        
     designee(s) of a capital directive, which is a final order issued to a  
     bank to restore its capital to the minimum leverage capital require-     
     ment within a specified time period.  Such a directive is enforceable in
     the same manner as a final cease-and-desist order.
     
           Any material failure to comply with the provisions of any capital 
     plan or a capital-related regulation, written agreement, order or       
     directive will be treated by the FDIC as an unsafe and unsound practice.
     Any plan or agreement between the FDIC and a bank is enforceable by     
     cease-and-desist orders and by civil penalties for violations of        
     regulatory orders or agreements.  Unsafe and unsound practices and
     violations of regulatory orders or agreements also constitute grounds for
     termination of deposit insurance.
     
           Each federal banking agency is also required to implement a system
     of prompt corrective action for institutions which it regulates.  The  
     federal banking agencies have promulgated substantially similar regula-
     tions 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 undercapital-
     ized" 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, 1995, VFSC's consolidated Total and Tier 1 risk-  
     based capital ratios were 14.70% and 13.44%, respectively.  These ratios
     exceeded applicable regulatory requirements.  VFSC, VNB and UB are all  
     considered "well capitalized" by their respective regulators.
     
     Recent Banking Legislation
     
           The Riegle-Neal Interstate Banking and Branching Efficiency Act of
     1994 became effective at the end of 1994.  Under the new law, different 
     types of interstate transactions and activities will be permitted, each 
     with different effective dates.  Interstate transactions and activities 
     provided for under the new law include: (i) bank holding company        
     acquisitions of separately held banks in a state other than a bank      
     holding company's home state; (ii) mergers between insured banks with   
     different home states, including consolidations of affiliated insured   
     banks; (iii) establishment of interstate branches either de novo or by  
     branch acquisition; and (iv) affiliated banks acting as agents for one 
     another for certain banking functions without being considered a        
     "branch".  In general, nationwide interstate banking will be permissible
     on June 1, 1997, unless a state passes legislation either to prevent
     or to permit the earlier occurrence of interstate mergers.  States may at
     any time enact legislation permitting interstate de novo branching.     
     Affiliated banks may act as agents for one another beginning one year   
     after enactment.  Each of the transactions and activities must be       
     approved by the appropriate federal bank regulator, with separate and   
     specific criteria established for each category.
     
           Once the applicable effective date has occurred (and, the case of
     interstate mergers and de novo branching, subject to applicable state law
     "opt-out" or "opt-in" provisions), the appropriate federal bank regulator
     may approve the respective interstate transactions only if certain       
     criteria are met.  First, in order for a banking institution (a bank or  
     bank holding company) to receive approval for an interstate transaction,
     it must be "adequately capitalized" and "adequately managed".  The term 
     "adequately capitalized" is generally defined as meeting or exceeding all
     applicable federal regulatory capital standards; the phrase "adequately  
     managed" was left undefined.  Second, the appropriate federal bank
     regulator must consider the applicant's and its affiliated institutions'
     records under the CRA as well as the applicant's record under applicable
     state community reinvestment laws.
     
           The new law applies deposit "concentration limits" to interstate
     acquisition and merger transactions.  Specifically, a banking institution
     may not receive federal approval for interstate expansion if it and its  
     affiliates would control (i) more than 10% of the deposits held by all   
     insured depository institutions in the United States, or (ii) 30% or more
     of the deposits of all insured depository institutions in any state in   
     which the banks or branches involved in the transactions (or any affil-  
     iated depository institution) overlap.  States may, by statute, regula-  
     tion or order, raise or lower the 30% limit.  In addition, the new law   
     preempts certain existing state law restrictions on interstate banking   
     (such as regional compacts and reciprocity requirements), effective one  
     year after enactment.  However, in order to receive federal approval for
     an interstate merger or de novo branching transaction, an applicant still
     also must comply with any non-discriminatory host state filing and other
     requirements.
     
           The reaction, if any, of the Vermont, Massachusetts or other state
     legislatures to the interstate banking legislation is uncertain at this
     time.  However, regardless of the reaction of state legislatures, the new
     interstate banking law is likely to make it easier for out-of-state     
     institutions to attempt to purchase or otherwise acquire VFSC, VNB, UB or
     their competitors in Vermont and western Massachusetts.
     
     Item 2 - Properties
     
           The principal offices of the Company and VNB are located at 100  
     Main Street in Brattleboro, Vermont. VNB operates 30 other locations   
     throughout Vermont in the Counties of Chittenden, Washington, Rutland, 
     Bennington, Franklin, Windsor, Orange and Windham.  Eight offices are  
     located in Windham County - The Main Office and two branches in        
     Brattleboro, and offices in Bellows Falls, Jamaica, Newfane, West Dover
     and Wilmington.  An office is operated in Bennington County in the Town
     of Bennington, and five offices operate in Chittenden County in the City
     of Burlington, South Burlington, Essex Junction, Williston and Winooski.
     VNB has six offices in Windsor County in the Towns of Chester, Ludlow,  
     Springfield, White River Junction, Windsor and Woodstock.  Four        
     facilities are located in Rutland County, three in Rutland and one in  
     Fair Haven.  Five offices are located in Washington County, one each   
     located on State Street and Main Street in Montpelier, the Berlin Shop-
     ping Mall, Northfield and Barre.  One office is operated in Franklin   
     County in the town of St. Albans and one office is located in Orange   
     County in the town of Williamstown.  Of these offices, eighteen are owned
     by VNB, ten are leased directly from independent parties as lessors, and
     two buildings are owned by VNB, but are situated on leased land.  VNB  
     also owns and occupies a building in Brattleboro which it uses for its 
     operational functions.  The following table sets forth the location
     of UB's offices and other related information as of December 31, 1995. 
     Each office listed is equipped with an ATM facility, all of which are  
     owned by UB.
     
     Main Office                    Route 116, Parsons Road            Owned
                                    Conway, MA 01341              
     
     Administrative headquarters    45 Federal Street                  Owned
     office, Operations Center      Greenfield, MA 01301
     Branch Office                      
     
     Branch Office                   90 Bridge Street                  Owned
                                     Shelburne Falls, MA 01370     
     
     Branch Office                   22 West Street                    Leased
                                     Hatfield, MA 01038
     
     Branch Office                   Route 9                            Owned
                                     Haydenville, MA 01039   
     
     Branch Office                   280 Mohawk Trail                  Leased
                                     Greenfield, MA 01301   
     
     Branch Office                    134 Elm Street                    Owned
                                      South Deerfield, MA 01373     
     
           Except as noted in "Item 1 - Business, United Bank", the Company  
     and Banks do not own any other real estate, except real estate that may 
     be held temporarily following a foreclosure in connection with loan     
     business.  See Notes 6 and 11 to the Consolidated Financial Statements  
     for information as to amounts at which bank premises are carried, and as
     to commitments for lease obligations.
     
     Item 3 - Legal Proceedings
     
           VFSC is a party to litigation arising in the ordinary course of its
     business.
     
           Management, after reviewing these claims with legal counsel, is of
     the opinion that these matters, when resolved, will not have a material
     effect on VFSC's consolidated financial condition or results of opera- 
     tions, including quarterly earnings. 
     Item 4 - Submission of Matters to a Vote of Security Holders
     
           No matter was submitted during the fourth quarter to a vote of  
     security holders.
     
                                     PART II
     
     Item 5 - Market for Registrant's Common Equity and Related Stockholder
     Matters
     
           As of March 1, 1996, VFSC Common Stock consisted of 20,000,000
     authorized shares, $1.00 par value per share, of which 4,789,770 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 1995 and 1994.

<TABLE>
<CAPTION><C>           <C>        <C>         <C>         <C>
          Year          Quarter    High        Low         Declared
          1995          4th        $35         $29-1/2     $.25
                        3rd         30-7/8      26          .22
                        2nd         27-1/4      21-3/4      .20
                        1st         23-1/2      20-3/4      .20
          1994          4th         22-1/4      19-3/4      .17
                        3rd         24-1/4      19          .15
                        2nd         20          16-1/2      .12
                        1st         19-1/4      16-1/4      .10
</TABLE>
           Per the Bank's stockholder reports, the approximate number of
     stockholders as of January 29, 1996 was 2,500.
     
    Item 6 - Selected Consolidated Financial Data
    
           The following table sets forth selected data regarding the     
    Company's operating results and financial position.  This data should be 
    read in conjunction with Management's Discussion and Analysis and the    
    Consolidated Financial Statements and Notes thereto.  The results of     
    operations, per share data and the total cash dividends, allowance for  
    loan losses and nonperforming assets ratios as of and for the five years
    ended December 31, 1995 are derived from the financial statements of the
    Company.  The financial condition and operations of the Company in all
    material respects reflect the operations of its two Bank subsidiaries
    Vermont National Bank of Brattleboro, Vermont and United Bank of       
    Greenfield, Massachusetts.
<TABLE>
<CAPTION>
                                          Year Ended December 31,                 
                             1995       1994       1993        1992        1991                      
                             (Dollars in thousands, except per share data) 
<S>                           <C>        <C>        <C>         <C>         <C>           
Results of Operations:
Interest income                $96,457    $84,391    $82,142     $88,265     $102,012 
Interest expense                41,969     33,293     31,361      41,164       57,869 
Net interest income             54,488     51,098     50,781      47,101       44,143 
Provision for loan losses        3,900      4,000      5,053       9,430       15,748 
Net interest income after
   provision for loan losses     50,588     47,098     45,728      37,671       28,395 
Other operating income           17,549     16,692     17,348      15,223      14,365 
Other operating expense          45,999     46,763     52,459      45,384      41,331 
Income before income taxes   
 and accounting change           22,138     17,027     10,617       7,510       1,429 
Applicable income tax expense     7,241      5,159      3,386       2,436         539 
Net income                      $14,897    $11,868     $7,231      $5,074        $890 
                                 ======     ======     ======      ======        ====     Balance Sheet Data At Year End:
Total assets                 $1,246,669 $1,205,421 $1,158,101  $1,124,578  $1,102,034 
Loans, net of unearned income   893,470    911,503     872,441     856,768    815,690 
Securities available for sale   249,682    173,865     184,400     149,487    179,121 
Total deposits                1,033,957  1,012,869     967,582     941,882  1,005,338 
Stockholders' equity            111,833     90,457      91,027      83,484     78,770 
Per Share Data:
Net income, primary 
             and fully diluted    $3.10      $2.51       $1.54       $1.08      $0.19 
Total cash dividends declared      0.87       0.54        0.24        0.13       0.19 
Tangible book value at period end,            
Fully diluted (1)                 22.47      18.36       18.61       17.00      16.05 
Average primary 
 shares outstanding           4,807,553  4,735,480   4,710,228   4,686,116  4,626,064 
Selected Financial Ratios:
Return on average 
 total assets (2)                  1.23%      1.00%       0.64%       0.46%      0.08%
Return on average 
 stockholders' equity(3)          14.69%      13.23%       8.36%       6.31%     1.16% 
Net interest margin (4)            4.92%       4.74%       4.97%       4.72%     4.54% 
Cash dividends per share as a 
 percentage of earnings per share    28          22          16          12       100 
Average stockholders' equity to 
 average assets                    8.69        7.97        7.67        7.32      7.11 
Core (leverage) capital ratio at period
 end (5)                           8.77        7.26        7.59        7.11      6.79  
Total risk-based capital ratio at 
 period end (6)                   14.67       13.03       12.06       11.11     10.80 
Allowance for loan losses to period 
 end loans, net of unearned income 1.65        1.78        2.04        2.46      2.34 
Nonperforming assets to period end
 loans plus other real
 estate owned (7)                  1.67        2.32        3.64        5.71      5.97 
Net charge-offs to 
 average net loans                 0.59        0.62        0.95        0.90      1.30 
</TABLE>
(1)Equal to stockholders' equity less intangibles divided by fully diluted
   end of period shares outstanding.
(2)Based on average total assets after adjustment for securities available
   for sale.
(3)Based on average total equity after adjustment for securities available
   for sale.
(4)Net interest income stated on a fully taxable equivalent basis divided
   by average earning assets.
(5)Equal to stockholders' equity less intangibles divided by total assets
   less intangibles.
(6)Equal to stockholders' equity less intangibles plus the allowable
   portion of the allowance for loan losses divided by total risk weighted
   assets.
(7)Nonperforming assets include nonaccrual loans, restructured loans and
   other real estate owned.
     
     Item 7 - Management's Discussion and Analysis of Financial Condition and
     Results of Operations
     
     For the years ended December 31, 1995, 1994 and 1993.
     
     Overview
     
           Net income for 1995 was $14.9 million, up from the $11.9 million 
     and $7.2 million earned in 1994 and 1993, respectively.  Return on     
     average assets was 1.23% in 1995, 1.00% in 1994 and 0.64% in 1993.      
     Return on average stockholders' equity was 14.69% in 1995, 13.23% in 1994
     and 8.36% in 1993.
     
           On a primary and fully diluted per share basis, net income was   
     $3.10, $2.51, and $1.54 in 1995, 1994 and 1993, respectively.
     
     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.
<TABLE>
<CAPTION>                            
                                    1995                       1994                         1993           
                                   Interest    Rate           Interest    Rate           Interest    Rate  
                           Average  Income/   Earned/ Average  Income/   Earned/ Average  Income/   Earned/
                           Balance Expense(1) Paid(1) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
                                                     (Dollars in thousands)
    <S>                     <C>         <C>       <C>   <C>          <C>      <C>   <C>          <C>      <C>               <C>     
     ASSETS
     Earning assets:
       Loans, net of unearned
         income (2)          $  910,799  $84,431   9.27% $  894,001   $73,929  8.27% $  869,563   $72,356  8.32% 
       Taxable
         securities (3)         190,764   11,441   6.00     191,425    10,479  5.47     154,238     9,738  6.31  
       Tax exempt
         securities (3)          10,289      752   7.31       9,796       798  8.15       7,603       632  8.31      
       Federal funds sold and 
         securities purchased
         under agreements to
         resell                  16,684    1,029   6.17       5,332       270  5.06       4,838       146  3.02      
       Interest-bearing bank
         deposits                    61        3   4.92         106         4  3.77         203         9  4.43
         Total earning assets 1,128,597   97,656   8.65   1,100,660    85,480  7.77   1,036,445    82,881  8.00      
     Noninterest-earning assets:
       Cash and due from banks   43,707                     44,590                     43,225                     
       Premises and equipment,
         net                     23,517                     23,084                     22,481                     
       Other assets (3)          32,359                     35,761                     44,371                     
       Allowance for loan 
         losses                 (15,834)                   (16,574)                   (18,483)                  
         Total assets (3)    $1,212,346                 $1,187,521                 $1,128,039                
                              =========                  =========                 ==========                
</TABLE>
<TABLE>
<CAPTION>
                                      1995                       1994                      1993             
                                    Interest    Rate           Interest    Rate           Interest    Rate  
                            Average  Income/   Earned/ Average  Income/   Earned/ Average  Income/   Earned/
                            Balance Expense(1) Paid(1) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
    <S>                     <C>         <C>      <C> <C>          <C>       <C>  <C>        <C>      <C>                   
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Interest-bearing liabilities:
       Savings and transactional
         deposits            $  607,202   21,497  3.54 $  589,244   17,183   2.92 $  537,204  14,656  2.73   
       Certificates of deposit: 
         --$100,000 or more      33,538    1,766  5.27     29,339    1,123   3.83     38,051     1,669  4.39   
         --Under $100,000       252,920   13,682  5.41    255,661   10,731   4.20    269,198    11,916  4.43   
       Federal funds purchased
         and securities sold
         under agreements to
         repurchase              67,896    3,317  4.88     77,606    2,924   3.77     66,800     2,335  3.50   
       Other borrowed funds      27,138    1,707  6.33     26,605    1,332   5.01     21,486       785  3.65   
         Total interest-bearing
           liabilities          988,694   41,969  4.24    978,455   33,293   3.40    932,739    31,361  3.36   
     Noninterest-bearing 
       liabilities:
       Demand deposits          109,631                   107,301                    100,903                   
       Other liabilities          8,605                     7,139                      7,897                   
         Total liabilities    1,106,930                 1,092,895                  1,041,539                   
       Stockholders' equity(3)  105,416                    94,626                     86,500                   
         Total liabilities
           and stockholders 
           equity (3)        $1,212,346                $1,187,521                 $1,128,039                   
                              =========                 =========                 ==========                   
       Net interest income               $55,687                   $52,187                     $51,520       
                                          ======                    ======                      ======         
     Net interest spread(4)                      4.41%                       4.37%                      4.64%  
                                                 ====                        ====                       ====   
     Net Interest margin                         4.92%                       4.74%                      4.97%  
                                                 ====                        ====                       ====   
</TABLE>
     (1) Includes a fully taxable equivalent adjustment based on a 35% federal
         income tax rate in 1995, 34% for 1994 and 1993.  
     (2) Nonaccrual loans are included in average balances.
     (3) Taxable and tax-exempt securities are recorded at amortized cost.
     (4) The difference between the rate earned on total earning assets and
         the rate paid on total interest-bearing liabilities.
     
           Net interest income increased $3.4 million or 6.6% to $54.5 million
     in 1995 from $51.1 million in 1994.  This compared to a $0.3 million or
     0.6% increase in 1994 from 1993.  On a fully taxable equivalent basis,
     net interest income increased $3.5 million, or 6.7%, from 1994 to 1995
     and $0.7 million, or 1.3%, from 1993 to 1994. The increase in 1995 was
     almost equally attributable to favorable changes in levels of earning 
     assets and interest rates.  In 1994, changes in interest rates reduced
     net interest income by $2.5 million.  This was more than offset by the
     impact of a $64 million increase in earning assets.  Management anti- 
     cipates that the Company's net interest margin will shrink somewhat in
     1996, but that net interest income will still increase, although at a 
     slower pace than in 1995.
     
           Average earning assets increased slowly over the last two years 
     with 2.5% and 6.2% growth rates in 1995 and 1994, respectively.  The 1995
     growth came from a $16.8 million, or 1.9%, increase in loans and an $11.4
     million, or 213%, increase in federal funds sold and securities purchased
     under agreements to resell.  The growth in loans was primarily in the 
     residential real estate area.   
     
           Average interest-bearing liabilities increased $10.2 million, or  
     1.0%, in 1995 following a $45.7 million, or 4.9%, growth in 1994.  Over 
     the two-year period, average core interest-bearing deposits (savings and
     transactional deposits and certificates of deposit under $100,000)      
     increased by $53.7 million.  Non-core interest-bearing liabilities were 
     increased by $2.2 million over the same period.
     
              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.
<TABLE>
<CAPTION>
                                                     1995 vs. 1994                      1994 vs. 1993           
                                               Net                                Net
                                             Increase     Due to Changes in     Increase      Due to Changes in
                                            (Decrease)   Volume(1)    Rate(1)  (Decrease)    Volume(1)    Rate(1)
      <S>                                     <C>          <C>          <C>         <C>          <C>        <C>                    
       INTEREST INCOME:                                                         
       Loans(2)                                $10,502      $1,412       $9,090      $1,573     $2,012     $ (439)
       Taxable securities                          962         (37)         999         741      2,147     (1,406)       
       Tax exempt securities                       (46)         39          (85)        166        178        (12)       
       Federal funds sold and securities
         purchased under agreements to resell      759         688           71         124         16        108        
       Interest-bearing bank 
                deposits                            (1)         (2)           1          (5)        (4)        (1)       
           Total interest income                12,176       2,100       10,076       2,599      4,349     (1,750)       
     INTEREST EXPENSE:
       Savings and transactional deposits        4,315         542        3,773       2,527      1,470      1,057        
       Certificates of deposit:
         --$100,000 or more                        643         177          466        (546)      (351)      (195)       
         --Under $100,000                        2,951        (116)       3,067      (1,185)      (583)      (602)       
       Federal funds purchased and securities    
         sold under agreements to repurchase       392        (397)         789         589        399        190         
       Other borrowed funds                        375          26          349         547        214        333         
          Total interest expense                 8,676         232        8,444       1,932      1,149        783        
       Change in net interest income            $3,500      $1,868       $1,632      $  667     $3,200    $(2,533)        
                                                 =====       =====        =====       =====      =====     =======       
</TABLE>
     (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 allow-
     ance for loan losses at a level adequate to absorb possible 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 1995 was $3.9 million compared to
     $4.0 million in 1994 and $5.1 million in 1993.  Net loans charged off  
     were $5.4 million, $5.6 million and $8.3 million for the respective  
     years.  The provision was reduced $0.1 million in 1995 and $1.1 million
     in 1994 as nonperforming asset levels and the Company's local economy 
     continued to improve.
     
     Other Operating Income and Other Operating Expense
     
           In 1995, other operating income increased $0.9 million, or 5%, from
     the $16.7 million earned in 1994.  Increases of $0.3 million in trust  
     department income and $0.3 million is service charges on deposit accounts
     comprised 69.4% of this increase.
     
           In 1994, other operating income, decreased $0.7 million, or 4%, 
     from 1993.  Net of the $2.0 million decrease in securities gains, other
     income was up $1.4 million, or 9%, compared to 1993.  An increase of $0.9
     million in service charges on deposit accounts comprised 63% of this
     increase.
     
           Total other operating expense decreased $0.8 million, or  2%, in 
     1995 after decreasing $5.7 million, or 11%, in 1994.  FDIC insurance  
     expense decreased $1.2 million in 1995.  Net OREO and collection expenses
     represented $5.1 million, or 89%, of the decrease in 1994 .  Salary    
     expense was $17.5 million in 1995, $17.8 million in 1994 and $18.4     
     million in 1993.  These represent decreases of 2% and 3%, respectively,
     reflecting a reduction of approximately 13% in the Company's average 
     number of employees over the last two years.  Pension and employee
     benefits decreased $0.4 million, or 8%, in 1995 after decreasing $0.3
     million, or  6%, in 1994.  Also contributing to the expense improvements
     in 1995 was a decrease of $0.6 million in merger related expenses. (See
     note 2. to the consolidated financial statements.)  Partially offsetting
     the expense improvements in 1995 was a $1.3 million increase in other 
     noninterest expense.  Nearly half of this increase was due to the receipt
     of $0.6 million in life insurance proceeds in 1994's second quarter.  
           Over the last two years management has coordinated a profit    
     improvement plan which has focused on delivering high quality customer  
     service more efficiently and at a reduced cost.  During that period net
     noninterest expense (net of securities transactions) has decreased from
     $37.2 million in 1993 to $30.1 million in 1994 and $28.5 million in 1995.
     Management anticipates that net noninterest expense will be reduced   
     further in 1996.
     
     Applicable Income Taxes
     
           During 1995, 1994 and 1993 the Company recorded income tax expense
     of $7.2 million, $5.2 million and $3.4 million, respectively.  The    
     changes were almost entirely due to the level of pre-tax earnings.  See
     also footnote 12 to the financial statements.
     
     Financial Condition
     
     Loans
           The loan portfolio decreased $18.0 million, or 2%, in 1995 follow-
     ing a $39.1 million, or 4%, increase in 1994.  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 42% and 58% of the total loan portfolio.  Over the 
     last two years the commercial lending sector decreased $26.7 million and
     decreased from 46% to 42% of the total loan portfolio.
     
           Through its subsidiary Banks the Company makes commercial business
     loans to small and medium sized businesses in Vermont and Massachusetts.
     Vermont National Bank is the leading commercial lender in the State of
     Vermont.
     
           Construction and commercial loans secured by real estate include 
     loans secured 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 securing these loans to its primary market areas in 
     Vermont and Massachusetts, and adjacent communities in neighboring     
     states.   Approximately 63% of the commercial real estate portfolio    
     represents loans on owner occupied properties.  Real estate values in  
     Vermont have been depressed as a result of the recent recession in New 
     England and the Nation, but have experienced some recent improvement.  
     Management's goal is to keep the construction loan portion of the loan 
     portfolio below 5% of total loans.  As of December 31, 1995 this sector
     represented 3% of the portfolio.
     
           In 1995, the Company originated $111.4 million of residential   
     mortgage loans and sold $33.1 million of loans in the secondary market,
     compared to $140.5 million originated and $86.9 million sold in 1994 and
     $267.2 million originated and $189.7 million sold in 1993.  The 21%   
     decrease in mortgage loan originations was primarily due to higher    
     interest rates.  The high levels of 1993 were in part due to lower    
     interest rates which led to a significant number of mortgage          
     refinancings.  
     
           At year end 1995, the mortgage servicing portfolio totaled $420.6
     million compared to $459.2 million at year end 1994 and $458.7 million at
     year end 1993 and currently generates income of approximately $1.8   
     million per year.  The $38.6 million, or 8%, decrease in 1995 was    
     principally due to the sale of the right to service $29.0 million of 
     mortgage loans on second home properties during the second quarter of
     1995.  A resulting gain of $0.2 million is included in other operating
     income.  Of the residential real estate portfolio, 54% were adjustable
     rate loans and 46% were fixed rate loans at December 31, 1995.        
     Residential real estate loans represented 47%, 43% and 43% of gross loans
     at year end 1995, 1994 and 1993, respectively.
     
           Consumer loans represented 11% of gross loans the last three year
     ends.  Credit card loans and related plans were $37.7 million and $37.3
     million of total consumer loans at December 31, 1995 and 1994, respect-
     ively.
     
     The following table summarizes the composition of the Company's loan
     portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                              December 31,                     
                                              1995        1994        1993        1992        1991  
                                                                 (in thousands)
    <S>                                      <C>          <C>         <C>         <C>         <C>            
     Commercial(1)                            $170,162     $207,299    $203,300    $199,128    $181,755
     Real Estate:
       Residential                             415,468      389,033     372,570     355,144     326,534
       Commercial                              182,233      186,185     174,881     181,041     174,465
       Construction                             24,816       25,033      25,762      31,180      44,033
         Total real estate                     622,517      600,251     573,213     567,365     545,032
     Consumer                                  100,791      103,953      95,928      90,275      88,903
         Total loans, net of unearned income  $893,470     $911,503    $872,441    $856,768    $815,690
                                               =======      =======     =======     =======     =======
</TABLE>
     (1) Includes loans to Massachusetts and Vermont municipalities and
         industrial revenue bonds of $24,874, $44,669, $30,339, $13,680 and 
         $8,857 for years 1995 through 1991, respectively.
     
     The following table details the loan maturity and interest rate sensi- 
     tivity of loans, exclusive of loans secured by 1-4 family residential  
     property and consumer loans, at December 31, 1995.
<TABLE>
<CAPTION>
                                                       Repricing            
                                                  After One   After
                                         Within   But Within  Five 
                                        One Year  Five Years  Years     Total
                                                   (in thousands)
    <S>                                 <C>       <C>      <C>      <C>         
     Loans:
          With fixed interest rates      $ 36,577  $25,520  $24,527  $ 86,624 
          With variable interest rates    284,814    2,742    3,031   290,587 
               Total                     $321,391  $28,262  $27,558  $377,211 
                                          =======   ======   ======   =======
</TABLE>
     Nonperforming Assets and Risk Elements
     
           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.
     
           Nonreceipt of contractually due principal or interest payments on 
      loans 30 days after the due date results in their being reported as past
     due with increased monitoring and collecting efforts to restore such   
     loans to current status.  Mortgage loans are classified as nonaccrual  
     when the become 90 days past due or when foreclosure action is started,
     whichever is sooner.  Commercial loans are placed on nonaccrual status 
     when they become 90 days past due as to principal or interest.  Loans may
     be left in accrual status if they are adequately collateralized or are  
     expected to result in collection within the next 60 days.  Cash payments
     received on loans in nonaccrual status are applied as principal re-     
     ductions.  While no specific period of delinquency triggers nonaccrual  
     status for consumer loans, unsecured installment loans 90 days or more  
     past due and secured installment loans 180 days or more past due are    
     generally recommended for charge-off.
     
           A loan remains in nonaccrual status until the factors which       
     indicate doubtful collectibility no longer exist and six consecutive    
     months of contractual payments are received or until the loan is        
     determined to be uncollectible and is charged off against the allowance 
     for loan losses.  Credit card loans are required to be charged off after
     180 days without a payment.  Commercial loans 180 days or more past due 
     must be recommended for charge-off unless management determines the     
     collateral is sufficient.  When a mortgage loan in default is trans-    
     ferred to OREO, its carrying value is the lesser of the loan amount
     or the fair value of the property collateralizing the loan, less the   
     estimated cost to sell the property.  A loan is classified as a re-    
     structured loan when the interest rate is materially reduced or when the
     term is extended beyond the original maturity date because of the in-   
     ability of the borrower to service the interest payments at the con-    
     tractual rate.  All of the $0.3 million of accruing restructured loans as
     of December 31, 1995 were in full compliance with restructured terms and
     conditions.  The average yield on these loans is 8.55%.
     
           The following table provides information with respect to the     
     Company's past due loans and the components of nonperforming assets at 
     the dates indicated.
<TABLE>
<CAPTION>
                                                           December 31,     
                                           1995      1994      1993      1992      1991 
                                                        (Dollars in thousands)
    <S>                                 <C>       <C>       <C>       <C>       <C>                 
     Loans 90 days or more past due
       and still accruing interest       $ 2,008   $ 1,448   $ 1,503   $ 6,569    $8,696
                                          ======    ======    ======    ======     =====
     Nonperforming assets:
       Nonaccrual loans                  $11,695   $16,491   $25,746   $39,150   $34,893
       Other real estate owned             2,977     4,487     4,678    10,332     8,797
       Restructured loans - accruing         316       294     1,532         0     5,505
     Total nonperforming assets          $14,988   $21,272   $31,956   $49,482   $49,195
                                         =======   =======   =======   =======   =======
     Nonperforming assets to period
     end loans net of unearned income,
     plus other 
       real estate owned                    1.67%     2.32%     3.64%      5.71%   5.97%                                 
                                            ====      ====      ====       ====    ====
</TABLE>
           Additional interest income of $1,084,000 and $1,320,000 would have
     been recorded in 1995 and 1994, respectively, if nonaccrual and restruct-
     ured loans had been on a current basis in accordance with their original
     terms.  Payments, totaling $1,052,000 and $936,000 respectively, were
     received on nonaccrual loans during 1995 and 1994.  During 1995,        
     $1,052,000 was applied as principal reductions and $0 was recognized as 
     interest income, while in 1994 $592,000 was applied as a principal      
     reduction and $344,000 was recognized as interest income.  Interest
     income was recognized solely on nonaccrual loans which were subsequently
     determined to have no doubt as to the ultimate collectibility of prin-  
     cipal.
     
           At December 31, 1995, all nonaccrual loans were collateralized.  In
     addition, it is the Company's policy to obtain personal guarantees of the
     borrower's whenever it is possible.  As of December 31, 1995, 16% of the
     total nonaccrual loans are current as to contractual terms.  Loans to   
     five borrowers, totaling $2.7 million represented 23% of nonaccrual    
     loans.  Management expects to see significant improvement in 1996 over 
     the 1995 charged-off loan total with a further decrease in the level of
     nonperforming assets.  Management is not aware of any current recommen- 
     dations 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 future losses
     which are anticipated 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 equalled $14.8 million, or 1.65% of the total loan portfolio at  
     December 31, 1995, compared with 1.78% at year end 1994 and 2.04% at year
     end 1993.  On December 31, 1995 the allowance for loan losses represented
     98% of total nonperforming assets and 123% of nonperforming loans,      
     compared to 76% and 97%, respectively, at year end 1994.
     
           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.
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,              
                                                              1995        1994        1993        1992        1991
                                                                           (Dollars in thousands)
    <S>                                                    <C>         <C>         <C>         <C>         <C>  
     Allowance for loan losses at beginning of year         $16,236     $17,815     $21,047     $19,116     $13,776 
     Acquired allowance                                           -           -           -           -         402 
     Loans charged off:
       Commercial, commercial real estate and construction   (4,533)     (4,895)     (7,361)     (5,828)     (8,761)
       Real Estate-residential                                 (596)       (650)       (807)       (721)       (490)
       Consumer                                              (1,484)     (1,240)     (1,427)     (2,002)     (2,342)
           Total loans charged off                           (6,613)     (6,785)     (9,595)     (8,551)    (11,593)
     Recoveries of loans previously charged off:
       Commercial, commercial real estate and construction      772         783         884         550         553  
       Real estate-residential                                   40           0          96          84          20 
       Consumer                                                 426         423         330         418         210 
           Total Recoveries                                   1,238       1,206       1,310       1,052         783 
     Net loans charged off                                   (5,375)     (5,579)     (8,285)     (7,499)    (10,810)
     Additions to allowance charged to earnings               3,900       4,000       5,053       9,430      15,748 
     Allowance for loan losses at year end                  $14,761     $16,236     $17,815     $21,047     $19,116
                                                             ======      =======     =======     =======     ======
     Ratio of net charge-offs to average loans                 0.59%       0.62%       0.95%       0.90%       1.30%
     Allowance for loan losses to period end loans, net of     ====        ====        ====        ====        ==== 
       unearned income                                         1.65%       1.78%       2.04%       2.46%       2.34%
                                                               ====        ====        ====        ====        ==== 
</TABLE>
           Net loans charged off in 1995 totaled $5,375,000 or 0.59% of      
     average loans.  This compares with $5,579,000 or 0.62% in 1994 and      
     $8,285,000 or 0.95% in 1993.  In 1991 loans charged off for one customer
     totaled $1,125,000.  No other charge-offs exceeded 10% of the respective
     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 con-  
     sideration 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, 1995, 1994, 1993, 1992 and 1991.  Notwith- 
     standing 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.
<TABLE>
<CAPTION>
                                                      December 31,                                            
                           1995            1994             1993          1992               1991        
                        Loan Type       Loan Type        Loan Type     Loan Type       Loan Type
                     Amount to Total Amount to Total  Amount to Total Amount to Total Amount to Total
                     Allocated Loans Allocated Loans  Allocated Loans Allocated Loans Allocated Loans  
                                                      (Dollars in thousands)   
<S>                     <C>      <C>  <C>      <C> <C>       <C>  <C>      <C>  <C>      <C>          
 Commercial              $ 2,726  19%  $ 4,226  23% $ 5,027   23%  $ 6,823  23%  $ 4,503  22%
 Real Estate-Commercial    1,010  20     4,597  20    4,324   20     5,364  21     4,351  21 
 Construction              2,033   3       488   3      519    3     1,827   4     1,081   5 
 Real Estate-Residential   1,398  47     1,061  43    1,116   43     1,222  41     1,387  41 
 Consumer                  1,399  11     1,644  11    1,712   11     1,845  11     1,850  11 
 Unallocated               6,195   -     4,220   -    5,117    -     3,966   -     5,944   - 
                         $14,761 100%  $16,236 100% $17,815  100%  $21,047 100%  $19,116 100%
                          ====== ===    ====== ===   ======  ===    ====== ===   ======= ===   
</TABLE>
     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.  These various segments of the investment 
     portfolio and their related income are reported monthly to the Company's
     Board of Directors.
     
           The following table summarizes the composition of the Company's
     investment portfolio at the dates indicated.  The  portfolio is class- 
     ified as available for sale and the values noted are therefore both book
     and market values.
<TABLE>
<CAPTION>
                                                           December 31,        
                                                  1995        1994        1993 
                                                        (In thousands)
         <S>                                  <C>         <C>         <C>       
          U.S. Treasury and other U.S.
              Government agencies              $145,873    $ 99,815    $ 70,776 
          State and political subdivisions       10,343       8,238      15,807 
          Mortgage-backed securities             75,752      50,668      75,721 
          Other securities (1)                   17,714      15,144      22,096
            Total                              $249,682    $173,865    $184,400
                                               ========    ========    ========
</TABLE>
     (1) Includes money market overnight investments of $4,895, $1,635, and
         $9,182 at year end 1995, 1994 and 1993, respectively.
     
           The investment portfolio increased 44%, to $249.7 million, at year
     end.  During 1994 the portfolio decreased 6%, to $173.9 million at year 
     end.  The total portfolio as a percent of total assets was 20% at year  
     end 1995 compared to 14% and 16% at year end 1994 and 1993, respectively.
     
           On December 31, 1993, the Company adopted Statement of Financial
     Accounting Standards No. 115 (See Note 1 to the Consolidated Financial  
     Statements).  Securities are carried at fair market value in the above  
     tables.  During 1994 prepayments and sales of mortgage backed securities
     were primarily invested in U. S. Treasury and other U. S. government    
     agency securities as management determined that the relative values of  
     these investments were superior.  During 1995 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 2.8 years.
     
           The Company invests a portion of its capital in marketable equity
     securities which comprised 4.7%, 6.9% and 5.5% of total investments at 
     December 31, 1995, 1994 and 1993, respectively.  At December 31, 1995, 
     $8.0 million of the $11.8 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, 1995 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 book value of the securities at December 31, 1995.
<TABLE>
<CAPTION>
                                                              Maturing
                                                            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)
<S>                                       <C>       <C>    <C>       <C>      <C>        <C>      <C>     <C>       
 U.S. Treasury and other U.S. Government
   agencies                                $ 8,622   5.90%  $ 89,480  5.76%  $47,771  6.09%  $0      0.00%
 State and political subdivisions            1,316   8.69      5,427  6.97     3,600  6.11    0      0.00 
 Mortgage-backed securities                  3,172   6.87     67,011  6.47     5,569  6.69    0      0.00 
 Other fixed income securities               1,279   6.53        508  7.32        15  9.18    0      0.00 
   Total                                   $14,389   6.43   $162,426  6.10    56,955  6.15   $0      0.00 
                                             =====            ======            ======          =
     Tax equivalent adjustment for calculation
   of yield                                    $40                 $132                 $77              $0
                                                ==                  ===                 ===               =
</TABLE>
     Does not include equity securities of $11,787 at December 31, 1995.
     
     Deposits
           Average total deposits for 1995 of $1,003.3 million represented a
     $21.7 million, or 2%, increase from 1994's average, which had increased
     $36.2 million, or 4%, from 1993's average balances.  
           The average balance of large CDs was $33.5 million in 1995, $29.3
     million in 1994 and $38.1 million in 1993.  In 1995 the decrease in CDs
     under $100,000 was offset by a $20.3 million total increase in the     
     average balance of all other core deposit categories (all deposits other
     than large CD's).  Large CDs represented 3% of average total deposits in
     1995 and 1994 and 4% in 1993.  The majority of these deposits was       
     obtained from local Vermont and Massachusetts 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.
<TABLE>
<CAPTION>
                                                                December 31,   
                                                          1995                    1994                  1993     
                                                    Amount      Rate    Amount     Rate      Amount     Rate
                                                        (Dollars in thousands)
     
    <S>                                         <C>             <C>       <C>          <C>     <C>             <C>     
     Demand deposits                             $  109,631         -%     $107,301        -%   $100,903         -%   
     Interest-bearing transactional deposits        472,753      3.70       427,862     3.69     369,590        2.69     
     Savings deposits                               134,449      2.67       161,382     2.67     167,614        2.50     
     Certificates of deposit:
       -$100,000 or more                             33,538      5.19        29,339     4.41      38,051        4.22     
       -Under $100,000                              252,920      5.03       255,661     4.46     269,198        4.33     
       Total                                     $1,003,291                $981,545             $945,356                 
                                                  =========                 =======             ========                 
</TABLE>
 The following table shows the maturity schedule of certificates of deposit of
  $100,000 or more at December 31, 1995.
<TABLE>
<CAPTION>
                                                 Certificates
                                                   of Deposit 
                                                 (in thousands)                
                     <S>                           <C>
                      3 months or less              $ 9,532   
                      Over 3 through 6 months        10,352   
                      Over 6 through 12 months        9,095   
                      Over 12 months                  8,979
                        Total                       $37,958   
                                                     ======
</TABLE>
     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 8.97%, 7.50% and   
     7.86% as of December 31, 1995, 1994 and 1993, 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
     equalled 8.69% in 1995, 7.97% in 1994 and 7.67% in 1993.
     
           As a result of the Federal Deposit Insurance Corporation (FDIC)
     Improvement Act of 1991 (FDICIA), bank regulators have established      
     uniform capitalization standards as per the following table.  The ratios
     for the Company and its two subsidiary banks as of December 31, 1995 and
     1994 are shown for comparative purposes placing them in the "well       
     capitalized" category at each respective date.
     
     
                          Total Risk     Tier 1 Risk   Leverage
                          Based Ratio    Based Ratio      Ratio   
     Well Capitalized     10% or above   6% or above   5% or above
     Adequately
       Capitalized        8% or above    4% or above   4% or above
     Undercapitalized     less than 8%   less than 4%  less than 4%
     Significantly
       Undercapitalized   less than 6%   less than 3%  less than 3%
     Critically
       Undercapitalized        -               -       2% or less
     United Bank
       December 31, 1995     15.59%        14.34%          9.19%
       December 31, 1994     14.60%        13.34%          8.73%
     Vermont National Bank
       December 31, 1995     13.87%        12.61%          8.29%
       December 31, 1994     12.16%        10.90%          7.48%
     Vermont Financial
       Services Corp.
       December 31, 1995     14.70%        13.44%          8.82%
       December 31, 1994     13.03%        11.77%          8.01%

           FDIC insurance rates after 1992 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 are in 
     turn lower than the other categories.  Both banks will be assessed at the
     lowest available FDIC rate, $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.
     
     Liquidity and Interest Rate Sensitivity
     
           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 capability of 
     $226.0 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 summarizes the Company's interest rate sen-  
     sitivity over various periods at December 31, 1995.
<TABLE>
<CAPTION>
                                                                     Repricing Date
                                           0-30 Days   31-90 Days    91-180 Days  181-365 Days  1-5 Years   Over 5 Years
                                                                     (In thousands)
     
    <S>                                   <C>          <C>           <C>           <C>         <C>          <C>   
     Earning assets:
       Loans (1)                           $ 263,379    $ 60,390      $98,511       $136,174    $210,491     $112,830 
       Investment securities (2) (3)          13,897      27,600       24,119         30,157     116,518       25,604  
       Other earning assets                    8,987           -            -              -           -            -
         Total                               286,263      87,990      122,630        166,331     327,009      138,434  
     Interest-bearing liabilities:
       MMDA's (4)                            295,377           -            -         66,536           -            -  
       NOW's and Super NOW's (4)                   -           -            -         76,371      31,427            -  
       Savings and Clubs (4)                       -           -            -              -     124,869            -  
       Certificates of Deposit                24,445      42,124       61,207         72,376      95,909        5,812  
       Borrowed Funds                         74,433       1,508        3,739            107      10,068        1,810
         Total                               394,255      43,632       64,946        215,390     262,273        7,622  
      
     Net Interest Sensitivity Gap          $(107,992)   $ 44,358      $57,684       $(49,059)    $64,736     $130,812
                                             ========     ======       ======        =======      ======      =======
     
     Cumulative Interest Sensitivity Gap                $(63,634)      $(5,950)     $(55,009)     $9,727     $140,539    
                                                          =======       =======      ========      =====      =======
</TABLE>
     (1) Does not include non-accrual loans of $11,695 at December 31, 1995.
     (2) Does not include equity securities of $11,787 at December 31, 1995.
     (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 3 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.
     
     Recent Developments
     
            During 1996, the Company plans to replace Vermont National Bank's
     (VNB's) online teller system at an estimated total cost of $2.9 million
     and purchase its Williston Road office at an anticipated total cost of
     $0.7 million. No other additions to premises or equipment are expected to
     exceed $500,000. All additions will be funded through the operations of
     the Company.

           The Company's financial statements for 1996 will be affected by  
     rules and regulations which have been announced but are not yet         
     effective.  The  Financial Accounting Standards Board (FASB) has issued 
     Statements of Financial Accounting Standards (SFAS) No. 121, "Accounting
     for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
     Disposed of".  This statement shall be effective
     for all fiscal years beginning after December 15, 1995.  This statement
     is not expected to have a material impact on the financial statements of
     the Company.  The FASB has also issued SFAS No. 122, "Accounting for
     Mortgage Servicing Rights".  This statement amends SFAS No. 65,
     "Accounting for Certain Mortgage Banking Activities", to require that a
     mortgage banking enterprise recognize as separate assets rights to 
     service mortgage loans for others, however those servicing rights were
     acquired.  The statement requires upfront recognition of income from loan
     origination based on the expected value of any related servicing.  Prior 
     to 1996, income on serviced mortgages was recognized as payments were
     received. Management expects that the estimated annual effect of this
     statement is an increase to pre-tax income of approximately 1% of 
     mortgage loans sold. The FASB also issued SFAS No.123, " Accounting for 
     Stock-Based Compensation" which establishes financial accounting and re-
     porting standards for stock-based employee compensation plans and is 
     effective for all fiscal years that begin after December 15,1995.  The 
     standard requires a fair value based method of accounting for an employee
     stock option or similar equity instrument.  Companies are given the option
     of recognizing this compensation expense in the income statement or by 
     proforma footnote disclosure.  VFSC will adopt the latter method effective
     January 1, 1996.  The estimated impact for VFSC stock options issued in 
     1995 is a $0.13 and $0.14 reduction in annual primary and fully diluted 
     earnings per share, respectively.

     Item 8 - Financial Statements and Supplementary Data
     Vermont Financial Services Corp.
     
     Consolidated Balance Sheets
     (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                  December 31, 
                                                                  1995        1994 
    <S>                                                          <C>         <C>  
     Assets
     Cash and Due from Banks                                      $   53,834  $   57,002
     Interest-bearing Deposits with other Banks                           62         105
     Federal Funds Sold and Securities Purchased Under
     Agreements to Resell                                              8,925      16,000          
          Total Cash and Cash Equivalents                             62,821      73,107          
     Securities Available for Sale                     
        Mortgage-Backed Securities                                    75,752      50,668          
        Other Securities                                             173,930     123,197          
          Total Securities Available for Sale                        249,682     173,865          
     Loans                                                           893,470     911,503          
        Less:  Allowance for Loan Losses                             (14,761)    (16,236)         
               Net Loans                                             878,709     895,267          
     Premises and Equipment, Net                                      20,366      21,298          
     Real Estate Held for Investment                                   1,309       1,272          
     Other Real Estate Owned (OREO)                                    
        (Net of valuation reserve of $47 at 
         December 31, 1995 and $710 at 
         December 31, 1994)                                            2,977       4,487          
     Goodwill and Other Intangibles                                    2,747       3,136          
     Other Assets                                                     28,058      32,989          
          Total Assets                                            $1,246,669  $1,205,421       
                                                                  ==========  ==========       
     ______________________________________________________________________________________________
     Liabilities and Stockholders' Equity
     Deposits:
        Demand                                                    $  137,504  $  117,411
        Savings, NOW and Money Market Accounts                       594,580     624,038
        Other Time                                                   301,873     271,420 
          Total Deposits                                           1,033,957   1,012,869
     Federal Funds Purchased and Securities Sold
        Under Agreements to Repurchase                                79,773      71,163
     Liabilities for Borrowed Money                                   11,892      22,725
     Other Liabilities                                                 9,214        8,207
          Total Liabilities                                        1,134,836   1,114,964
     Commitments and Contingencies
     Stockholders' Equity:
        Common Stock - $1 Par Value;
           Authorized 20,000,000 Shares;
           Issued and Outstanding: 1995 - 4,883,017
                                   1994 - 4,790,479                    4,883       4,790
        Preferred Stock - $1 Par Value;
           Authorized 5,000,000 Shares                       
        Capital Surplus                                               49,427      48,715
        Undivided Profits                                             59,464      48,615
        Security Valuation Allowance                                       9      (9,604)
        Treasury Stock, at cost - 1995 -  99,750 shares
                                  1994 - 105,260 shares              (1,950)     (2,059)
          Total Stockholders' Equity                                 111,833      90,457
          Total Liabilities and Stockholders' Equity              $1,246,669  $1,205,421
                                                                  ==========  ==========
</TABLE>
     See notes to consolidated financial statements.
     Vermont Financial Services Corp.
     Consolidated Statements of Income
     (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                        For the years ended December 31,   
                                          1995         1994         1993     
<S>                                     <C>          <C>          <C>           
 Interest Income
 Interest and fees on loans              $83,506      $73,085      $71,826      
 Interest on securities available
   for sale:    
     Taxable interest income             11,480       10,603        9,738      
     Tax exempt interest income             443          429          423      
 Income on federal funds sold and
   securities purchased under
   agreements to resell                    1,028          270          146      
 Interest on time deposits                     0            4            9      
      Total interest income               96,457       84,391       82,142      
 Interest Expense
 Interest on deposits:
      Certificates of deposit
         over $100,000                     1,766       1,123        1,669       
      Other deposits                      35,179      27,914       26,572       
 Interest on federal funds purchased,
    borrowed money and securities
    sold under agreements to repurchase    5,024       4,256        3,120       
      Total interest expense              41,969      33,293       31,361       
 Net interest income                      54,488      51,098       50,781       
 Provision for loan losses                 3,900       4,000        5,053       
 Net interest income after provision
    for loan losses                       50,588      47,098       45,728       
 Other Operating Income
 Securities gains, net                        79          56        2,100       
 Trust Department income                   3,218       2,965        2,775       
 Service charges on deposit accounts       5,746       5,420        4,557       
 Credit card fees                          2,794       2,871        2,641       
 Mortgage servicing income                 1,910       1,775        2,013       
 Other service charges, commissions        
    and fees                               3,802       3,605        3,262       
      Total other operating income        17,549      16,692       17,348       
 Net interest and other operating income  68,137      63,790       63,076       
 Other Operating Expense
 Salaries and wages                       17,503      17,786       18,427       
 Pension and other employee benefits       4,509       4,897        5,213       
 Occupancy of bank premises, net           3,337       3,221        3,197       
 Furniture and equipment                   4,155       3,992        3,768       
 Organizational expenses                      36         612          261       
 Net OREO and collection expenses 
    and losses                             2,244       2,182        7,307       
 Printing and supplies                     1,143       1,147        1,171       
 FDIC Insurance                            1,163       2,319        2,354       
 Other operating expense                  11,909      10,607       10,761       
      Total other operating expense       45,999      46,763       52,459       
 Income before income taxes               22,138      17,027       10,617       
 Applicable income tax expense             7,241       5,159        3,386       
 Net Income                              $14,897     $11,868       $7,231       
                                          ======      ======        =====       
  Earnings Per Common Share:
      Net Income-Primary and Fully Diluted $3.10       $2.51        $1.54       
                                            ====        ====         ====       
</TABLE>
     See notes to consolidated financial statements.
     Vermont Financial Services Corp.
     Consolidated Statements of Changes in Stockholders' Equity
     (Dollars in thousands, except per share amounts)
     For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
                                                                        Unrealize

d                 Employee
                                  Common        Capital      Undivided    Holding       Treasury  Stock Ownership
                                   Stock        Surplus       Profits   Gains(Losses)     Stock      Plan             Total 
    <S>                         <C>          <C>           <C>            <C>         <C>             <C>          <C>      
     Balance, December 31, 1992  $4,726       $48,008       $33,105        $(224)      $(2,059)        $(72)        $ 83,484
     Net Income                       -             -         7,231            -             -            -            7,231
     Issuance of 4,214 Shares
       of Common Stock under
       Employee Stock Purchase
       Plan                           4            71             -            -             -            -               75
     Issuance of 10,093 Shares
       of Common Stock under
       Dividend Reinvestment
       Plan                          10           163             -            -             -            -              173
     Employee Stock Ownership
       Plan Debt Payment              -             -             -            -             -           72               72
     Adoption of SFAS No. 115
       (net of income taxes of
       $446)                          -             -             -        1,089             -            -            1,089
     Exercise of Options: 9,000
       shares @ $7.50 per share       9            58             -            -             -            -               67
     Cash Dividends Declared
       ($0.24)                        -             -        (1,164)           -             -            -           (1,164)
     Balance, December 31, 1993   4,749        48,300        39,172          865        (2,059)           -           91,027
     Net Income                       -             -        11,868            -             -            -           11,868
     Issuance of 4,678 Shares
       of Common Stock under
       Employee Stock Purchase
       Plan                           5            88             -            -             -            -               93
     Issuance of 7,126 Shares
       of Common Stock under
       Dividend Reinvestment
       Plan                           7           132             -            -             -            -              139
     Change in unrealized 
       gain/loss on securities
       available for sale portfolio,
       net of tax                    -             -             -      (10,469)            -            -          (10,469)
     Exercise of Options: 28,473
       shares at $7.50 per share
       and 1,050 shares at $10.25
       per share                     29           195             -            -             -            -              224
     Cash Dividends Declared
       ($0.54)                        -             -        (2,425)           -             -            -           (2,425)
     Balance, December 31, 1994   4,790        48,715        48,615       (9,604)       (2,059)           -           90,457
     Net Income                       -             -        14,897            -             -            -           14,897
     Issuance of 5,445 Shares
       of Common Stock under
       Employee Stock Purchase
       Plan                           6           136             -            -             -            -              142
     Exercise of options: 83,967
       shares at $7.50; 3,125 shares 
       at $10.25; 4,000 shares at 
       $19.00; 500 shares at $20.25
       and 1,000 shares at $22.50    87           576             -            -           109            -              772
     Change in unrealized gain/
       loss on securities 
       available for sale
       portfolio, net of tax          -             -             -        9,613             -            -            9,613
     Cash Dividends Declared
       ($0.87)                        -             -        (4,048)           -             -            -           (4,048)
     Balance, December 31, 1995  $4,883       $49,427       $59,464           $9       $(1,950)           -         $111,833
                                 ===========================================================================================
</TABLE>
     See notes to consolidated financial statements.

     Vermont Financial Services Corp.
     Consolidated Statements of Cash Flow
     (Dollars in thousands)
<TABLE>
<CAPTION>
                                              For the years ended December 31,
                                              1995          1994           1993 
    <S>                                  <C>           <C>          <C>
     OPERATING ACTIVITIES 
     Net Income                           $  14,897     $ 11,868     $   7,231   
     Adjustments to reconcile net income
        to net cash provided by operating
        activities:
        Provision for loan losses             3,900        4,000         5,053   
        Provision for depreciation            3,233        2,747         2,711   
        Net amortization on investment
          securities                            670          885           740   
        Deferred income taxes                   307          239           342   
        Net gain on sale of loans              (637)        (362)       (3,146)  
        Security gains, net                     (79)         (56)       (2,100)  
        Proceeds from sales of loans         37,547       90,097       190,104   
        Loans originated for sale           (37,192)     (80,047)     (187,440)  
        Net loss on sale of OREO                798          526         3,966   
        Decrease (increase) in other assets      24       (3,233)          846   
        Increase in other liabilities         1,007          768         1,257   
        NET CASH PROVIDED BY OPERATING 
             ACTIVITIES                      24,475       27,432        19,564   
     INVESTING ACTIVITIES
        Proceeds from sales of securities    18,598       28,097        58,436   
        Proceeds from maturities of
             securities                      21,694       43,933        45,779   
        Purchase of securities             (102,135)     (82,703)     (136,235)  
        Proceeds from sale of OREO            4,469        7,000        15,241   
        Purchase of mortgage loans                -       (9,963)            -   
        Net decrease (increase) in loans      9,183      (45,664)      (37,030)  
        Purchase of premises and
             equipment                       (2,301)      (2,056)       (3,704)  
        NET CASH USED BY INVESTING
             ACTIVITIES                     (50,492)     (61,356)      (57,513)  
     FINANCING ACTIVITIES
        Net increase in deposits             21,088       45,287        25,701   
        Net (decrease) increase in
             other borrowings                (2,223)       1,835        (1,047)  
        Issuance of common stock                914          456           315   
        Cash dividends                       (4,048)      (2,425)       (1,164)  
        NET CASH PROVIDED BY FINANCING
             ACTIVITIES                      15,731       45,153        23,805   
        (DECREASE) INCREASE IN CASH
             AND CASH EQUIVALENTS           (10,286)      11,229       (14,144)  
     Cash and Cash equivalents at 
        beginning of year                    73,107       61,878        76,022   
     CASH AND CASH EQUIVALENTS AT 
        END OF YEAR                         $62,821      $73,107       $61,878   
                                             ======       ======        ======   
</TABLE>
     Non-monetary Transactions:
      Transfer of loans to OREO for the years ended December 31, 1995, 1994
      and 1993 totaled $3,757, $7,335 and $4,586, respectively.
     
     See notes to consolidated financial statements.
     
     
     
     Notes To Consolidated Financial Statements
     
     1.  Basis of Financial Statements and Significant Accounting Policies
     
             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 descriptionof
     the more significant 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").  All intercompany trans-     
     actions have been eliminated in the consolidated financial statements.
     
           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.

           Securities that may be sold as part of the Company's               
     asset/liability or liquidity management or in response to or in anti-     
     cipation of changes in interest rates and resulting prepayment risk, or 
     for other similar factors, are classified as available for sale and     
     carried at fair market value which is based on quoted market prices or     
     dealer quotes.  Unrealized holding gains and losses on such securities     
     are reported net of related taxes as a separate component of share-     
     holders' equity.  Realized gains and losses on the sales of all          
     securities are reported in earnings and computed using the specific     
     identification cost basis.  The adoption of SFAS No. 115 was not applied
     retroactively to prior years' financial statements.
     
           The Company values impaired loans and recognizes related income in
     accordance with Statement of Financial Accounting Standards (SFAS) No. 114,
     "Accounting by Creditors for Impairment of a Loan" and as amended by SFAS
     No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recog-
     nition and Disclosure".
     
           The reserve for loan losses is maintained at a level which, in
     management's judgment, is adequate to absorb future 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.
     
           OREO is carried at the lower of cost or fair value less the estimated
     cost to sell the property.
     
           Premises and equipment are stated at cost less accumulated deprec-
     iation 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.
     
          Goodwill and other intangibles are amortized over their estimated
     lives by the straight-line method.  As part of its ongoing review, manage-
     ment estimates the value of the Company's intangible assets, taking into
     consideration any events and circumstances which might have diminished
     such value.
     
          The Company has adopted SFAS No. 109, "Accounting for Income Taxes",
     which requires recognition of 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 lia-
     bilities and assets are determined based on the difference between the fi-
     nancial 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.
     
          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 Bank.  Trust Department
     income is recorded on the cash basis which is not materially different from
     income that would be reported on the accrual basis.
     
          Loan origination and commitment fees and certain direct loan origi-
     nation costs are deferred and amortized as an adjustment of the related
     loan's yield over the contractual life of the related loans by the level
     yield method.
     
          The Company has adopted SFAS No. 106, "Employers' Accounting for
     Postretirement Benefits Other Than Pensions" which requires accrual of the
     expected cost of providing these benefits.
     
          Dollars in the following footnotes are in thousands except for per
     share amounts.
     
     2. Merger with WestMass Bankshares, Inc.
     
          On June 14, 1994, the shareholders of WMBS and VFSC consummated a
     merger which resulted in WMBS' sole subsidiary, USB, becoming a wholly
     owned subsidiary of VFSC.  Under the terms of the merger, WMBS shareholders
     received .9861 shares of VFSC stock for each WMBS share.  As a result,
     VFSC issued 1,122,696 shares of its common stock for all the outstanding
     shares of WMBS common stock, with the exception of 115,800 dissenting WMBS
     shares. Although management does not know the final outcome of the dispo-
     sition of the dissenting shareholders, the per share data in the financial
     statements assume an exchange at .9861 per share for all shares.
     
          The merger was effected as a pooling of interests and accordingly,
     VFSC's financial statements have been restated to include the results of
     WMBS for all periods presented.
     
          Combined and separate results of VFSC and WMBS during the periods
     preceding the merger were as follows:
<TABLE>
<CAPTION>
          Five months ended May 31, 1994                         VFSC       WMBS      Combined
     (unaudited)
    <S>                                                  <C>         <C>        <C>           
     Net interest income                                  $16,254     $3,929     $20,183
     Net income                                           $ 3,194     $  953     $ 4,147
     Fiscal year ended December 31, 1993  
     (unaudited)
     Net interest income                                  $41,654     $9,127     $50,781
     Net income                                           $ 4,771     $2,460     $ 7,231
</TABLE>
          The combined financial results presented above include adjustments
     made to conform accounting policies of the two Companies.  None of the
     adjustments impacted previously reported net income.  All adjustments are
     reclassifications to conform financial statement presentation.  These
     reclassifications include USB transferring its investment portfolio from
     "Held-to-Maturity" to "Available for Sale" at December 31, 1993.  There
     were no intercompany transactions between the two Companies during the
     periods presented above.
          In connection with the merger, the Company recorded expenses of $466
     in 1994.  These expenses represent printing, investment advisory, legal,
     audit and other professional service fees.

     3. Securities
     
          Additional information with respect to the contractual maturities of
     securities available for sale at December 31, 1995 and 1994 follows:
     
                                                     December 31,        
                                            1995               1994      
                                                        
                                       Fair   Amortized    Fair   Amortized
                                      Value      Cost     Value      Cost
<TABLE>
<CAPTION>                          <C>       <C>       <C>       <C>
     Classification and Maturity:
     U. S. Treasury Securities:
     Within 1 year                  $  6,064  $  6,045  $      -  $      - 
     1-5 years                        26,268    25,890    18,802    19,870 
     5-10 years                            -         -     2,829     3,184 
       Total                          32,332    31,935    21,631    23,054 
     
     Obligations of Other U. S.
       Government Agencies:
     Within 1 year                         -         -         -         -   
     1-5 years                        65,770    65,977    28,177    30,468   
     5-10 years                       47,771    48,028    50,007    56,253   
       Total                         113,541   114,005    78,184    86,721   
     
     Obligations of States and
       Political Subdivisions:
     Within 1 year                         -         -       876       867   
     1-5 years                         1,316     1,302     2,823     2,825   
     5-10 years                        5,427     5,372     4,539     4,933   
     Over 10 years                     3,600     3,641         -         -   
       Total                          10,343    10,315     8,238     8,625   
     
     Corporate Securities:
     Within 1 year                       509       503       500       500   
     1-5 years                           508       500       989     1,008   
     Over 10 years                        15        15        60        60   
       Total                           1,032     1,018     1,549     1,568   
     
     Mortgage-backed Securities
       with Original Average Life:
     Within 1 year                     1,602     1,591     1,526     1,530   
     1-5 years                        67,011    67,010    40,579    43,863   
     5-10 years                        5,569     5,561     6,924     7,677   
     Over 10 years                     1,570     1,603     1,639     1,766   
        Total                         75,752    75,765    50,668    54,836   
     
     Marketable Equity Securities     11,787    11,735    11,960    11,977   
     
     Money Market Overnight
       Investments:
       Within 1 year                   4,895     4,895     1,635     1,635   
       Total Securities             $249,682  $249,668  $173,865  $188,416  
                                     =======   =======   =======   =======  
</TABLE>
     
                                                  December 31,             
                                          1995                1994         
                                   Gross     Gross     Gross       Gross
                                Unrealized Unrealized Unrealized Unrealized
        Classification             Gains     Losses    Gains      Losses
     
<TABLE>
<CAPTION>                       <C>       <C>         <C>     <C>
     U.S. Treasury Securities    $  458    $   61      $  1    $ 1,424 
     Obligations of Other U.S.
        Government Agencies         480       944         0      8,537 
     Obligations of States and
        Political Subdivisions       91        63        40        427 
     Corporate Securities            14         0         0         19 
     Mortgage-backed Securities     337       350         1      4,169 
     Marketable Equity Securities    54         2       158        175 
                                                                       
          Total                  $1,434    $1,420      $200    $14,751 
                                  =====     =====       ===     ====== 
</TABLE>
          Proceeds from sales of securities available for sale during 1995,     
     1994 and 1993 were $18,598, $28,097 and $58,436, respectively. 
     
          Gross gains of $124, $625 and $2,100 were realized on those sales in
     1995, 1994 and 1993, respectively. Gross losses of $45, $569 and $0 were
     realized in the respective periods.
     
         Securities with a book value of $90,723 as of December 31, 1995 and
     $80,713 as of December 31, 1994 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.
     
     4. Loans
     
          Loans classified by type are summarized as follows:
     
                                                 December 31,       
                                       1995                 1994

          Commercial                   $170,162             $207,299
          Real Estate:
             Residential                415,468              389,033
             Commercial                 182,233              186,185
             Construction                24,816               25,033
                Total Real Estate       622,517              600,251
          Consumer                      100,791              103,953
             Total loans, net of
               unearned income         $893,470             $911,503
                                        =======              =======

          The Company grants loans to customers primarily in New England. 
     Although the Company has a diversified portfolio, its debtors' ability to
     honor their contracts is substantially dependent upon the general economic
     conditions of the region.
     
          At December 31, 1995 the amount of loans outstanding to directors,
     executive officers, principal holders of equity securities or to any of
     their associates totaled $7,447. 

          The following table summarizes the related party loan activity for
     1995:
     Balance at beginning of year           $7,639
     Additions                                 486
     Repayments                               (678)
                                            -------
     Balance at end of year                 $7,447
                                             =====
     Mortgage Banking Activities
     
          During 1995 the Company originated $32,573 of mortgage loans for sale
     in the secondary market and sold $35,784.  As of December 31, 1995, $3,080
     of mortgage loans were held for sale and were carried at the lesser of the
     loan balance or market value.  All loans are sold without recourse, except
     for certain technical underwriting exceptions and $2,590 and $780 in loans
     sold by UB to the Federal Home Loan Mortgage Corporation and South Boston
     Savings Bank, respectively,  under recourse agreements.  None have been
     presented for recourse.  Loan servicing is retained by the Company and
     excess servicing is capitalized monthly and adjusted quarterly based on.
     actual payments received on the sold loans.  Gains, net of losses, from
     sales of mortgage loans are included in interest and fees on loans and was
     $290 for 1995, $187 for 1994 and $2,704 for 1993.  At December 31, 1995 and
     1994 the Company's serviced mortgage portfolio totaled $420,573 and
     $459,172, respectively. Loan servicing income was $1,910, $1,775 and $2,013
     for 1995, 1994 and 1993, respectively.  The following schedule represents
     excess servicing right activity for the past two years:

                                1995       1994 
     Balance, January 1         $3,279     $3,799
     Additions                      11        202
     Amortization                 (359)      (722)
     Sales                        (218)         0
                                ------     ------
     Balance, December 31       $2,713     $3,279
                                ======      =====
        Amortization represents quarterly valuation adjustments which are
   based on pool balances and prepayment assumptions on a pool by pool basis as
   reported by the Bloomberg Financial Market System.
     
     
     5. Allowance for Loan Losses
     
          Transactions in the allowance for loan losses are summarized as
    follows:

                                   1995        1994        1993 
     Balance,                      
       January 1                   $16,236     $17,815     $21,047  
     Provision for 
       Loan Losses                   3,900       4,000       5,053  
     Loans
       Charged Off                  (6,613)     (6,785)     (9,595) 
     Recoveries of
       Loans Previously
       Charged Off                   1,238       1,206       1,310  
     Balance,                      -------     -------     -------
       December 31                 $14,761     $16,236     $17,815 
                                    ======      ======      ======

      Transactions in the OREO valuation reserve are summarized as follows:
     
                                     1995       1994 
     Balance, January 1              $  710     $  490     
     Provisions for OREO losses         503        571     
     OREO Charged Off                (1,166)      (351)    
     Balance, December 31            $   47     $  710     
                                         ==        ===
          Proceeds from sales of OREO were $4,469 in 1995 and $7,000 in 1994. 
     Loans associated with these sales were $1,468 and $2,275, 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.  During 1995 two loans totaling $106 were
     granted at UB at percentages of sales price which exceeded the Company's
     policy.  None of these loans exceed 95% of the OREO sales price.
     
     
     6. Premises and Equipment
      
      Premises and equipment, stated at cost, consist of the following:
     
                                                      December 31,     
                                             1995              1994 
          Land                               $  2,504          $  2,394 
          Premises                             20,841            20,240 
          Equipment                            14,195            13,352 
          Leasehold Improvements                1,768             1,745 
             Total                             39,308            37,731 
          Accumulated Depreciation and
             Amortization                     (18,942)          (16,433)
          Premises and Equipment, Net        $ 20,366          $ 21,298 
                                               ======            ====== 
     7. Deposits
     
          Time certificates of deposit outstanding in denominations of $100 or
     more aggregated to $37,958 and $27,932 at December 31, 1995 and 1994,
     respectively.  Total interest on these deposits amounted to $1,766, $1,123,
     and $1,669 for the years ended December 31, 1995, 1994 and 1993,
     respectively.
     
          The Company paid $36,945, $29,042 and $28,363 in interest on deposits
     during 1995, 1994 and 1993, respectively.  
     
     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, 1995 the Company owned $7,481 of stock in the Federal
     Home Loan Bank ("FHLB") which provided borrowing capacity up to $226 mill-
     ion from the FHLB at maturities, rates and terms determined by the FHLB.
     
                                                 December 31,        
                                       1995       1994        1993 
     Federal funds purchased           $     450   $    350   $    350
     Securities and loans sold under
       agreements to repurchase           79,323     70,813     85,352
     FHLB and  other borrowings           11,892     22,725      6,351
     Total                              $ 91,665   $ 93,888   $ 92,053
                                          ======     ======     ======
     
     Average amount outstanding
       during the year                  $ 95,034   $102,963  $ 88,286
     Maximum amount outstanding at
       any month end                    $112,370   $125,097  $107,716
     Weighted average interest rate 
       at year end                          4.85%      4.66%     3.28%
     Weighted average interest rate
       during the year                      5.21%      4.03%     3.53%

     Long-term borrowings from the FHLB(included in the above):
     
                                                      December 31,         
                                         1995            1994         1993 
     Maturing August 19, 1994 @ 4.12%    $     0         $  0         $5,000 
     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 6, 2014 @ 7.61%            553          566              0 
     Maturing July 15, 1998 @ 6.03%       10,000            0              0

     9.   Fair Market Value of Financial Instruments
     
     Cash and Cash Equivalents
          Cash and cash equivalents had a carrying value of $62,821 and
     $73,107 at December 31, 1995 and 1994, respectively.  Due to their short
     term and very liquid nature the carrying value is considered to also rep-
     resent the fair market value of these balances.
     
     Securities
          Securities are classified as available for sale and are carried at
     fair market value based on quoted market prices or dealer quotes.  Secur-
     ities available for sale had a total fair market value of $249,682 and
     $173,865 at December 31, 1995 and 1994, respectively.  This compares to
     amortized cost values of $249,668 at December 31, 1995 and $188,416 at
     December 31, 1994.
     
     Loans
          At December 31, 1995 and 1994 total loans, net of allowance for loan
     losses, had a carrying value of $878,709 and $895,267, respectively.  The
     fair value of these loans was $900,652 and $901,372, respectively.  For
     certain homogeneous categories of loans, such as some residential mort-
     gages, 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, 1995 and 1994 total deposits had carrying values of
     $1,033,957 and $1,012,869 and fair values of $1,032,796 and $1,010,215,
     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 $91,665 and $93,888 at
     December 31, 1995 and 1994, respectively.  These are also reasonable esti-
     mates of fair market value.
     
     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
     
          Effective January 1, 1995, the Company adopted, prospectively, State-
     ment of Financial Accounting Standards (SFAS) No. 114, "Accounting by
     Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting
     by Creditors for Impairment of a Loan-Income Recognition and Disclosure." 
     These standards require that loans be classified and accounted for as
     impaired loans when it is probable that the Company will be unable to coll-
     ect 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. For purposes of applying the standards, 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 reserve for credit losses.
     
          Loan losses on impaired loans are charged against the allowance for
     loan and lease losses when management determines the ultimate collect-
     ibility of principal and interest has changed from doubtful to unlikely.
     
          The Company recognizes interest income on impaired loans consistent
     with its nonaccrual policy.  When loans are placed on nonaccrual status,
     the related interest receivable is reversed against current period interest
     income.  Interest payments received on nonaccrual loans are applied as a
     reduction of the principal.  For loans not in nonaccrual status, the
     Company recognizes principal and interest, in accordance with the original
     contractual terms.
     
          Adoption of the standards did not have a material effect on the
     Corporation's financial position or results of operations and did not
     result in any additional provision for credit losses as of January 1,     
     1995.  At December 31, 1995, loans for which impairment has been          
     recognized in accordance with SFAS No. 114 totaled $36.3 million, of     
     which $33.7 million related to loans with no specific valuation reserve    
     and $2.6 million related to loans with a specific valuation reserve of     
     $0.9 million.
     
     
     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, 1995.  Certain operating
      leases contain various options to renew.
     
     Year Ending December 31:
     
     1995                                   $  513     
     1996                                      381     
     1997                                      303     
     1998                                      258     
     1999                                      218     
     Later Years                             1,946
                                            ------
          Total Minimum Payments Required   $3,619      
                                             =====
          Operating expenses include approximately $943, $988, and $1,228 in
     1995, 1994 and 1993, respectively, for rentals of premises and equipment
     used for banking purposes.
     
     Derivative Financial Instruments
     
          Transactions involving derivative financial instruments during the
     fiscal years 1995, 1994 and 1993 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 statements of financial          
     condition.  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, 1995 were as follows:

          Home equity lines             $58,484
          Credit card lines              83,355
          Commercial real estate         18,385
          Other unused commitments       88,816

          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 certifi-
     cates 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, 1995, the Company had outstanding commitments for
     the following:  financial standby letters of credit - $9,327, performance
     standby letters of credit - $1,618 and commercial and similar letters of
     credit - $6,308.
     
          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, 1995 the
     Company's reserve requirement of $14,850 was met with cash on hand and
     deposits at the Federal Reserve Bank.
     
          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.
     
     
     12. Income Taxes
     
      The provisions for income tax expense (benefit) included in the
statements of income are as follows:
     
                                  Year Ended December 31,   
                              1995         1994         1993
     
     Currently Payable:
          Federal             $5,992       $4,334       $2,491
          State                  665          586          553
     Deferred:
          Federal                569          242          352
          State                   15           (3)         (10)
                              $7,241       $5,159       $3,386 
                               =====        =====        ===== 

          The approximate tax effect of principal temporary differences giving
     rise to deferred taxes are summarized as follows:
     
                                                   Year Ended December 31,   
                                              1995         1994       1993
     Deferred compensation 
        and fees                              $  40        $(242)     $  (177)
     Provision for possible loan
        losses                                  612          356        1,269 
     Accretion on investments                    14           31         (263)
     Depreciation                               (22)         154          (88)
     Pension                                   (133)        (105)         (52)
     Intangibles                                (43)        (133)         (50)
     Other                                      116          178         (297)
     Total deferred taxes                     $ 584        $ 239       $  342 
                                                ===          ===          === 

          The Company made income tax payments of $6,425, $4,623 and $2,833
     during 1995, 1994 and 1993, respectively.
     
          The components of the net deferred tax asset as of December 31 are as
     follows:
                                                1995          1994
     Deferred tax assets:
          Pension                               $  661        $   528   
          Deferred compensation and fees         1,760          1,800   
          Provision for possible loan losses     5,016          5,628   
          Unrealized loss on securities              -          4,947   
          Other                                    361             33   
     Total gross deferred tax assets             7,798         12,936   
     Deferred tax liabilities:
          Unearned income                          455              -
          Depreciation                           1,039          1,061   
          Unrealized gain on securities              5              -   
          Intangibles                              466            509   
     Total gross deferred tax liabilities        1,965          1,570   
                                                 -----         ------
     Deferred tax asset, net                    $5,833        $11,366   
                                                 =====         ======   

          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:
<TABLE>
<CAPTION>
                                               1995           1994           1993      
                                              % of           % of           % of  
                                            Pre Tax        Pre Tax        Pre Tax 
                                      Amount Income  Amount Income  Amount Income 
    <S>                              <C>     <C>    <C>     <C>    <C>     <C>        
     Federal Statutory Rate           $7,748  35.0%  $5,959  35.0%  $3,610  34.0%
     Decreases in Taxes            
        Resulting From:
          Tax exempt interest           (841) (3.8)    (782) (4.6)    (509) (4.8)
          State taxes, net
            of federal benefit           444   2.0      378   2.2      373   3.5
          Life insurance proceeds          -     -     (238) (1.4)       -     -
          Other, net                    (110) (0.5)    (158) (0.9)     (88) (0.8)
                                       -----          ------         ------
     Total                            $7,241  32.7%  $5,159  30.3%  $3,386  31.9%
                                       ==========================================
</TABLE>
 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.  The Company'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 high-
     est paid consecutive three years of employment during the last ten years
     of credited service.  It is the Company'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, 1995 and 1994:
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                                1995       1994   
    <S>                                                    <C>         <C>                         
     Actuarial present value of benefit obligations:
           Accumulated benefit obligation, including vested 
             benefits of $12,171 and $9,757 for 1995 and 
             1994, respectively.                            $  12,266   $  9,968      
                                                               ======      =====    
     
     Projected benefit obligation ("PBO") for service
             rendered to date                               $(16,846)   $(13,667)   
     Plan assets at fair value, comprised of guaranteed 
           insurance contracts, mutual, real estate and
           money market funds and listed stocks and bonds     15,737      13,203     
     PBO in excess of plan assets                             (1,109)       (464)   
     Unrecognized net loss from past experience different
           from that assumed and effects of changes in
           assumptions                                           479         293    
     Unrecognized prior service cost                             (52)        (56)   
     Unrecognized net asset at period end being 
           recognized over 18.64 years                        (1,020)     (1,137)   
                                                              ------       -----
     Accrued pension cost                                   $ (1,702)   $ (1,364)   
                                                              =======      ======   
                                                            1995        1994        1993
     Net pension cost included the 
       following components:
         Service cost - benefits earned                     $    652    $    833    $   770
           during the period
         Interest cost on PBO                                  1,141       1,052        984
         Actual return on plan assets                         (2,974)       (166)    (1,152)
         Amortization of net transition asset                   (119)       (119)      (119)
         Net amortization and deferral of losses               1,864        (874)       206
                                                               -----       -----      ----- 
     Net pension cost                                       $    564    $    726    $   689
                                                                 ===        ===        ===  
</TABLE>

     Significant assumptions used in actuarial computations were:
                                                      1995           1994     
        Discount rate                             7.00% - 7.25%  7.00% - 8.00%
        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%  7.00% - 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 $500 for 1995, $250 for 1994, and $0 for 1993.  The Plan
     also includes a 25% Company match of employee contributions to a 401k
     portion of the Plan.  This Plan feature was added in 1993 and the assoc-

     iated expense was $140 for 1995, $118 for 1994 and $114 for 1993.
     
          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 partici-     
     pating 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 cover age 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.           
     Effective January 1, 1993 the Company adopted SFAS No. 106, "Employers'    
     Accounting for Postretirement Benefits Other Than Pensions".
     
          The following table sets forth the plan's funded status reconciled
     with the amount shown in the Company's financial statements:

                                                            1995      1994
     Accumulated postretirement benefit obligation:
     
          Retired employees                                $ 302      $ 230
          Active employees                                   161        140     
          Total                                            $ 463      $ 370     
                                                             ===        ===     
     Plan assets at fair value                                $-         $-     
                                                             ===        ===     
     Unfunded accumulated benefit obligation in excess
       of plan assets                                      $(463)     $(370)    
     
     Unrecognized net (gain)                                  96        (12)   
     
     Unrecognized transition obligation                      194        205     
     
     (Accrued) postretirement medical and life        
       benefit cost                                        $(173)     $(177)    
                                                            =====      =====    

     Net periodic postretirement benefit cost included the following components:
     
                                                               1995     1994
     Service cost - benefits attributed to service during
       the period                                              $ 9      $ 16
     
     Interest cost                                              34        29
     
     Recognition of transition obligation                       11        12
     
     
     Special termination benefits                                -       162
     
     Net periodic postretirement cost                          $54      $219
                                                                ==       ===

          For measurement purposes, an 8% annual rate of increase in the per
     capita net employer share of covered health care benefits was assumed for
     1995.  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, increas-
     ing 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, 1995, as well as the total of the service cost
     and interest cost components of net periodic postretirement cost for 1995
     by less than 2%.  The weighted average discount rate used in determining
     the accumulated postretirement benefit obligation was 7.25% in 1995 and    
     8.5% in 1994.  As the plan is unfunded, no assumption was needed as to     
     the long term rate of return on assets.
     
     14. Stockholders' Equity
     
          The Company had certain common stock equivalents outstanding from     
     1993 through 1995.  As a result, earnings per share is based on the     
     primary and fully diluted shares outstanding during the respective         
     periods shown in the table below:

                                                1995       1994        1993
 Average primary shares outstanding           4,807,553  4,735,480   4,710,228 
 Average fully diluted shares outstanding     4,812,831  4,735,753   4,711,072 
     
          The per share amounts of cash dividends paid on an equivalent share
     basis were $0.87 for 1995, $0.54 for 1994 and $0.24 for 1993.  At December
     31, 1995, the Banks had available $30,537 for payment of dividends to the
     Company, under regulatory guidelines.
     
          At December 31, 1995, there were 24,566 and 79,793 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 Pur-
     chase Plan, respectively.
     
          Options Agreements - On April 20, 1987, stockholders approved a
     non-qualified stock option plan for 105,000 shares of the Company's common
     stock and on April 17, 1990 stockholders approved a non-qualified stock
     option plan for 80,000 shares of the Company's common stock.  In October,
     1993 the 65,100 and 40,000 options that were then outstanding expired unex-
     ercised for these respective plans.  On October 13, 1993 new options to
     purchase 36,000 and 12,000 shares, respectively, were granted under these
     plans at an option price of $19.00 per share and are exercisable for a five
     year period:  4,000 have been exercised to date. On August 31, 1994 stock-
     holders approved the Vermont Financial Services Corp. 1994 Stock Option
     Plan which reserves 225,000 common shares to be issued in the form of stock
     options.  To date 48,000 have been issued at an exercise price of $19.00
     per share, 6,500 have been issued at an exercise price of $20.25 per share
     and 59,800 have been issued at an exercise price of $22.50 per share under
     the 1994 plan and are exercisable for a ten year period; 1,500 have been
     exercised to date.
     
     
          The Company also 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 138,000 common shares.  To date 126,960
     shares have been issued at an exercise price of $7.50 per share and 6,900
     shares have been issued at an exercise price of $10.25 per share.  The
     following table summarizes activity under this plan:

                                        Shares   Exercise    Shares   Exercise
                                    under option  price  under option price
     
  Outstanding   December 31, 1992       126,960     $7.50   6,900   $10.25   
  Granted                                     -         -       -        -
  Exercised                               9,000      7.50       -        -
  Outstanding   December 31, 1993       117,960      7.50   6,900    10.25
  Granted                                     -         -       -        -
  Exercised                              28,473      7.50   1,050    10.25
  Outstanding   December 31, 1994        89,487      7.50   5,850    10.25
  Granted                                     -         -       -        -
  Exercised                              83,967      7.50   3,125    10.25
  Outstanding   December 31, 1995         5,520     $7.50   2,725   $10.25
                                         ======      ====   =====    =====

     15. Parent Company Financial Information
     
          Condensed financial information for Vermont Financial Services Corp.
     (parent company only) is as follows:
     
                           VERMONT FINANCIAL SERVICES CORP.
                               CONDENSED BALANCE SHEETS
     
                                                 December 31,   
                                              1995          1994
     ASSETS
     Cash                                     $503          $125
     Securities                              4,722         3,747
     Other Assets                              127           128
     Investment in Bank Subsidiaries       107,622        86,732
       Total Assets                       $112,974       $90,732
                                           =======        ======
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Other Liabilities                      $1,141          $275
     
       Total Liabilities                     1,141           275
       Total Stockholders' Equity          111,833        90,457
       Total Liabilities and
         Stockholders' Equity             $112,974       $90,732
                                           =======        ======
     
                            CONDENSED STATEMENTS OF INCOME
     
                                           Year Ended December 31,
                                         1995        1994         1993
     INCOME
     Income on Securities             $   316     $   194      $  251
     Other Income                       3,615         275         347
       Total Income                     3,931         469         598
     EXPENSES
     Organizational Expenses               36         612         261
     Other                                515         283         262
       Total Operating
         Expenses                         551         895         523
     
     Income (Loss) Before Tax 
        Benefit and Equity in
       Undistributed Income
       from Bank Subsidiaries           3,380        (426)         75
     
     Applicable Income Tax
       (Benefit)                         (195)       (131)       (104)
     Income (Loss) Before Equity
       in Undistributed Income of
       Bank Subsidiaries                3,575        (295)        179
     Equity in Undistributed
       Income of Bank
       Subsidiaries                    11,322      12,163      7,052
       Net Income                     $14,897     $11,868     $7,231
                                       ======     =======     ======
     
                                 STATEMENTS OF CASH FLOW
     
                                            Year Ended December 31,  
                                       1995         1994         1993
     OPERATING ACTIVITIES 
       Net Income                   $ 14,897     $ 11,868     $ 7,231
       Adjustments to reconcile
         income to net cash provided
         by operating activities:
         Amortization and accre-
           tion on investment
           securities                      2            5           4
         Investment security (gains)
           losses                       (121)           9           -
         (Increase) Decrease in  
           other assets                  (28)         (10)        595
         Increase (Decrease) in 
           other liabilities             866           34        (273)
         Equity in undistributed 
           net income of bank sub-
           sidiaries                 (11,322)     (12,163)     (7,052)
          
       NET CASH PROVIDED (USED) BY
         OPERATING ACTIVITIES          4,294         (257)        505 
      
     INVESTING ACTIVITIES
       Investment in bank
         subsidiaries                      -            -         (30)
       Proceeds from sales of
         securities                    1,039        3,183         248
       Proceeds from maturities of
         securities                      500          750         744
       Purchase of securities         (2,321)      (3,489)         (2)
       NET CASH (USED) PROVIDED BY
         INVESTING ACTIVITIES           (782)         444         960
     
     FINANCING ACTIVITIES                       
       Issuance of common stock          914          456         315
       Cash dividends                 (4,048)     (2,425)     (1,164)
       NET CASH USED BY FINANCING
         ACTIVITIES                   (3,134)     (1,969)       (849)
       INCREASE (DECREASE) IN CASH
         AND CASH EQUIVALENTS            378      (1,782)        616
     Cash and cash equivalents
       at beginning of year              125       1,907       1,291
     
     CASH AND CASH EQUIVALENTS
       AT END OF YEAR               $    503    $    125     $ 1,907
                                      ==============================

          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:
     
                                                             1995               
                                        Fourth     Third     Second    First
                                        Quarter    Quarter   Quarter   Quarter
   Interest income                      $24,842    $24,540   $24,012   $23,063
   Interest expense                      11,136     10,832    10,373     9,628
   Net interest income                   13,706     13,708    13,639    13,435
   Provision for possible loan losses       900      1,000     1,000     1,000
   Other operating income                 4,585      4,411     4,446     4,107
   Other operating expense               11,452     11,044    11,659    11,844
   Income before income taxes             5,939      6,075     5,426     4,698
   Applicable income taxes                1,939      2,049     1,727     1,526
   Net income                            $4,000     $4,026    $3,699    $3,172
                                          =====      =====     =====     =====
   Per share data:
   Primary and fully diluted
     Net income                           $0.83      $0.83     $0.77     $0.67
                                           ====       ====      ====      ====
     
                                                          1994                
                                        Fourth     Third     Second    First
                                        Quarter    Quarter   Quarter   Quarter
   Interest income                      $22,769    $21,752   $20,340   $19,530
   Interest expense                       9,292      8,689     7,932     7,380
   Net interest income                   13,477     13,063    12,408    12,150
   Provision for possible loan losses     1,000      1,000     1,000     1,000
   Other operating income                 4,533      4,310     3,813     4,036
   Other operating expense               11,950     11,605    11,291    11,917
   Income before income taxes             5,060      4,768     3,930     3,269
   Applicable income taxes                1,513      1,492     1,059     1,095
   Net income                            $3,547     $3,276    $2,871    $2,174
                                       =======================================
   Per share data:
   Primary and fully diluted
     Net income                          $0.75       $0.69     $0.61     $0.46
                                          ====        ====      ====      ====
     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 pre-
     pared in conformity with generally accepted accounting principals applied
     on a consistent basis in all material respects, and data include amounts
     based upon management's judgement where appropriate.
     
          The accounting systems which record, summarize and report financial
     data are supported by a system of internal controls which is 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
     Coopers & Lybrand, the Company's independent auditors.  Coopers & Lybrand
     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.
     
     
     REPORT OF INDEPENDENT ACCOUNTANTS
     
          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, 1995
     and 1994, and the related consolidated statements of income, changes in    
     stockholders' equity and cash flow for the years then ended.  These     
     financial statements are the responsibility of the Company's management. 
     Our responsibility is to express an opinion on these financial statements
     based on our audits.
     
          We conducted our audits in accordance with generally accepted         
     auditing standards.  Those standards require that we plan and perform the
     audit to obtain reasonable assurance about whether the financial state-    
     ments 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, 1995 and 1994, and the results of their operations and their
     cash flow for the years then ended, in conformity with generally accepted
     accounting principles.
     
          We previously audited and reported on the consolidated balance sheet
     as of December 31, 1993 and the related consolidated statements of income,
     changes in stockholders'equity and cash flow of Vermont Financial Services
     Corp. and subsidiary for the year ended December 31, 1993, prior to their
     restatement for the June 14, 1994 pooling of interests with West Mass Bank-
     shares, Inc.  The contribution of Vermont Financial Services Corp. and sub-
     sidiary to total assets, net interest income and net income represented
     approximately 81%, 82% and 74%, respectively for 1993, of the respective
     restated totals.  Separate financial statements of West Mass Bankshares,
     Inc. were audited and reported on separately by other auditors.  We also
     have applied procedures to the combination of the accompanying consolidated
     balance sheet as of December 31, 1993 and the related consolidated state-
     ments of income, changes in stockholders' equity and cash flow for the year
     ended December 31, 1993, after restatement for the June 14, 1994 pooling of
     interests; in our opinion, such consolidated statements have been properly
     combined on the basis described in Note 2 to the consolidated financial
     statements.
     
          As described in Notes 1 and 13 to the consolidated financial state-
     ments, the Company changed its method of accounting for certain investments
     in debt and equity securities and accounting for postretirement benefits
     other than pensions in 1993.
     
     
     Springfield, Massachusetts                     COOPERS & LYBRAND
     January 18, 1996

     
                                        
                                     PART III
     
     Item 10 - Directors and Executive Officers of Registrant
     
     Executive Officers
     
          The following table shows the name of each executive officer of the
     Company, his age, the offices with the Company held by him, and the year
     he was first elected to a comparable office with the Banks.  There are     
     not family relationships among the executive officers.
     
                                                                  Year First
                                                                  Elected to
         Name and Age                       Office                    Office
     John D. Hashagen, Jr. (54)...President and Chief Executive      1990
                                     Officer of the Company
                               Executive Vice President of the Company 1989
                               Senior Vice President of the Company    1983
                               President and Chief Executive Officer   1987
                                       of VNB
                                      
     Richard O. Madden (47)....Secretary of the Company                1993
                               Executive Vice President of the Company 1990
                               Treasurer of the Company                1986
                               Executive Vice President of VNB         1988
                               Senior Vice President of VNB            1987
                               Chief Financial Officer of VNB          1986
     
     Louis J. Dunham (42)......Executive Vice President of VNB         1994
                               Senior Credit Officer of VNB            1991
                               Senior Vice President and Senior  
                                 Commercial Loan Officer of VNB        1987
     
     Robert G. Soucy (50)......Executive Vice President of the Company 1992
                               Executive Vice President of VNB         1988
                               Senior Vice President of VNB            1984
     
     W. Bruce Fenn (54)........Executive Vice President of VNB         1988
                               Senior Vice President and Senior Loan   1987
                                       Officer of VNB
     
     Kenneth R. Cole (49)......President of UB                         1995
                               Senior Vice President and Treasurer     1986
                                       of UB
     
     Directors
     
          The  following table sets forth the name and address of each
     director of the Company, his or her age and principal occupation and the
     year in which he or she first became a director of the Company or its     
     predecessors. The business address of each of the directors is the         
     Company's address except as otherwise noted.  No family relationship     
     exists between any director.
     
                                        
              Name, Age and Principal            Year First
            Occupation or Employment and           Became  
            Offices held with the Company(1)      Director 
     
     Anthony F. Abatiell (56) . . . . . . . . . .
       Attorney, Partner, Abatiell, Wysolmerski &    1982
       Valerio Law Offices, Rutland, VT
     
     Zane V. Akins (55) . . . . . . . . . . . . .
       President, Akins & Associates,                 1987
       Brattleboro, VT
     
     Charles A. Cairns (54) . . . . . . . . . . .
       President, Champlain Oil Co., Inc. and         1986
       Coco Mart, Inc., South Burlington, VT
     
     William P. Cody (42) . . . . . . . . . . . .
       General Manager, Cody Chevrolet, Inc.,         1996
       Montpelier, VT
     
     Allyn W. Coombs (61) . . . . . . . . . . . .
       President and Treasurer of Allyn W. Coombs,     1994
       Inc. (Real Estate Development & Management), 
       Amherst, MA
     
     
     Beverly G. Davidson (64) . . . . . . . . . .      
       Secretary, Treasurer of RCAS, Inc.,            1980
       (Vermont State Fair), Rutland, VT
     
     Philip M. Drumheller (42) . . . . . . . . .       
       President, The Lane Press, Inc., Burlington,   1995        
       VT
     
     James E. Griffin (68)  . . . . . . . . . . .      
       President, J. R. Resources, Inc.               1972
       (Business Consultants), Rutland, VT
     
     John D. Hashagen, Jr. (54) . . . . . . . . .      
       President & Chief Executive Officer of         1987
       Vermont Financial Services Corp., 
       Brattleboro; President & Chief Executive
       Officer, Vermont National Bank, 
       Brattleboro, VT
     
     Francis L. Lemay (63)  . . . . . . . . . . .      
       Chairman, United Savings Bank, Greenfield, MA  1994    
     
     Kimball E. Mann (61) . . . . . . . . . . . .      
       President, J. E. Mann, Inc., (Women's          1969
       Department Store), Brattleboro, VT
     
     Stephan A. Morse (49). . . . . . . . . . . .      
       President and CEO, The Windham Foundation,     1986
       Inc., Grafton, VT 
     
     Donald E. O'Brien (70) . . . . . . . . . . .      
       Attorney, Burlington, VT                       1978
     
     Roger M. Pike (55) . . . . . . . . . . . . .      
       Vice President, Kinney, Pike, Bell &           1980
       Conner, Inc. (Insurance), Rutland, VT
     
     Mark W. Richards (50)  . . . . . . . . . . .      
       President, Richards, Gates, Hoffman            1988
       & Clay (Insurance), Brattleboro, VT
     
     
     Item 11 - Executive Compensation
     
          The following tables contain a three-year summary of the total comp-  
     ensation paid to the CEO of the Company and the other five executive      
     officers.
     
     I.   SUMMARY COMPENSATION TABLE

                                                          Long Term Compensation
         Annual Compensation                         Awards     Payouts 
(a)             (b)     (c)      (d)     (e)    (f)    (g)      (h)    (i)
                                        Other  Restric-                 All
                                        Annual   ted           LTIP   Other
Name and                                Compen- Stock Options/ Pay   Compen-
Principal             Salary    Bonus   sation Awards SARs     outs  sations 
Position         Year   $        $      $(1)     $    #        $        $   

John D. Hashagen 1995 $220,000 $66,000  N/A     N/A 14,000 sh  N/A $14,528(2)(5)
President and    1994  200,000  30,000  N/A     N/A 12,300     N/A   7,298(2)(4)
Chief Executive  1993  184,000   7,360  $25,785 N/A  5,000     N/A   2,249(2)
Officer

Kenneth R. Cole  1995 $109,727 $12,540  N/A     N/A   N/A      N/A    $611(2)
UB President and 1994   88,009  11,000  N/A     N/A   N/A      N/A    N/A
Chief Exec. Off. 1993   80,538  20,000  N/A     N/A   N/A      N/A $ 3,763(3)
    
Richard O. Madden1995 $112,000 $33,600  N/A     N/A  7,100 sh  N/A $ 6,720(2)
Exec. Vice Pres.,1994  108,000  16,200  N/A     N/A 10,600     N/A   4,111(2)
Treas., Secretary1993   99,209   4,040  12,760  N/A   N/A      N/A   1,488(2)
    
Robert G. Soucy  1995 $120,000 $36,000  N/A     N/A  7,600 sh  N/A $ 7,306(2)(5)
Exec. Vice Pres. 1994  115,000  17,250  N/A     N/A  7,100     N/A $ 3,620(2)
VNB Senior       1993  110,000   4,400  15,732  N/A  4,000     N/A   1,100(2)
Operating Officer 
    
Louis J. Dunham  1995  $98,000 $29,400  N/A     N/A  6,200 sh  N/A   $5,961(2)
VNB Exec. V.P.   1994   94,000  14,100  N/A     N/A  5,700     N/A    3,550(2)
and Senior Cr.   1993   85,000   1,700  5,568   N/A  3,000     N/A      638(2)
Officer
     
W. Bruce Fenn    1995 $111,077 $33,000  N/A     N/A  6,900 sh  N/A $ 7,878(2)(5)
VNB Exec. V.P.   1994  108,000  16,200  N/A     N/A  6,600     N/A   4,065(2)
and Sr. Banking  1993  105,000   2,100  17,717  N/A  4,000     N/A   1,575(2)
Officer

     (1)  In December, 1993 the discount rate used to compute the liability
          under the officers' deferred compensation plan (See "Deferred Comp-
          ensation Agreements" following) was reduced from 9% to 7-1/2%.  The
          associated expenses attributable to Messrs.. Hashagen, Madden,        
          Soucy, Dunham and Fenn due to this change were $19,597, $10,799,      
          $12,211, $5,568 and $13,998, respectively, for 1993.
     
     (2)  Represents the 25% Company match of the respective employees' 401k
          contribution and the employees portion of the Company's contribution
          to the Employees Profit Sharing Plan.  No Profit Sharing Plan cont-
          ribution was made in 1993.
     
     (3)  Represents the market value as of December 31 of each year of the
          shares allocated to the officers account under the UB ESOP plan for
          the respective year.
     
     (4)  Includes $778 discount received on purchases of common stock under
          the Company's Employee Stock Purchase Plan.
     
     (5)  Includes discounts received on purchase of common stock under the
          Company's Employee Stock Purchase Plan of $2,754 for Mr. Hashagen,   
          $1,120 for Mr. Fenn and $452 for Mr. Soucy.
     
     II.  OPTION/SAR GRANTS TABLE
                         Option/SAR Grants in Last Fiscal Year

                                                         Potential Realizable
                                                            Value at Assumed
                                                             Annual Rates of
                                                                Stock Price
                                                               Appreciation
                Individual Grants                       for Option Term (1)
(a)            (b)         (c)           (d)     (e)         (f)      (g)
                             % of
                            Total
                           Options/
                             SARs
               # of       Granted to  Exercise
            Securities     Employees  or base   Expira-
            Underlying     in Fiscal   Price     tion   
Name      Options Granted    Year      ($/Sh)    Date       5%($)      10%($)

John D.
Hashagen        14,000         26.5%     $22.50    5/10/05  $198,102   $502,029
     
Kenneth R.
Cole                 0          0          N/A      N/A         N/A       N/A
   
Richard O.
Madden           7,100         13.4       22.50    5/10/05   100,466   $254,600
   
Robert G.
Soucy            7,600         14.4       22.50    5/10/05   107,541    272,530
    
Louis J.
Dunham           6,200         11.7       22.50    5/10/05    87,731    222,327
    
W. Bruce
Fenn             6,900         13.1       22.50    5/10/05    97,636    247,429

     (1)  The assumed growth rates in price in the Company's stock are not
          necessarily indicative of actual performance that may be expected.
     
     III. OPTION EXERCISES AND YEAR-END VALUE TABLE
     
 Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value

(a)               (b)          (c)               (d)             (e)
                                                 Number of      Value of
                                                Securities     Unexercised
                                                Underlying     In-the-Money
                                                Unexercised    Options at
                                                Options at     FY-End ($)
                                                FY-End (#)    
              Shares Acquired     Value         Exercisable/   Exercisable/
Name          on Exercise (#)  Realized ($)     Unexercisable  Unexercisable(2)

John D.
Hashagen          N/A              N/A               31,300/0       $438,106/$0
     
Kenneth R.
Cole              13,800           $191,475(1)            0/0             $0/$0
     
Richard O. 
Madden              N/A               N/A            17,700/0       $250,606/$0
     
Robert G.
Soucy               N/A               N/A            18,700/0       $264,419/$0
     
Louis P.
Dunham              N/A               N/A            14,900/0       $210,181/$0

W. Bruce
Fenn                N/A               N/A            17,500/0       $248,194/$0
     
     (1)  Represents  the  difference  between the aggregate exercise  price 
          and the aggregate market value on the date of the exercise.
     
     (2)  Represents the difference between the aggregate exercise price and   
          the aggregate market value as of December 31, 1995.
     
     Deferred Compensation Agreements
     
          VNB has entered into Executive Deferred Compensation Agreements
     with certain officers, including Mr. Hashagen and the other executive     
     officers in the group referred to in the above table.  The agreements     
     provide for monthly payments for a ten-year period from retirement after
     age 60 but before  age  65, and for a fifteen-year period from retirement
     after age 65,  subject to certain conditions.  The conditions include the
     requirements that the officer refrain from competitive activities, be     
     available for certain advisory and consulting services subsequent to
     retirement and continue in the employment of VNB until retirement.  The
     agreements also provide for payments upon disability prior to retirement
     and payments to beneficiaries of the officers under certain circum-     
     stances.  Mr. Hashagen's agreement provides for payments in the amount of
     $1,944.44 per month,  and the agreements of Messrs. Madden, Soucy and     
     Fenn provide for payments of $1,388.89 per month.  Vermont National Bank
     has purchased life insurance policies on the lives of these officers
     which, in effect, will provide the funds to make payments to reimburse   
     VNB for payments made under the agreements.
     
          Mr.  Cole  is  covered under a Supplemental Executive Retirement
     Plan (SERP) which is designed to augment his retirement benefit from UB's
     pension plan and his social security benefit so that his aggregate annual 
     retirement benefit  will approximate 70% of his highest 3-year average     
     salary prior to retirement.  Under the terms of his SERP, it is anti-     
     cipated that Mr. Cole will receive an annual supplemental retirement      
     benefit of $46,239 at age 65.  UB has purchased a split-dollar life     
     insurance policy which will provide this benefit to Mr. Cole.
     
     Management Continuity Agreements
     
          The  Company  and VNB have entered into agreements with VNB's five 
     executive officers, Messrs.  Hashagen, Madden, Soucy, Fenn and Dunham     
     which provide for the payment of certain severance benefits if such     
     officer's employment with the Company or VNB is terminated within          
     thirty-six months after a change of control of the Company or VNB.  The    
     agreements provide for severance payments to Mr. Hashagen equal to 250%    
     of his base salary upon termination after a change of control and for
     payments to each of the other executive officers equal to 200% of his
     base salary upon termination after a change of control as defined in the
     agreements.
     
          The management continuity agreements do not provide for severance
     benefits in instances where termination is due to death, disability or     
     retirement.  Further, no benefits are payable in instances of termination
     for cause, or after achange of control if the officer voluntarily term-    
     inates his employment with both the Company and VNB, unless such term-     
     ination is for a "good reason" as defined in the agreements.
     
          Severance  benefits payable in the event of a qualifying termination
     after a change  of control are to be paid in equal consecutive biweekly 
     installments.  If severance payments due in the event of termination     
     after a change of control were payable to each of the executive officers
     on the date of this filing, the aggregate amount of such severance pay-    
     ments would be $1,430,000.  These severance payments are subject to up to
     a 50% reduction if the officer works for or participates in the manage-    
     ment, operation or control of a commercial or savings bank, or bank     
     holding company, which does business in Vermont, unless such officer's
     activities are substantially  outside  Vermont.  Additionally, the         
     officer will be entitled to continuation of life, disability, accident     
     and health insurance benefits and a cash adjustment to compensate the     
     executive for the market value of any stock options under the Company's    
     Officers' or Directors' Non-Qualified Stock Option Plans in excess of     
     their exercise price.
     
          The  agreements contain each officer's undertaking to remain in the
     employ of the Company and VNB if a potential change of control occurs     
     until the earlier of six months, retirement (at normal age), disability    
     or the occurrence of a change of control.
     
          Similar agreements have been executed by certain employees of VNB 
     and the Company which provide for severance payments ranging from 100% to
     150% of the employee's base salary upon termination after a change in     
     control.
     
          The Company and UB have entered into agreements to employ the
     following UB officers:   Kenneth R. Cole as Senior Vice President &     
     Treasurer of UB; James Neill as Senior Vice President of UB;  and Robert
     W.  Phillips as Vice President of UB.  Under these agreements, Mr. Cole    
     was to receive a base salary of $82,500, Mr. Neill a base salary of     
     $76,300 and Mr.  Phillips a base salary of $59,700, all subject to
     annual increases.  Each agreement is to expire May, 1997.  On January 1,
     1995, Mr. Cole became President and Chief Executive Officer of UB at an    
     annual salary of $110,000.  
     
          In addition to and as part of the foregoing agreements,  Messrs.
     Cole, Neill, Phillips and Noska have entered management continuity         
     agreements which are similar in form to agreements currently in force     
     between the Company and VNB and their senior officers.  Each agreement's
     term ended on January 31, 1995 and was renewed.  These agreements are     

     automatically renewable thereafter unless the Company and UB elect not to
     renew it.  Under the management continuity agreements, the above officers
     would be entitled to severance payments of 200% of base salary at the     
     time of termination if terminated under certain circumstances after a     
     change of control of the Company or UB.  
     
          The management continuity agreements define a "change of control" 
     as (i) the acquisition by a person or group of 25% of the combined voting 
     power of the Company's or UB's then outstanding securities; (ii) during    
     any two-year period those persons, who at the beginning of such period     
     were members of the Company's or UB's Board of Directors and any new     
     director whose election was approved by at least two-thirds of the         
     directors then still in office who either were directors at the begin-     
     ning of such period or whose election or nomination was previously so     
     approved, cease to constitute a majority of such board;  or (iii) the
     stockholders of the Company or UB approve a merger or consolidation of     
     the Company or UB which would result in such stockholders holding less     
     than 70% of the combined voting power of the surviving entity immediately
     thereafter, or if such stockholders approve the sale of all or substant-
     ially all of the assets of the Company or UB.
     
          The management continuity agreements do not provide for severance
     benefits in instances where termination is due to death, disability or     
     retirement.  Further, no benefits are payable in instances of termination
     for cause, defined as (i) the willful and continued failure of the         
     officer to perform his duties and (ii) willful conduct materially          
     injurious to the Company or UB.
     
     Profit-Sharing Plan
     
          Each employee of VNB and UB, including executive officers, becomes
     eligible to participate in the Company's Profit-Sharing Plan on January 1
     of the Plan year in which he or she completes one full year of continuous
     service of 1,000 hours or more.  Upon completion of three years of con-    
     tinuous service, a participant becomes 30% vested, increasing to 40%     
     after four years, 60% after five years, 80% after six years, and fully     
     vested after seven years.  Vested participants may elect to receive, in    
     cash, up to 50% of their annual allocation of the Company's contribution
     to the Profit-Sharing Plan.  Vested amounts not so received in cash are
     distributed to participants upon their retirement or earlier upon term-    
     ination of employment.  During 1995, the Company made a contribution of    
     approximately $500,000 to the Profit-Sharing Plan.
     
     Retirement Plan
     
          The  VNB  Retirement Plan covers substantially all eligible
     employees of the Bank, including officers, and provides for payment of     
     retirement benefits generally based upon an employee's years of credited
     service with the Bank and his or her salary level, reduced by a portion    
     of the Social Security benefits to which it is estimated the employee      
     will be entitled.
     
          The  following table represents estimated annual benefits upon
     retirement at age 65 to employees at specified salary levels (based upon
     the average annual rate of salary during the highest five years within     
     the final ten years of employment) at stated years of service with the     
     Bank.  The amounts shown are after deduction of estimates for Social     
     Security reductions based on the Social Security law as of January 1,     
     1996.
                        Estimated Annual Benefits at Retirement
                            by Specified Remuneration and 
                           Years of Service Classification
                                        
         Final Average                      Years of Service               
         Compensation       5         10         15         20         25   
          $  20,000      $ 1,480    $ 2,959    $ 4,439   $  5,918   $  7,398
             40,000        3,430      6,859     10,289     13,718     17,148
             60,000        5,702     11,405     17,107     22,810     28,512
             80,000        8,102     16,205     24,307     32,410     40,512
            100,000       10,502     21,005     31,507     42,010     52,512
            120,000       12,902     25,805     38,707     51,610     64,512
            140,000       15,302     30,605     45,907     61,210     76,512
            160,000 *     17,702     35,405     53,107     70,810     88,512
            180,000 *     20,102     40,205     60,307     80,410    100,512
            200,000 *     22,502     45,005     67,507     90,010    112,512
            220,000 *     24,902     49,805     74,707     99,610    124,512 *
            240,000 *     27,302     54,605     81,907    109,210    136,512 *
            260,000 *     29,702     59,405     89,107    118,810    148,512 *

     *    Under  current regulations of the Internal Revenue Code, the
     maximum annual benefit payable from a defined benefit plan during 1996 is
     $120,000 payable as a life annuity for retirements at age 65.  In          
     addition, the maximum annual compensation may not exceed $150,000.  The    
     amounts shown above in excess of $120,000 and those using compensation in 
     excess of $150,000 are shown for exhibit purposes only.
     
          The description of the Retirement Plan in this Proxy Statement is 
     intended solely to provide stockholders of the Company with general     
     information concerning the Plan as it relates to management remuneration.  
     Under no circumstances should the description be construed as indicative
     of the rights of any particular employee, or as conferring any right upon
     any employee, which rights will in all cases be determined by the appro-
     priate legal documents governing the Plan.
     
          UB  provides a retirement plan for all eligible employees through
     the Savings Bank Employees Retirement Association ("SBERA"), an unin-     
     corporated association of savings banks operating within Massachusetts     
     and other organizations providing services to or for savings banks         
     SBERA's sole purpose is to enable the participating employers to provide
     pensions and other benefits for their employees.
     
          Each UB employee age 21 or older who has completed at least 1,000
     hours of service in the last 12 month period beginning with such           
     employee's date of employment becomes a participant of the retirement     
     plan.  All participants are fully vested when they have been credited     
     with three (3) years of service or at age 62 if earlier.
     
          The retirement plan is a qualified defined benefit plan which does
     not require an employee to make any contributions to become a participant
     and earn benefits under the  Plan.  The benefits provide for a pension     
     equal to 1.25% of Average Compensation (the average of the three highest
     consecutive years of Compensation) for each year of service up to 25     
     years, plus .6% of compensation above the Covered Compensation (defined    
     below) for each year of service up to 25 years.  For example, under the    
     above benefit formula,  a Participant attaining age 65 in 1995 with  25
     years of service,  will be entitled to a benefit equal to 31.25% (1.25% x
     25 years) of Average Compensation plus 15% (.6% x 25 years) of the         
     difference (if any) between the participant's Average Compensation and     
     the Covered Compensation for a participant turning age 65 in 1994 which    
     is $24,312.  Covered Compensation is the average of the 35 years of     
     Social Security taxable wages up to and including the year in which a     
     Participant reaches Social Security retirement age.  Normal retirement     
     age under the plan is 65;  a reduced early retirement benefit is payable
     from age 50 to 65 under certain conditions.  
     
          The following table illustrates annual pension benefits for retire-  
     ment at age 65 under the most advantageous plan provisions available for
     various levels of compensation and years of service.  The figures in this
     table are based upon the assumption that the plan continues in its         
     present form and certain other assumptions regarding compensation trends
     and social security.
     
     
     Annual Pension Benefit Based on Years of Service and age 65 Retirement
     
       Average Compensation       10 years   15 years   20 years   25 years
          $ 20,000                $ 2,500    $ 3,750    $ 5,000    $ 6,250
            40,000                  5,845      8,767     11,690     14,612
            60,000                  9,545     14,317     19,090     23,882
            80,000                 13,245     19,867     26,490     33,112
           100,000                 16,945     25,417     33,890     42,362
           120,000                 20,645     30,967     41,290     51,612
           140,000                 24,345     36,517     48,690     60,862
         * 150,000                 26,105     39,292     52,390     65,487

     *    Federal law does not permit defined benefit pension plans to          
          recognize compensation in excess of $150,000 for plan years be-       
          ginning in 1994 (11/01/94 for SBERA).
     
          As of December 31, 1995 Messrs. Cole and Neill had 10 and 12 years 
          of credited service, respectively.
     
     Compensation of Directors
     
          Each director who is not an officer of VFSC, VNB or UB receives
     an annual retainer of $5,000 and, in addition, a $500 fee for each         
     regular monthly Board of Directors' meeting attended, a $400 fee for the
     first meeting of a committee of the Board he or she attends on any         
     particular day and a $300 fee for each subsequent meeting of a committee
     of the Board he or she attends on any such day.  In addition, the          
     Chairman of the Board receives an annual retainer of $5,000 and each
     committee chairperson receives an annual retainer of $500.
     
     Item 12 - Security Ownership of Certain Beneficial Owners and Management
     
          As of March 1, 1996 the following beneficial owners were known to
     control five percent or more of the outstanding shares of Common Stock, 
     $1 par value, of the Company.  The information below was taken from form
     Schedule 13Gs filed as of December 31, 1995 with the Securities and     
     Exchange Commission.
                                                   Amount of
                                                   Beneficial  Percent
     Name and Address                              Ownership   of Class
     Vermont National Bank . . . . . . . . . . .     297,201        6.2%   (1)
     Trust Department
     100 Main Street
     Brattleboro, VT  05301
     
     David L. Babson & Company, Inc. . . . . . .     248,200        5.2%   (2)
     One Memorial Drive
     Cambridge, MA  02142-1300

     (1)  Includes sole voting power for 16,026 shares, shared voting power
          for 281,175 shares, sole dispositive power for 206,011 shares and     
          shared dispositive power for 91,190 shares.
     
     (2)  Includes sole voting power for 155,600 shares, shared voting power
          for 92,600 shares and sole dispositive power for 248,200 shares.
     
          The following table sets forth the name and address of each          
     director, nominee for director or executive officer of the Company, his   
     or her age and principal occupation, all positions or offices held by     
     such individual within the Company, the year in which he or she first     
     became a director of the Company or its predecessors, the number of whole
     shares of Common Stock of the Company beneficially owned by each at the    
     close of business on March 1, 1996, and the percent of class so owned.     
     The business address of each of the directors, nominees and executive
     officers is the Company's  address except as otherwise noted.  It is     
     anticipated that each of the nominees will continue to act as Directors    
     of VNB and/or UB.  No family relationship exists between any director or 
     persons nominated by the Company to become directors.
                                        
                                                      Amount and    Percent
                                                       Nature of    of VFSC
                                                      Beneficial     Common
                                                       Ownership      Stock
     Anthony F. Abatiell (56) . . . . . . . . . .       60,169(1)     1.26%
     Zane V. Akins (55) . . . . . . . . . . . . .        3,399(2)     0.07%
     Charles A. Cairns (54) . . . . . . . . . . .        6,189(3)     0.13%
     William P. Cody (42) . . . . . . . . . . . .          100(4)     0.00%
     Allyn W. Coombs (61) . . . . . . . . . . . .       12,370(5)     0.26%
     Beverly G. Davidson (64) . . . . . . . . . .        4,214(6)     0.09%
     Philip M. Drumheller (42) . . . . . . . . .           150(7)     0.00%
     James E. Griffin (68)  . . . . . . . . . . .        4,683(8)     0.10%
     John D. Hashagen, Jr. (54) . . . . . . . . .       46,529(9)     0.97%
     Francis L. Lemay (63)  . . . . . . . . . . .      106,487(10)    2.22%
     Kimball E. Mann (61) . . . . . . . . . . . .       13,013(11)    0.27%
     Stephan A. Morse (49). . . . . . . . . . . .        7,248(12)    0.15%
     Donald E. O'Brien (70) . . . . . . . . . . .        6,771(13)    0.14%
     Roger M. Pike (55) . . . . . . . . . . . . .        8,924(14)    0.19%
     Mark W. Richards (50)  . . . . . . . . . . .       28,206(15)    0.59%
     Kenneth R. Cole (49) . . . . . . . . . . . .       18,204(16)    0.38%
     Louis J. Dunham (41) . . . . . . . . . . . .       19,416(17)    0.41%
     W. Bruce Fenn (54) . . . . . . . . . . . . .       26,132(18)    0.55%
     Richard O. Madden (47) . . . . . . . . . . .       20,113(19)    0.42% 
     Robert G. Soucy (50) . . . . . . . . . . . .       27,951(20)    0.58%

      (1) Includes 58,169 shares held in a custodial capacity in VNB's trust
          department in which Mr. Abatiell has sole voting and investment       
          powers.  Also includes options to acquire 2,000 additional shares, 
          exercisable within sixty (60) days, pursuant to the Directors'        
          Non-Qualified Stock Option Plans.
     
      (2) Includes options to acquire 2,000 shares, exercisable within sixty
          (60) days, pursuant to the Directors' Non-Qualified Stock Option      
          Plans.
     
      (3) Includes options to acquire 2,000 shares, exercisable within sixty
          (60) days, pursuant to the Directors' Non-Qualified Stock Option      
          Plans.
     
      (4) Mr. Cody has sole voting and investment powers on 100 shares.  
     
      (5) Includes 8,370 shares held jointly with a family member in which
          Mr. Coombs shares voting and investment powers.  Also includes        
          options to acquire 1,000 shares, exercisable within sixty (60) days, 
          pursuant to the Directors' Non-Qualified Stock Option Plans.
     
      (6) Ms. Davidson shares voting and investment powers on 2,214 shares.  
          Includes options to acquire 2,000 shares, exercisable within sixty    
          (60) days, pursuant to the Directors' Non-Qualified Stock Option     
          Plans.
     
      (7) Mr. Drumheller has sole voting and investment powers on 150 shares.
     
      (8) Includes options to acquire 2,000 shares, exercisable within sixty
          (60) days, pursuant to the Directors' Non-Qualified Stock Option      
          Plans.
     
      (9) Includes 224 shares held by a family member in which Mr.  Hashagen 
          has no voting or investment powers and as to which Mr. Hashagen       
          disclaims beneficial ownership.  Also includes 200 shares held in     
          the name of Green Mountain Investment Club in which Mr. Hashagen      
          shares voting and investment powers and 9,494 shares held in the VNB
          Profit Sharing Plan, and options to acquire 31,300 shares, exercis-
          able within sixty (60) days, pursuant to the Officers' Non-Qualified
          Stock Option Plans.
     
     (10) Includes 29,100 shares held in a trust in which Mr. Lemay has sole
          voting and investment powers.  Also includes 30,000 shares held by a
          family member in a trust in which Mr. Lemay has no voting or invest-
          ment powers.  Also includes options to acquire 500 shares, exercis-
          able within sixty (60) days, pursuant to the Directors'Non-Qualified
          Stock Option Plans.
     
     (11) Includes 9,379 shares held jointly with a family member in which 
          Mr. Mann shares voting and investment powers.  Also includes 814      
          shares held by a family member in which Mr. Mann has no voting or     
          investment powers and as to which Mr. Mann disclaims beneficial       
          ownership and also includes options to acquire 2,000 shares,          
          exercisable within sixty (60) days, pursuant to the Directors'       
          Non-Qualified Stock Option Plans.
     
     (12) Includes 505 shares held by a family member in which Mr. Morse has
          no voting or investment powers and as to which Mr. Morse disclaims    
          beneficial ownership and includes options to acquire 2,000 shares, 
          exercisable within sixty (60) days, pursuant to the Directors'       
          Non-Qualified Stock Option Plans.
     
     (13) Includes options to acquire 2,000 shares, exercisable within sixty
          (60) days, pursuant to the Directors' Non-Qualified Stock Option     
          Plans.
     
     (14) Includes 777 shares held jointly with family members and 1,203
          shares held by Kinney, Pike, Bell & Conner, Inc. in which Mr. Pike    
          shares voting and investment powers.  Also includes 1,052 shares      
          held by a family member in which Mr. Pike has no voting power and as
          to which Mr. Pike disclaims beneficial ownership and includes        
          options to acquire 2,000 shares, exercisable within sixty (60) days,
          pursuant to the Directors' Non-Qualified Stock Option Plans.
     
     (15) Includes 26,206 shares held jointly with family members in which Mr.
          Richards shares voting and investment powers.  Also includes options
          to acquire 2,000 shares, exercisable within sixty (60) days,         
          pursuant to the Directors' Non-Qualified Stock Option Plans.
     
     (16) Includes 14,226 shares held jointly with family members in which 
          Mr. Cole shares voting and investment powers.  Also includes 4,070    
          shares in VNB's Profit Sharing Plan.
     
     (17) Includes 4,516 shares in the VNB Profit Sharing Plan.  Also
          includes options to acquire 14,900 shares exercisable within sixty    
          (60) days pursuant to the Officers' Non-Qualified Stock Option       
          Plans.
     
     (18) Includes 101 shares in which Mr. Fenn has no voting or investment 
          powers.  Also includes 2,228 shares held jointly with a family        
          member in which Mr. Fenn shares voting and investment powers, 6,303
          shares in the VNB Profit Sharing Plan and options to acquire 17,500
          shares, exercisable within sixty (60) days pursuant to the Officers'
          Non-Qualified Stock Option Plans.
     
     (19) Includes 28 shares held jointly with a family member in which 
          Mr. Madden shares voting and investment powers.  Also includes 2,386
          shares held in the VNB Profit Sharing Plan and options to acquire    
          17,700 shares exercisable within sixty (60) days pursuant to the     
          Officers' Non-Qualified Stock Option Plans.
     
     (20) Includes 346 shares held by a family member in which Mr. Soucy has
          no voting or investment powers.  Also includes 4,138 shares in the    
          VNB Profit Sharing Plan and options to acquire 18,700 shares,       
          exercisable within sixty (60) days pursuant to the Officers'          
          Non-Qualified Stock Option Plans.
     
          On March 1, 1996, the directors and officers of the Company as a
     group (20) had beneficial ownership of 420,268 shares of Company Common    
     Stock, amounting to 8.78% of the outstanding shares.  This includes     
     options to acquire 121,600 shares, or 2.54% of the outstanding shares,     
     exercisable within sixty (60) days, pursuant to the Directors' and        
     Officers' Non-Qualified Stock Options Plans.
     
     Item 13 - Certain Relationships and Related Transactions
     
          Some directors and officers of VNB, UB and the Company and their
     associates were customers of and had transactions with the Banks and the 
     Company in the ordinary course of business during 1995.  Additional     
     transactions may be expected to take place in the ordinary course of     
     business in the future.  Some of the Company's directors are directors, 
     officers, trustees, or principal security holders of corporations or     
     other organizations which were customers of or had transactions with
     the Banks in the ordinary course of business during 1995.  All out-     
     standing loans and commitments  included  in  such transactions were made
     in the ordinary course of business on substantially the same terms,      
     including interest rates and collateral, as those prevailing at the time
     for comparable transactions with other persons and did not involve more    
     than the normal risk of collectibility nor present other unfavorable     
     features.
     
          In addition to banking and financial transactions, the Banks and
     the Company have had other transactions with, or used products or         
     services of, various organizations of which directors of the Company are
     directors or officers.  The amounts involved have in no case been          
     material in relation to the business of the Banks or the Company, and it 
     is believed that they have not been material in relation to the business 
     of such other organizations or to the individuals concerned.  It is     
     expected that the Banks and the Company will continue to have similar     
     transactions with, and use products or services of, such organizations in
     the future.
     
          Two directors of the Company are attorneys who have been retained in
     the past to represent VNB or the Company in appropriate circumstances.  
     During 1995, no director was retained by the Banks or Company as legal     
     counsel.
                                     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. 
     
          Report of Independent Certified Public
           Accountants                                          
     
          Consolidated Balance Sheets - December 31,
           1995 and 1994                                        
     
          Consolidated Statements of Income - 
           For the Years Ended December 31, 
           1995, 1994, and 1993                                 
     
          Consolidated Statements of Changes in
           Stockholders' Equity - For the
           Years Ended December 31, 1995, 
           1994, and 1993                                       
     
          Consolidated Statements of Cash Flow
           - For the Years Ended December 31,
           1995, 1994 and 1993        
     
          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.
     
      Employment agreement dated October 19, 1993 by and among United
      Savings Bank, Registrant and Kenneth R. Cole. Filed as Exhibit 10.8 to
      the Company's Registration Statement on Form S-4.  Registration
      #33-72554.
     
      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 Coopers & Lybrand.  Filed herewith.
     
      (b) Reports on Form 8-K.
     
          During the Registrant's fiscal quarter ended December 31, 1995, 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:  March 13, 1996            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       March 13, 1996
        John D. Hashagen, Jr.    (Principal Executive Officer)
     
        /s/                       Secretary & Treasurer        March 13, 1996
        Richard O. Madden        (Principal Financial Officer)
     
        /s/                       Director                     March 13, 1996
        Anthony F. Abatiell
     
        /s/                       Director                     March 13, 1996
        Zane V. Akins
     
        /s/                       Director                     March 13, 1996
        Charles A. Cairns
     
        /s/                       Director                     March 13, 1996
        William P. Cody
     
        /s/                       Director                     March 13, 1996
        Allyn W. Coombs
     
        /s/                       Director                     March 13, 1996
        Beverly G. Davidson
     
        /s/                       Director                     March 13, 1996
        Philip M. Drumheller
     
        /s/                       Director                     March 13, 1996
        James E. Griffin
     
        /s/                       Director                     March 13, 1996
        Francis L. Lemay
     
        /s/                       Director                     March 13, 1996
        Kimball E. Mann
     
        /s/                       Director                     March 13, 1996
        Stephan A. Morse
     
        /s/                       Director                     March 13, 1996
        Donald E. O'Brien
     
        /s/                       Director                     March 13, 1996
        Roger M. Pike 
     
        /s/                       Director                     March 13, 1996
        Mark W. Richards
     
                                 Index to Exhibits
     
     
     Exhibit 22  Subsidiaries of Registrant
     
     Exhibit 24  Consent of Independent Certified Public Accountants
     
                                    Exhibit 22
     
                                    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 24
     
     
                                    Exhibit 24     
     
     
                          CONSENT OF INDEPENDENT ACCOUNTANTS
     
     
     We consent to the incorporation by reference in the registration state-    
     ments of Vermont Financial Services Corp. on Form S-8 (File No. 2-83361)
     and Form S-3 (File No. 2-80833) of our report, which includes explanatory
     paragraphs regarding (i) our responsibiltiy related to the Company's     
     consolidated balance sheet as of December 31, 1993 and the related         
     consolidated statements of income, changes in stockholders' equity and     
     cash flow for the year ended December 31, 1993 and (ii) the Company's
     change in its method of accounting for certain investments in debt and
     equity securities and accounting for postretirement benefits other than    
     pensions in 1993, dated January 18, 1996, on our audit of the con-         
     solidated financial statements of Vermont Financial Services Corp. and     
     subsidiaries as of December 31, 1995 and 1994 and for each of the two     
     years in the period ended December 31, 1995, which report is included in
     this Annual Report on Form 10-K.
     
     
                    COOPERS & LYBRAND L.L.P.
     
     
     Springfield, Massachusetts
     March 18, 1996
     
     

                           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 Woodstock Inn, Woodstock, VT, on April 30, 1996
     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 March 15, 1996 (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" ITEM #1.
     
     1.   Proposal to elect Class III 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:
     
          Anthony F. Abatiell, Francis L. Lemay, Roger M. Pike, and Mark W.
     Richards
     
     2.   To act on whatever business may properly be brought before the 
          Meeting or any adjournment thereof.
     
     
     THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ITEM #1 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