SECURITIES AND EXCHANGE COMMISSION
     
                                   Washington, DC  20549
     
                                 ________________________
     
                                         Form 10-Q
     
                       Quarterly Report Under Section 13 or 15(d)
                        of the Securities Exchange Act of 1934
     
                                 ________________________
     
                    For the Quarterly Period Ended September 30, 1996,
                                     Commission Files 
                                     Number 0-11012
     
                             VERMONT FINANCIAL SERVICES CORP.
     
                                  A DELAWARE CORPORATION 
     
                        IRS EMPLOYER IDENTIFICATION NO.  03-0284445
     
                        100 Main Street, Brattleboro, Vermont 05301
     
                                  Telephone:  (802) 257-7151
                                  __________________________
     
          Indicate by check mark 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 requirement for the past 90
     days.
     
                                       Yes  X  No___
     
                         APPLICABLE ONLY TO CORPORATE ISSUERS:
     
     Indicate the number of shares outstanding of each of the issuer's
     classes of common stock, as of the latest practicable date.
     
                         As of October 31, 1996  4,702,686
     
     
                               Part I. FINANCIAL INFORMATION                    
                              VERMONT FINANCIAL SERVICES CORP.   
                             Condensed Statements of Condition  
                           September 30, 1996 and December 31, 1995   
                           ($ in thousands,except per share data)    
                                         (unaudited)              
     
     
                                               September 30,    December 31, 
     ASSETS                                        1996             1995        
     
     Cash and Due from Banks                    $   58,178     $    53,834 
     Interest Bearing Balances with Banks               66              62 
     Securities Available          
      U.S. Treasury and U.S. Government Agencies   173,508         145,872 
      Mortgage Backed Securities                    67,785          75,753 
      State and Municipal                           10,734          10,342 
      Other                                         11,228          17,715 
                                                 ---------        --------    
       Total Securities Available for Sale         263,255         249,682 
     
     Federal Funds Sold                                400           8,925 
     Loans:    
      Commercial                                    182,484        170,162 
      Commercial Real Estate                        199,621        207,049 
      Residential Real Estate                       429,798        415,468 
      Consumer                                       95,326        100,791 
                                                  ---------       --------    
       Total Loans                                  907,229        893,470 
      Less:  Allowance for Loan Losses               14,193         14,761 
                                                  ---------      --------- 
       Net Loans                                    893,036        878,709 
     Premises and Equipment                          21,782         20,366 
     Real Estate Held for Investment                  1,373          1,309 
     Other Real Estate Owned (OREO) - net of
      reserve of $58 in 1996 and $517 in 1995         1,867          2,977 
     Goodwill and Other Intangibles                   6,141          2,747 
     Other Assets                                    30,547         28,058 
                                                  ---------       --------      
       Total Assets                             $ 1,276,645    $ 1,246,669      
                                                  =========      ========= 
     LIABILITIES AND STOCKHOLDERS' EQUITY    
     
     Deposits: 
      Demand                                    $   145,709    $   137,504 
      Savings, NOW & Money Market Accounts          624,002        594,580 
      Other Time:  Under $100,000                   266,130        263,915 
                   Over  $100,000                    38,473         37,958 
                                                  ---------      ---------      
       Total Deposits                             1,074,314      1,033,957 
     Federal Funds Purchased and Securities Sold                      
      Under Agreements to Repurchase                 65,562         79,773 
     Liabilities for Borrowed Money                  12,175         11,892 
     Other Liabilities                                9,140          9,214 
                                                  ---------       --------      
        Total Liabilities                         1,161,191      1,134,836 
     Stockholders' Equity
     Common Stock - $1 Par Value   
      Authorized 20,000,000 shares         
      Issued :   1996--4,885,773 shares
                 1995--4,878,954 shares               4,887          4,883 
     Preferred Stock - $1 Par Value
      Authorized 5,000,000 shares         
     Capital Surplus                                 49,526         49,427 
     Undivided Profits                               67,893         59,464 
     Security Valuation Allowance                    (2,230)             9 
     Treasury Stock    1996-- 110,552 shares
                       1995-- 103,238 shares         (4,622)        (1,950)
                                                  ---------      ---------      
        Total Stockholders' Equity                  115,454        111,833 
     
        Total Liabilities and Stockholders'     $ 1,276,645    $ 1,246,669 
                                     Equity       =========      ========= 
     
     Fully Diluted Tangible Book Value
           per Share of Common Stock                 $22.87         $22.47 
     
     
     Vermont Financial Services Corp.        
     Condensed Statements of Income
     (in thousands,except per share data)    
                    
     (unaudited)         
     
                                        Three Months Ended  Nine Months Ended
                                             September 30,       September 30,  
                                            1996      1995      1996      1995
     Interest Income     
     Interest and Fees on Loans         $ 20,250  $ 21,169  $ 61,027 $ 62,502 
     Interest on Securities
       Available for Sale:
        Taxable Interest Income            3,853     2,902    11,120    8,203 
        Tax Exempt Interest Income           124       112       362      323 
     Interest on Short Term Investments      193       357       692      587 
                                                                           
         Total Interest Income            24,420    24,540    73,201   71,615 
     Interest Expense                                                 
     Interest on Deposits                  9,231     9,468    27,687   27,113 
     Interest on Federal Funds Purchased,
      Borrowed Money and Securities under
      Agreement to Repurchase              1,156     1,364     3,290    3,720 
       Total Interest Expense             10,387    10,832    30,977   30,833 
       Net Interest Income                14,033    13,708    42,224   40,782 
     Less:  Provision for Loan Losses        800     1,000     2,600    3,000 
     
     Net Interest Income After
      Provision for Loan Losses           13,233    12,708    39,624   37,782 
     Other Operating Income        
     Securities Gains                          3         3        11       79 
     Trust Department Income               1,000       811     2,747    2,353 
     Service Charges on Deposit Accounts   1,477     1,432     4,583    4,222 
     Serviced Mortgage Fees                  429       449     1,262    1,463 
     Credit Card Merchant Income             933       820     2,241    2,001 
     Other Noninterest Income                993       896     2,940    2,846 
     
       Total Other Operating Income        4,835     4,411    13,784   12,964 
     
     Other Operating Expense
     Salaries and Wages                    4,747     4,444    13,797   13,063 
     Pension and Other Employee Benefits   1,334     1,167     4,033    3,437 
     Occupancy of Bank Premises, net         828       829     2,572    2,515 
     Furniture and Equipment                 986     1,035     2,993    3,148   
     FDIC Assessment                           1       (69)        4    1,065 
     Credit Card Merchant Expense            635       512     1,453    1,235 
     OREO & Collection Expense/Losses, net   235       414     1,231    1,716 
     Other Noninterest Expense             3,039     2,712     8,871    8,368 
     
       Total Other Operating Expense      11,805    11,044    34,954   34,547 
     
     Net Overhead                         (6,970)   (6,633)  (21,170) (21,583)
     
     Income Before Income Taxes            6,263     6,075    18,454   16,199 
     Applicable Income Tax Expense         2,096     2,049     6,337    5,302 
     
     Net Income                        $   4,167  $  4,026  $ 12,117 $ 10,897 
                                        ========  ========   ========  ======== 
     Average Fully Diluted Shares
      Outstanding                      4,806,362 4,835,501 4,835,044 4,799,898
     Earnings Per Common Share (Based on     
      Average Number of Common Shares      
      Outstanding for the Respective Period)                                
      Net Income - Primary 
          and Fully Diluted            $    0.87  $   0.83  $   2.51  $   2.27 
     
        
                            VERMONT FINANCIAL SERVICES CORP.             
                           CONDENSED STATEMENTS OF CASH FLOW             
                                     (unaudited)                
          
                                             9 Months Ended September 30,  
                                                   1996           1995
                                                 ------           ------   
     OPERATING ACTIVITIES                             (in thousands)    
          
     Net Income                                  $12,117       $10,897 
     Adjustments to reconcile net income to net                
      cash provided by operating activities:          
       Provision for Loan Losses                   2,600         3,000 
       Provision for depreciation                  2,259         2,393 
       Amortization and accretion on securities      582           455 
       Deferred income taxes                         484           768 
       Security (gains)                              (11)          (76)
       Proceeds from sale of loans                46,832        25,410 
       Loans originated for sale                 (47,071)      (23,967)
       Losses on OREO                                312           565 
       (Increase) Decrease in interest receivable             
         and other assets                         (5,155)          512 
       (Increase) in real estate held         
         for investment                              (64)          (39)
       (Decrease) Increase in interest payable                
         and other liabilities                       (74)          677 
                                                  -------      -------
         NET CASH PROVIDED BY OPERATING  
                             ACTIVITIES           12,811        20,595
     
     INVESTING ACTIVITIES         
           
        Proceeds from sales of securities         17,478        16,549 
        Proceeds from maturities of securities    40,211         5,371 
        Purchases of securities                  (75,283)      (51,784)
        Proceeds from sales of OREO                3,413         3,192 
        Purchases of loans                        (2,031)       (1,441)
        Net (Increase) in loans                  (17,272)       (7,133)
        Purchase of premises and equipment        (3,675)       (1,754)
                                                --------      --------
          NET CASH (USED BY) INVESTING         
                             ACTIVITIES          (37,159)      (37,000)
     FINANCING ACTIVITIES               
        Net Increase in deposits                  40,357         6,883 
        Net (Decrease) Increase in 
                     short-term borrowings       (13,928)           44 
        Issuance of common stock                     109           822 
        Purchase of Treasury Stock                (2,678)            0 
        Cash dividends                            (3,689)       (2,880)
                                                 --------      --------
         NET CASH PROVIDED BY FINANCING 
                              ACTIVITIES         20,171          4,869 
     
        (DECREASE) IN CASH AND CASH EQUIVALENTS  (4,177)       (11,536)
         Cash and cash equivalents at beginning                
          of period                              62,821         73,107 
                                               --------       --------
         CASH AND CASH EQUIVALENTS           
                       AT THE END OF PERIOD     $58,644        $61,571 
                                              =========      =========
     Non-monetary Transactions:         
       Transfer of Loans to OREO for the periods ended September 30, 1996       
       and 1995 totaled $2,615 and $2,705, respectively.            
          
     ITEM 2.
          
     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS
          
          For the Nine-Month Periods Ended September 30, 1996 and 1995
          
     Overview
          
          The first nine months of 1996 resulted in net income of
     $12,117,000 or $2.51 per share, versus $10,897,000, or $2.27 per share
     in the same period of 1995. Income before taxes improved by $2,255,000
     from 1995's first nine months, primarily due to a $2,330,000, or 4.3%
     increase in net net revenue, a combination of net interest income plus
     other operating income, net of securities gains.
          
          The annualized return on average total assets was 1.29% versus    
     1.22% and the annualized return on average stockholders' equity was
     14.18% versus 14.20% for the first nine months of 1996 and 1995,
     respectively.
          
         In the opinion of Management, all adjustments which are necessary
     to the fair statement of the consolidated financial position of
     Vermont Financial Services Corp., (the Company), and the consolidated
     results of the Company's operations and cash flow for the interim
     periods presented herein are reflected and all such adjustments are of
     a normal recurring nature.
          
     Results of Operations
          
          Net Interest Income of $42.2 million for the nine months ended 
     September 30, 1996 represented a $1.4 million increase from the same
     period in 1995. The net interest margin was 4.94% in 1996, down from
     4.99% a year earlier.  The increase in net interest income was due to
     a $44.4 million increase in average earning assets and financial
     resources and a $288,000 increase in charges and fees on loans as
     mortgage loan originations increased $12.7 million or 16.3% over
     the prior year.
          
          At September 30, 1996, the mortgage servicing portfolio totaled
      $433.3 million compared to $420.6 million at year end.  This 
     portfolio generates approximately $143,000 of servicing income on a
     monthly basis.
          
          Net overhead for the first nine months of 1996 decreased
     $481,000, or 2.2%, over the same 1995 period.  This was due to a
     $888,000 improvement in other operating income net of a $407,000
     increase in other operating expense.
          
          Other operating income (net of securities gains) increased
     $888,000.
     
           Trust department income, service charges on deposits and credit
     card merchant income increased  $394,000, $361,000 and $240,000,
     respectively. Partially offsetting these improvements was a $201,000
     decrease in serviced mortgage fees. This decrease was partially due to
     the Company's sale of the right to service $29.0 million of mortgage
     loans on second home properties during the second quarter of 1995 at a
     gain of $170,000.
          
          Other operating expenses increased $407,000, or 1.2%, from
      $34,547,000 during the first nine months of 1995.  Furniture and
      equipment expenses decreased $98,000 and FDIC insurance expense
     decreased $1,059,000.  OREO and Collection Expense/Losses decreased
     $485,000, or 28%, as nonperforming assets decreased 33% from their
     balances at September 30, 1995. These improvements were more than
     offset by a $1,330,000 increase in salaries and benefits, a $218,000
     increase in credit card merchant expense and a $503,000 increase in
     other non-interest expense.
          
     Asset Quality
          
          Nonperforming assets (nonaccrual loans, restructured loans and
     OREO) were reduced from $15.0 million on December 31, 1995 to $11.0
     million on September 30, 1996 due to nonaccrual loans and OREO
     decreasing $2.8 million, and $1.1 million, respectively.  As of 
     September 30, 1996 nonperforming assets equaled 1.2% of total loans
     plus OREO, down from 1.7% at year end 1995. Loans 90 or more days past
     due and still accruing interest were $1.7 million, down slightly from
     $2.0 million at December 31, 1995.
          
          The Allowance for Loan Losses was $14.2 million as of quarter
     end, equal to 1.6% of loans outstanding, 155.8% of nonperforming
     (nonaccrual and restructured) loans and 129.3% of total nonperforming
     assets.  These compare to the year end 1995 levels of 1.7%, 122.9% and
     98.5%, respectively.
          
          At September 30, 1996 loans for which impairment has been
     recognized in accordance with SFAS NO. 114 totalled $29.6 million, of
     which $28.3 million pertained  to loans with no specific valuation
     reserve and $1.3 million pertained to loans with a specific valuation
     reserve of  $0.5 million.  For the nine months ended September 30,
     1996 the average investment in impaired loans was $33.0 million.
          
     Financial Condition
          
     Loans
          
          Total loans at September 30, 1996 were $907.2 million, up $13.8
     million from the December 31, 1995  balance.  Decreases in commercial
     real estate and consumer loans of $7.4 million and $5.4 million, 
     respectively, were more than offset by a $12.3 million increase in
     commercial loans and a $14.3 increase in residential real estate
     loans.
          
     Securities Available for Sale
          
          The amortized cost of securities available for sale increased
     $17.0 million. U.S Agency securities increased  $30.0 million, U.S.
     Treasuries and State and Municipal securities each increased $0.4
     million. These increases were partially offset by decreases in
     Mortgage Backed and other securities of  $7.3 million and $6.5
     million, respectively. A rise in interest rates caused a shift from
     the unrealized gain of $.01 million at year end 1995 to a $3.44
     million unrealized loss at September 30,1996.
          
     Deposits
          
          At September 30, 1996, total deposits were $1,074.3 million, an
     increase of $40.4 million, or 3.9%, from the December 31, 1995 level.  
     Growth occurred in all deposit categories during the nine months as
     follows:
          
                                                   Incr.(Decr)
                                                  (in millions)
                                                   ------------
          Demand                                       $ 8.2
          Savings, NOW & Money Market Accounts          29.5
          Other Time: Under $100,000                     2.2
                      Over  $100,000                     0.5
                                                    ----------
                                Total                  $40.4
          
          
          Compared to September 30, 1995 balances, assets, deposits and
     equity increased 3.8%, 5.4% and 7.8% respectively.  Loans decreased
     0.6% or $5.3 million from September 30, 1995 to 1996.  The growth in
     deposits was primarily the result of a $28.6 million increase in
     demand deposits and a $18.7 million increase in savings, NOW and money
     market deposit account balances.
          
     Capital Resources
          
          Stockholders' equity increased from $111.8 million at year end to
     $115.5 million at September 30, 1996.  Equity as a percent of total
     assets increased from 8.97% at year end 1995 to 9.04% at September 30,
     1996. This increase was a result of $8.4 million in earnings that were 
     retained by the company net of a $2.2 million increase in the Security
     Valuation Allowance associated with the securities available for sale
     portfolio and a $2.7 million increase in treasury stock as the company
     undertook its stock buyback program (see Recent Developments).
     As the current risk based Capital regulations exclude unrealized 
     gains and losses from the definition of Capital, Tier I and Total Risk
     Based Capital ratios increased to 13.79% and 15.05% from their year
     end levels of 13.44% and 14.70%, respectively.  The above ratios are
     in excess of all regulatory requirements and place the Company in the
     "well capitalized" regulatory classification.
          
     Recent Developments
          
          The Company plans to replace Vermont National Bank's on-line
     teller system during the fourth quarter of 1996 at an estimated total
     cost of $2.9 million. No other additions to premises and equipment are
     expected to exceed $500,000. All additions will be funded through
     operation of the Company.
          
          The company announced during the second quarter that its Board of
     Directors approved the repurchase of up to 3%, or 140,000 shares of
     its outstanding common stock. This is a continuation of the repurchase
     program instituted in 1987 under which shares are repurchased to cover
     unexercised options that are expected to be exercised. These shares
     are held in treasury pending reissuance when options are exercised.
     The repurchase program will be accomplished through a series of
     transactions on the open market. As of September 30, 1996, 93,000
     shares had been repurchased under this program.
          
          The Company completed its purchase of the Green Mountain Bank
     Trust Department from Arrow Financial Corporation as of August 31,
     1996. This transaction is expected to increase annual trust revenues
     to over $5 million and increase earnings per share by $0.03 per
     quarter beginning with the fourth quarter of 1996.
          
     PART II.  OTHER INFORMATION
          
     ITEM 1.  LEGAL PROCEEDINGS
          
                                     NONE
          
     ITEM 2.  CHANGES IN SECURITIES
          
                                     NONE
          
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
          
                                     NONE
          
     ITEM 5.  OTHER INFORMATION
          
                                     NONE
          
     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
          
                                     NONE
          
          Pursuant to the requirements of the Securities Exchange Act of
     1934, the registrant has duly caused this report to be signed on its
     behalf by the undersigned thereunto duly authorized.
          
                                   VERMONT FINANCIAL SERVICES CORP.

          
          Dated November 4, 1996     /s/ John D. Hashagen, Jr.
                                     ________________________________
                                             John D. Hashagen, Jr.
                                     President and Chief Executive Officer
          
          
          Dated November 4, 1996     /s/  Richard O. Madden
                                     ________________________________
                                             Richard O. Madden
                                     Executive Vice President, Treasurer     
                                                           and Secretary