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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                               -----------------
                                   FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 (Fee Required) For the Fiscal Year Ended December 31, 2001
                     or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934 (No Fee Required) for the transition period from
    to
                         Commission File Number 0-7974
                            CHITTENDEN CORPORATION
            (Exact name of Registrant as specified in its charter)

                   Vermont                             03-0228404
           (State of Incorporation)         (IRS Employer Identification No.)

            Two Burlington Square
             Burlington, Vermont                          05401
   (Address of Principal Executive Offices)            (Zip Code)

                  Registrant's telephone number: 802-658-4000

          Securities registered pursuant to Section 12(b) of the Act:
                         $1.00 Par Value Common Stock
                               (Title of Class)

          Securities registered pursuant to Section 12(g) of the Act:
                                     NONE

   Indicate by check mark whether the registrant: (1) has filed all reports 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 information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, computed by reference to the last reported
sale price on the NYSE on February 28, 2002 was $882,574,788

   At February 28, 2002 there were 32,152,087 shares of the Registrant's common
stock issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

   The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-K:

    1. Notice of 2002 Annual Meeting and Proxy Statement: Part III, Items 10,
       11, 12, 13.

   This Form 10-K contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. The Company's actual results could differ materially from
those projected in the forward-looking statements as a result of, among other
factors, changes in general, national or regional economic conditions, changes
in loan default and charge-off rates, reductions in deposit levels
necessitating increased borrowing to fund loans and investments, changes in
interest rates, changes in levels of income and expense in noninterest income
and expense related activities, and changes in the assumptions used in making
such forward-looking statements.

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                                    PART I

ITEM 1  BUSINESS

   Chittenden Corporation (the "Company" or "CC"), a Vermont corporation
organized in 1971, is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended. At December 31, 2001, the Company had total
consolidated assets of approximately $4.2 billion. The Company is the holding
company parent and owns 100% of the outstanding common stock of Chittenden
Trust Company ("CTC"), Flagship Bank and Trust Company ("FBT"), The Bank of
Western Massachusetts ("BWM"), Maine Bank & Trust ("MBT") (collectively "The
Banks") and Chittenden Connecticut Corporation ("CCC"), a non-bank mortgage
company.

   On April 30, 2001, the Company completed its acquisition of Maine Bank
Corp., headquartered in Portland, Maine and its subsidiary, Maine Bank & Trust
for $49.25 million in cash. The acquisition has been accounted for as a
purchase and accordingly, the operations of Maine Bank & Trust are included in
these financial statements from the date of acquisition.

   On May 28, 1999, Chittenden Corporation completed its acquisition of Vermont
Financial Services Corp. ("VFSC") in a stock-for-stock merger. The acquisition
has been accounted for as a pooling of interests and accordingly, all financial
data has been restated to reflect the combined financial condition and results
of operations as if the acquisition had been in effect for all periods
presented. Under the agreement, VFSC shareholders received 1.07 shares of
Chittenden Corporation common stock for each share of VFSC stock. Total shares
outstanding of Chittenden Corporation common stock increased by approximately
17.5 million shares as a result of the acquisition. Based on the closing price
of Chittenden stock as of May 28, 1999, the market value of the shares
exchanged totaled $387.2 million. Acquired in the VFSC acquisition was its
subsidiary banks: Vermont National Bank (VNB) and United Bank. United Bank
merged into The Bank of Western Massachusetts in the third quarter of 1999.
Vermont National Bank merged into Chittenden Trust Company in the first quarter
of 2000. Eastern Bancorp was acquired by VFSC on June 26, 1997 in a transaction
accounted for as a purchase.

   The Company engages in one line of business, that of providing financial
services through its banking subsidiaries. Through its subsidiaries, the
Company offers a variety of lending services, with loans and leases totaling
approximately $2.8 billion at December 31, 2001. The largest loan categories
are commercial loans and residential real estate loans. Commercial loans
include those secured by commercial real estate and others made to a variety of
businesses, including retail concerns, small manufacturing businesses, larger
corporations and political subdivisions in the U.S. Commercial loans amounted
to 55% of the total loans outstanding at December 31, 2001.

   Loans secured by residential properties, including closed-ended home equity
loans comprised 24% of total loans outstanding at December 31, 2001. The
Company underwrites substantially all of its residential mortgages based upon
secondary market standards and sells substantially all of its fixed-rate
residential mortgage loans on a servicing-retained basis. Variable or
adjustable rate mortgage loans are typically held in portfolio. Revolving home
equity loans amounted to 6% of loans at December 31, 2001. These loans are
generally underwritten based upon the same standards as first mortgages. The
remaining real estate loans, which are 3% of total loans outstanding at
December 31, 2001, are construction loans secured by residential and commercial
land under development. Consumer loans outstanding at December 31, 2001 were
12% of total loans. Indirect installment loans and auto leases comprise 11%,
while the remaining loans consist of direct installment and revolving credit.

   The Company's lending activities are conducted primarily in Vermont,
Massachusetts, New Hampshire and Maine, with additional activity related to
nearby market areas in Quebec, New York and Connecticut. In addition to the
portfolio diversification described above, the loans are diversified by
borrowers and industry groups. In making commercial loans, the Banks
occasionally solicit the participation of other banks. The Company also
occasionally participates in loans originated by other banks. Certain of the
Company's commercial loans are made under programs administered by the Vermont
Industrial Development Authority, the U.S. Small Business

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Administration, the U.S. Farmers Home Administration or other local government
agencies within the Company's markets. Loan terms include repayment guarantees
by the agency involved in varying amounts up to 90% of the original loan.

   The Banks offer a wide range of banking services, including the acceptance
of demand, savings, and time deposits. As of December 31, 2001, total
interest-bearing deposits and noninterest-bearing demand deposits amounted to
approximately $3.0 billion and $621 million, respectively. The Banks also
provide personal trust services, including services as executor, trustee,
administrator, custodian and guardian. Corporate trust services arealso
provided, including services as trustee for pension and profit sharing plans.
Asset management services are provided for both personal and corporate trust
clients. Trust assets under administration totaled $5.7 billion at December 31,
2001, which included $1.9 billion under full discretionary management.

   The Company also offers specialized business services including payroll
services, merchant-processing services, mortgage servicing, business credit
card services and automated clearing house for several outside clients.
Financial and investment counseling is provided to municipalities and school
districts within the Company's service area, as well as central depository,
lending, and other banking services. The Banks offer a variety of other
services including safe deposit facilities, certain non-deposit investment
products through the brokerage services of Chittenden Securities, Inc., and
various insurance related products through The Pomerleau Agency. Chittenden
Securities and The Pomerleau Agency are subsidiaries of Chittenden Bank.

   The Company's principal executive offices are located at Two Burlington
Square, Burlington, Vermont 05401; telephone number: 802-658-4000.

Chittenden Trust Company

   CTC was chartered by the Vermont Legislature as a commercial bank in 1904.
It is the largest bank in Vermont, based on total assets of approximately $2.9
billion and total deposits of approximately $2.6 billion, at December 31, 2001.
CTC's principal offices are in Burlington, Vermont and it has fifty-two
additional locations in Vermont, along with twelve offices located in New
Hampshire. There are fourteen freestanding automated teller machines ("ATM's")
at other locations. (See Item 2, "Properties"). The trade name "Chittenden
Bank" is used at all locations within Vermont and at one location in New
Hampshire. The remaining eleven locations in New Hampshire use the trade name
"First Savings of New Hampshire." The Company operates its mortgage banking and
servicing operations under the "Mortgage Service Center" trade name.

   In October 1998, CTC established a registered broker/dealer, Chittenden
Securities, Inc., as a subsidiary. Chittenden Securities, Inc. is a full
service broker-dealer registered with the Securities and Exchange Commission
(SEC) and is a member of both the National Association of Securities Dealers,
Inc. (NASD) and the Securities Investor Protection Corporation (SIPC).

   On May 31, 1997, CTC acquired The Pomerleau Agency, which offers various
insurance related products including personal, commercial and life/health
policies, as well as specialized coverages and a consulting and risk management
service.

The Bank of Western Massachusetts

   BWM was chartered by the Commonwealth of Massachusetts as a commercial bank
in 1986. At December 31, 2001, BWM had total assets of $488 million and total
deposits of $438 million. BWM's principal offices are in Springfield,
Massachusetts and it has eleven additional locations in western Massachusetts.

Flagship Bank and Trust Company

   FBT was chartered by the Commonwealth of Massachusetts as a commercial bank
in 1986. At December 31, 2001, FBT had total assets of $460 million and total
deposits of $418 million. FBT's principal offices are in Worcester,
Massachusetts and it has six additional locations in the greater Worcester,
Massachusetts area.

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Maine Bank & Trust

   MBT was chartered by the State of Maine Bureau of Banking as a commercial
bank in 1991. At December 31, 2001, MBT had total assets of $267 million and
total deposits of $224 million. MBT's principal offices are in Portland, Maine
and it has fourteen additional locations in southern Maine.

Chittenden Connecticut Corporation

   CCC was chartered, by the State of Vermont, as a mortgage company in 1996
and its principal offices are in Burlington, Vermont. CCC has additional
offices in Brattleboro, Vermont and Lexington, Massachusetts (See Item 2,
"Properties"). CCC's primary business is the origination of conforming
residential real estate mortgage loans for resale to the secondary market. CCC
originates these loans for resale through correspondent relationships with
credit unions and through other mortgage brokers in the state of Connecticut
who receive loan applications. These applications are underwritten by CTC in
Vermont based upon secondary market standards and then sold. In addition, CCC
uses brokers that are directly employed by and working through various
financial institutions in Connecticut. Similar operations in Vermont,
Massachusetts, New Hampshire and Maine are conducted under the trade name
"Mortgage Service Center" as part of Chittenden Trust Company.

Economy

   The New England economy entered a recession in 2001 and remains slow at
year-end. Retail sales sagged from a year ago, particularly during the holiday
season. The residential real estate market was very active in 2001,
particularly the refinancing market as a result of mortgage rates at recent
lows in the summer and early fall. New England unemployment levels have
increased slightly from the levels seen the last few years, due to cutbacks in
tourism and retail, but overall unemployment levels are still low in most
areas. The ability and willingness of the Company's borrowers to honor their
repayment commitments are impacted by many factors, including the prevailing
market interest rates and the level of overall economic activity within the
borrowers' geographic area.

Competition

   There is vigorous competition in the Company's marketplace for all aspects
of banking and related financial service activities presently engaged in by the
Company and its subsidiaries. In the retail financial services market,
competitors include other banks, credit unions, finance companies, thrift
institutions and brokerage firms, insurance companies, and mortgage loan
companies. Money market deposit accounts and short-term flexible-maturity
certificates of deposit offered by the Banks compete with investment account
offerings of brokerage firms and with products offered by insurance companies.
The Company also competes for personal and commercial trust business with
investment advisory firms, mutual funds, and insurance companies.

   Moreover, under the Gramm-Leach-Bliley Act of 1999 (the "Gramm-Leach-Bliley
Act"), effective March 11, 2000, securities firms, insurance companies and
other financial services providers that elect to become financial holding
companies may acquire banks and other financial institutions. The
Gramm-Leach-Bliley Act may significantly change the competitive environment in
which the Company and its subsidiaries conduct business. See "The Financial
Services Modernization Legislation" below. The financial services industry is
also likely to become more competitive as further technological advances enable
more companies to provide financial services. These technological advances may
diminish the importance of depository institutions and other financial
intermediaries in the transfer of funds between parties.

   CTC competes with Vermont and New Hampshire banks and metropolitan banks
based in southern New England and New York to provide commercial banking
services to businesses. BWM and FBT compete with similar regional and local
financial institutions in the western Massachusetts and Worcester,
Massachusetts markets. MBT competes with similar regional and local financial
institutions in the southern Maine market.

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Supervision and Regulation

   The Company and its banking subsidiaries ("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 the Company and/or
The Banks.

  Regulation of the Company

   General.  As a corporation incorporated under Vermont law, the Company is
subject to regulation by the Vermont Secretary of State and the rights of its
stockholders are governed by Vermont corporate law. As a bank holding company,
the Company is subject to supervision and regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under the Bank
Holding Company Act of 1956, as amended (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 that are not also financial holding
companies are generally prohibited under the BHC Act from engaging in
non-banking activities, subject to certain exceptions. As a bank holding
company that has not elected to become a financial holding company, the
Company'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 to terminate or prevent unsafe or
unsound banking practices or violations of laws or regulations and to assess
civil money penalties against bank holding companies and their non-bank
subsidiaries, officers, directors and other institution-affiliated parties, and
to remove officers, directors and other institution-affiliated parties.

   Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994
(Interstate Act).  The Interstate Act permits adequately capitalized bank
holding companies to acquire banks in any state subject to certain
concentration limits and other conditions. The Interstate Act also authorizes
the interstate merger of banks. In addition, among other things, the Interstate
Act permits banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the host state.

   Financial Services Modernization Legislation.  On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act. The
Gramm-Leach-Bliley Act repeals provisions of the Glass-Steagall Act: Section
20, which restricted the affiliation of Federal Reserve member banks with firms
"engaged principally" in specified securities activities; and Section 32, which
restricts officer, director, or employee interlocks between a member bank and
any company or person "primarily engaged" in specified securities activities.
In addition, the Gramm-Leach-Bliley Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks,
insurance companies, securities firms, and other financial service providers by
revising and expanding the Bank Holding Company Act framework to permit a
holding company system, such as the Company, to engage in a full range of
financial activities through a new entity known as a "Financial Holding
Company". "Financial activities" is broadly defined to include not only
banking, insurance, and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.

   Generally, the Gramm-Leach-Bliley Act:

    .  repeals historical restrictions on, and eliminates many federal and
       state law barriers to, affiliations among banks, securities firms,
       insurance companies, and other financial service providers;

    .  provides a uniform framework for the functional regulation of the
       activities of banks, savings institutions, and their holding companies;

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    .  broadens the activities that may be conducted by national banks (and
       derivatively state banks), banking subsidiaries of bank holding
       companies, and their financial subsidiaries;

    .  provides an enhanced framework for protecting the privacy of consumer
       information;

    .  adopts a number of provisions related to the capitalization, membership,
       corporate governance, and other measures designed to modernize the
       Federal Home Loan Bank system;

    .  modifies the laws governing the implementation of the Community
       Reinvestment Act of 1977 (See "Supervision and Regulation, --Regulation
       of the Banks, --CRA Regulations"); and

    .  addresses a variety of other legal and regulatory issues affecting both
       day-to-day operations and long-term activities of financial institutions.

   In order to become a financial holding company and engage in the new
activities, a bank holding company, such as the Company, must meet certain
tests. Specifically, all of a bank holding company's banks must be
well-capitalized and well-managed, as measured by regulatory guidelines, and
all of the bank holding company's banks must have been rated "satisfactory" or
better in the most recent Community Reinvestment Act evaluation of each bank.
See "Supervision and Regulation, --Regulation of the Banks, --CRA Regulations."
A bank holding company that elects to be treated as a financial holding company
may face significant consequences if its banks fail to maintain the required
capital and management ratings, including entering into an agreement with the
Federal Reserve Board which imposes limitations on its operations and may even
require divestitures. Such possible ramifications may limit the ability of a
bank subsidiary to significantly expand or acquire less than well-capitalized
and well-managed institutions. At this time, the Company has not elected to
become a financial holding company.

   Dividends.  The Federal Reserve Board has authority to prohibit bank holding
companies from paying dividends if such payment is deemed to be an unsafe or
unsound practice. The Federal Reserve Board has indicated generally that it may
be an unsafe and 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. The Company's ability to pay dividends is dependent upon
the flow of dividend income to it from The Banks, which may be affected or
limited by regulatory restrictions imposed by federal or state bank regulatory
agencies. See "--Regulation of The Banks--Dividends."

   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 may 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 subsidiary (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 institution and its subsidiaries cannot
exceed 10% of the capital stock and surplus of the insured depository
institution; and (b) in the case of all affiliates, the aggregate amount of
covered transactions of the insured depository institution and its subsidiaries
cannot exceed 20% of the capital 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. Other types of
transactions between a bank and a bank holding company must be on market terms
and not otherwise unduly favorable to the holding company or an affiliate
thereof. 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.

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   Holding Company Support of Subsidiary Banks.  Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to its
subsidiary banks and to commit resources to support such subsidiaries. This
support of its subsidiary banks may be required at times when, absent such
Federal Reserve Board policy, the Company 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.

   Liability of Commonly Controlled Depository Institutions.  Under the Federal
Deposit Insurance Act, as amended ("FDI Act"), an FDIC-insured depository
institution, such as CTC, BWM, FBT or MBT 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 depository 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
existence of certain conditions indicating that a default is likely to occur
without Federal regulatory assistance.

  Regulation of The Banks

   General.  As FDIC-insured state-chartered banks, The Banks are subject to
supervision of and regulation by the Commissioner of Banking, Insurance,
Securities and Health Care Administration of the State of Vermont, in the case
of CTC, and to the extent CTC operates as First Savings of New Hampshire, the
Vermont Commissioner and the Commissioner of Banking of the State of New
Hampshire; the Superintendent of the Bureau of Banking in the case of MBT; and
the Commissioner of Banks of the Commonwealth of Massachusetts in the case of
BWM and FBT (individually, a Commissioner and collectively, the
"Commissioners") and, for all the Banks, by the FDIC. This supervision and
regulation is for the protection of depositors, the BIF (as hereinafter
defined), and consumers, and is not for the protection of the Company's
stockholders. The prior approval of the FDIC and the relevant Commissioner is
required for the Banks to establish or relocate an additional branch office,
assume deposits, or engage in any merger, consolidation or purchase or sale of
all or substantially all of the assets of any bank or savings association.

   Examinations and Supervision.  The FDIC and the Commissioners regularly
examine the condition and the operations of the banks, including (but not
limited to) their capital adequacy, reserves, loans, investments, earnings,
liquidity, compliance with laws and regulations, record of performance under
the Community Reinvestment Act of 1997 and management practices. In addition,
the banks are required to furnish quarterly and annual reports of income and
condition to the FDIC and periodic reports to the Commissioners. 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. In addition, the FDIC has authority to
impose additional restrictions and requirements with respect to banks that do
not satisfy applicable regulatory capital requirements. See "--Capital
Requirements and FDICIA--Prompt Corrective Action" below.

   Dividends.  The principal source of the Company's revenue is dividends from
the Banks. Payments of dividends by the Banks are subject to certain Vermont,
Maine and Massachusetts banking law restrictions. Payment of dividends by CTC
is subject to Vermont banking law restrictions which require that, CTC may not,
without the Commissioner's approval, authorize dividends that reduce capital
below certain standards established by the Commissioner. Payment of dividends
by BWM and FBT is subject to Massachusetts banking law restrictions which
require that each bank's capital not be impaired. Payment of dividends by MBT
are subject to Maine banking law restrictions which require that, MBT may not,
without the Superintendent's approval, authorize dividends that reduce capital
below certain standards established by the Superintendent. Massachusetts
banking laws require each of BWM and FBT to maintain a capital structure with a
surplus account amounting to at least 50% of its capital stock and to transfer
to its surplus account each year from net profits one-quarter of one percent of
its deposit liabilities.

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   The FDIC has authority to prevent the banks from paying dividends if such
payment would constitute an unsafe or unsound banking practice or reduce the
respective bank's 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. See "Capital Requirements and
FDICIA--Prompt Corrective Action" below.

   Affiliate Transactions.  As noted above, banks are subject to restrictions
imposed by federal law on extensions of credit to, purchases of assets 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 bank as the terms
of comparable transactions between the bank and non-affiliates. Further,
federal and applicable state laws significantly restrict extensions of credit
by the banks to directors, executive officers and principal stockholders and
related interests of such persons.

   Deposit Insurance.  The Bank's deposits are insured by the Bank Insurance
Fund ("BIF") of the FDIC to the legal maximum of $100,000 for each insured
depositor. The FDI 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, and to maintain that ratio. Although the established
framework of risk-based insurance assessments accomplished this increase in May
1995, and the FDIC has made a substantial reduction in the assessment rate
schedule, the BIF insurance assessments may be increased in the future if
necessary to maintain BIF reserves at the required level. See "Capital
Requirements and FDICIA--Risk-Based Deposit Insurance and FICO Assessments"
below.

   Federal Reserve Board Policies.  The monetary policies and regulations of
the Federal Reserve Board have had a significant effect on the operating
results of banks in the past and are expected to continue to do so in the
future. Federal Reserve Board Policies affect the levels of bank earnings on
loans and investments and the levels of interest paid on bank deposits through
the Federal Reserve System's open-market operations in United States government
securities, regulation of the discount rate on bank borrowings from Federal
Reserve Banks and regulation of non-earning reserve requirements applicable to
bank deposit account balances.

   Consumer Protection Regulation; Bank Secrecy Act.  Other aspects of the
lending and deposit businesses of the banks that are subject to regulation by
the FDIC and the Commissioners 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. The banks are also 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.

   CRA Regulations.  The Community Reinvestment Act of 1997 ("CRA") requires
lenders to identify the communities served by the institution's offices and to
identify the types of credit the institution is prepared to extend within such
communities. The FDIC conducts examinations of insured institutions' CRA
compliance and rates such institutions as "Outstanding", "Satisfactory", "Needs
to Improve" and "Substantial Noncompliance". As of their last CRA examinations,
CTC, MBT, BWM and FBT all received a rating of "Outstanding". Failure of an
institution to receive at least a "Satisfactory" rating could inhibit such
institution or its holding company from undertaking certain activities,
including engaging in activities newly permitted as a financial holding company
under the Gramm-Leach-Bliley Act and acquisitions of other financial
institutions, which require regulatory approval based, in part, on CRA
compliance considerations. The Federal Reserve Board must take into account the
record of performance of banks in meeting the credit needs of the entire
community served, including low and moderate-income neighborhoods.

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   As a result of certain amendments in 1996, current CRA regulations rely more
than the former CRA regulations upon objective criteria of the performance of
institutions under three key assessment tests: a lending test, a service test
and an investment test. The Banks are committed to meeting the existing or
anticipated credit needs of their entire communities, including low and
moderate-income neighborhoods, consistent with safe and sound operations.

  Capital Requirements and FDICIA

   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 organization'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. See "Prompt Corrective Action" below.

   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 will be
permitted to operate at or near such minimum level of capital. All other banks
are expected to maintain an additional margin of capital, equal to at least 1%
to 2% of Total Assets, above the minimum ratio. Any bank experiencing or
anticipating significant growth is expected to maintain capital well above the
minimum levels. 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 qualifying total capital ("Total
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
related surplus, and minority interests in the equity accounts of consolidated
subsidiaries, and (subject to certain limitations) mortgage servicing rights
and purchased credit card relationships, less all other intangible assets
(primarily goodwill). 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 and related surplus, certain forms of perpetual debt and mandatory
convertible securities, and certain forms of subordinated debt and
intermediate-term preferred stock.

   The risk-based capital rules of the 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 The
Banks will generally be less than reported balance sheet assets because its
retail banking activities include proportionally more residential mortgage
loans and certain investment securities with a lower risk weighting and
relatively smaller off-balance sheet obligations.

                                      8

<PAGE>

   The 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. For example, the regulations
limit the portion of the allowance for loan losses eligible for inclusion in
Total Capital to 1.25% of Risk-Adjusted Assets. The Federal Reserve Board has
established substantially identical risk-based capital requirements, which are
applied to bank holding companies on a consolidated basis. The risk-based
capital regulations provide explicitly for consideration of interest rate risk
in the FDIC's overall evaluation of a bank's capital adequacy to ensure that
banks effectively measure and monitor their interest rate risk, and that they
maintain capital adequate for that risk. A bank deemed by the FDIC to have
excessive interest rate risk exposure may be required by the FDIC to maintain
additional capital (that is, capital in excess of the minimum ratios discussed
above). The Banks believe, based on their level of interest rate risk exposure,
that this provision will not have a material adverse effect on them.

   At December 31, 2001, the Company's consolidated Total and Tier 1 Risk-Based
Capital Ratios were 11.57% and 10.32%, respectively, and its Leverage Capital
Ratio was 7.99%. Based on the above figures and accompanying discussion, CC
exceeds all regulatory capital requirements and is considered well capitalized.

   Prompt Corrective Action.  Among other things, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") requires the federal banking
regulators to take "prompt corrective action" with respect to, and imposes
significant restrictions on, any bank that fails to satisfy its applicable
minimum capital requirements. FDICIA establishes five capital categories
consisting of "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Under
applicable regulations, a bank that has a Total Risk-Based Capital Ratio of
10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a
Leverage Capital Ratio of 5.0% or greater, and is not subject to any written
agreement, order, capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure is deemed to
be "well capitalized." A bank that has a Total Risk-Based Capital Ratio of 8.0%
or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater and a Leverage
Capital Ratio of 4.0% (or 3% for banks with the highest regulatory examination
rating that are not experiencing or anticipating significant growth or
expansion) or greater and does not meet the definition of a well capitalized
bank is considered to be "adequately capitalized." A bank that has a Total
Risk-Based Capital Ratio of less than 8.0% or has a Tier 1 Risk-Based Capital
Ratio that is less than 4.0%, except as noted above, a Leverage Capital Ratio
of less than 4.0% is considered "undercapitalized." A bank that has a Total
Risk-Based Capital Ratio of less than 6.0%, or a Tier 1 Risk-Based Capital
Ratio that is less than 3.0% or a Leverage Capital Ratio that is less than 3.0%
is considered to be "significantly undercapitalized," and a bank that has a
ratio of tangible equity to total assets equal to or less than 2% is deemed to
be "critically undercapitalized." A bank may be deemed to be in a capital
category lower than is indicated by its actual capital position if it is
determined to be in an unsafe or unsound condition or receives an
unsatisfactory examination rating. FDICIA generally prohibits a bank from
making capital distributions (including payment of dividends) or paying
management fees to controlling stockholders or their affiliates if, after such
payment, the bank would be undercapitalized.

   Under FDICIA and the applicable implementing regulations, an
undercapitalized bank will be (i) subject to increased monitoring by the FDIC;
(ii) required to submit to the FDIC an acceptable capital restoration plan
(guaranteed, subject to certain limits, by the bank's holding company) within
45 days of being classified as undercapitalized; (iii) subject to strict asset
growth limitations; and (iv) required to obtain prior regulatory approval for
certain acquisitions, transactions not in the ordinary course of business, and
entry into new lines of business. In addition to the foregoing, the FDIC may
issue a "prompt corrective action directive" to any undercapitalized
institution. Such a directive may require sale or re-capitalization of the
bank, impose additional restrictions on transactions between the bank and its
affiliates, limit interest rates paid by the bank on deposits, limit asset
growth and other activities, require divestiture of subsidiaries, require
replacement of directors and officers, and restrict capital distributions by
the bank's parent holding company.

                                      9

<PAGE>

   In addition to the foregoing, a significantly undercapitalized institution
may not award bonuses or increases in compensation to its senior executive
officers until it has submitted an acceptable capital restoration plan and
received approval from the FDIC.

   Not later than 90 days after an institution becomes critically
undercapitalized, the appropriate federal banking agency for the institution
must appoint a receiver or, with the concurrence of the FDIC, a conservator,
unless the agency, with the concurrence of the FDIC, determines that the
purposes of the prompt corrective action provisions would be better served by
another course of action. FDICIA requires that any alternative determination be
"documented" and reassessed on a periodic basis. Notwithstanding the foregoing,
a receiver must be appointed after 270 days unless the appropriate federal
banking agency and the FDIC certify that the institution is viable and not
expected to fail.

   Risk-Based Deposit Insurance and FICO Assessments.  The FDIC has adopted a
rule establishing a risk-based system which assigns an institution to one of
three capital categories consisting of (1) well capitalized, (2) adequately
capitalized, or (3) undercapitalized, and one of three supervisory categories.
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under this rule there are nine
assessment risk classifications (i.e. combinations of capital categories and
supervisory subgroups within each capital group). An institution's deposit
insurance assessment rate is determined by assigning the institution to a
capital category and a supervisory subgroup to determine which one of the nine
risk classification categories is applicable. The FDIC is authorized to raise
the assessment rates in certain circumstances. If the FDIC determines to
increase the assessment rates for all institutions, institutions in all risk
categories could be affected. The FDIC has exercised this authority several
times in the past and may raise BIF insurance premiums again in the future. If
such action is taken by the FDIC, it could have an adverse effect on the
earnings of The Banks, the extent of which is not currently quantifiable. The
risk classification to which an institution is assigned by the FDIC is
confidential and may not be disclosed.

   Assessment rates in 2001 ranged from 0% of domestic deposits for an
institution in the lowest risk category (i.e., well-capitalized and healthy
from a supervisory standpoint) to 0.27% of domestic deposits for institutions
in the highest risk category (i.e., undercapitalized and unhealthy from a
supervisory standpoint). The Deposit Insurance Funds Act of 1996 eliminates the
minimum assessment and authorizes the Financing Corporation (FICO) to levy
assessments on BIF-assessable deposits. The actual assessment rates for FICO
are adjusted on a quarterly basis to reflect changes in the assessment bases of
the insurance funds. Based on the 1996 Act, the Banks paid assessments totaling
$684,000 or 1.84 cents per $100 of deposits in 2001.

   Brokered Deposits and Pass-Through Deposit Insurance Limitations.  Under
FDICIA, a bank cannot accept brokered deposits unless it either (i) is "Well
Capitalized" or (ii) is "Adequately Capitalized" and has received a written
waiver from the FDIC. For this purpose, "Well Capitalized" and "Adequately
Capitalized" have the same definitions as in the Prompt Corrective Action
regulations. See "--Prompt Corrective Action" above. Banks that are not in the
"Well Capitalized" category are subject to certain limits on the rates of
interest they may offer on any deposits (whether or not obtained through a
third-party deposit broker). Pass-through insurance coverage is not available
for deposits of certain employee benefit plans in banks that do not satisfy the
requirements for acceptance of brokered deposits, except that pass-through
insurance coverage will be provided for employee benefit plan deposits in
institutions which at the time of acceptance of the deposit meet all applicable
regulatory capital requirements and send written notice to their depositors
that their funds are eligible for pass-through deposit insurance. Although
eligible to do so, the Banks have not accepted brokered deposits.

   Conservatorship and Receivership Amendments.  FDICIA authorizes the FDIC to
appoint itself conservator or receiver for a state-chartered bank under certain
circumstances and expands the grounds for appointment of a conservator or
receiver for an insured depository institution to include (i) consent to such
action by the board of directors of the institution; (ii) cessation of the
institution's status as an insured depository institution; (iii) the
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized, or fails to become adequately capitalized when required
to do so, or fails to timely submit an

                                      10

<PAGE>

acceptable capital plan, or materially fails to implement an acceptable capital
plan; and (iv) the institution is critically undercapitalized or otherwise has
substantially insufficient capital. FDICIA provides that an institution's
directors shall not be liable to its stockholders or creditors for acquiescing
in or consenting to the appointment of the FDIC as receiver or conservator for,
or as a supervisor in the acquisition of, the institution.

   Real Estate Lending Standards.  FDICIA requires the federal bank regulatory
agencies to adopt uniform real estate lending standards. The FDIC has adopted
implementing regulations, which establish supervisory limitations on
Loan-to-Value ("LTV") ratios in real estate loans by FDIC-insured banks. The
regulations require FDIC-insured banks to establish LTV ratio limitations
within or below the prescribed uniform range of supervisory limits.

   Standards for Safety and Soundness.  FDICIA requires the federal bank
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating
to: (i) internal controls, information systems and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate risk
exposure; (v) asset growth; and (vi) compensation, fees and benefits. The
compensation standards would prohibit employment contracts, compensation or
benefit arrangements, stock option plans, fee arrangements or other
compensatory arrangements that would provide "excessive" compensation, fees or
benefits, or that could lead to material financial loss. In addition, the
federal bank regulatory agencies are required by FDICIA to prescribe standards
specifying; (i) maximum classified assets to capital ratios; (ii) minimum
earnings sufficient to absorb losses without impairing capital; and (iii) to
the extent feasible, a minimum ratio of market value to book value for
publicly-traded shares of depository institutions and depository institution
holding companies. The FDIC has issued regulations implementing certain of
these provisions.

   Activities and Investments of Insured State Banks.  FDICIA provides that
FDIC-insured state banks such as CTC, MBT, BWM and FBT may not engage as a
principal, directly or through a subsidiary, in any activity that is not
permissible for a national bank unless the FDIC determines that the activity
does not pose a significant risk to the BIF, and the bank is in compliance with
its applicable capital standards. In addition, an insured state bank may not
acquire or retain, directly or through a subsidiary, any equity investment of a
type, or in an amount, that is not permissible for a national bank, unless such
investments meet certain grandfather requirements.

   The Gramm-Leach-Bliley Act includes a new section of the FDI Act governing
subsidiaries of state banks that engage in "activities as principal that would
only be permissible" for a national bank to conduct in a financial subsidiary.
This provision will permit state banks, to the extent permitted under state
law, to engage in certain new activities, which are permissible for
subsidiaries of a financial holding company. See "Supervision and Regulation,
Regulation of the Company." Further, it expressly preserves the ability of a
state bank to retain all existing subsidiaries. Because Vermont statute does
not explicitly permit banks chartered by the state to engage in all activities
permissible for national banks, CTC will be permitted to form subsidiaries to
engage in the activities authorized by the Gramm-Leach-Bliley Act, only to the
extent permitted by Vermont Law. Maine and Massachusetts permit banks chartered
by those states to engage in activities which are permissible for a national
bank and that are approved by the Massachusetts Commissioner of Banks or the
Maine Superintendent of Banking. Thus, MBT, BWM and FBT would only be permitted
to engage in the activities authorized by the Gramm-Leach-Bliley Act that are
also approved by the state's banking regulatory agency or otherwise by state
law. In order to form a financial subsidiary, a state bank must be
well-capitalized, and the state bank would be subject to certain capital
deduction, risk management and affiliate transaction rules, which are
applicable to national banks.

   Consumer Protection Provisions.  FDICIA also includes provisions requiring
advance notice to regulators and customers for any proposed branch closing and
authorizing (subject to future appropriation of the necessary funds) reduced
insurance assessments for institutions offering "lifeline" banking accounts or
engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to
depositors with respect to the rates of interest, fees and other terms
applicable to consumer deposit accounts.

                                      11

<PAGE>

   Depositor Priority Statute.  The FDI Act provides that, in the liquidation
or other resolution by any receiver of a bank insured by the FDIC, the claims
of depositors have priority over the general claims of other creditors. Hence,
in the event of the liquidation or other resolution of a banking subsidiary of
the Company, the general claims of the Company as creditor of such banking
subsidiary would be subordinate to the claims of the depositors of such banking
subsidiary, even if the claims of CC were not by their terms so subordinated.
In addition, this statute may, in certain circumstances, increase the costs to
banks of obtaining funds through non-deposit liabilities.

EMPLOYEES

   At December 31, 2001, the Company and its subsidiaries employed 1,842
persons, with a full-time equivalency of 1,705 employees. The Company enjoys
good relations with its employees. A variety of employee benefits, including
health, group life and disability income replacement insurance, a funded,
non-contributory pension plan, and an incentive savings and profit sharing
plan, are available to qualifying officers and employees.

ITEM 2  PROPERTIES

   The Company's principal banking subsidiary, CTC, operates banking facilities
in fifty-three locations in Vermont, along with twelve locations in New
Hampshire. The offices of the Company are located in an owned facility at Two
Burlington Square in Burlington, Vermont. BWM's principal offices are in
Springfield, Massachusetts and it has eleven additional locations in the
western Massachusetts area. FBT's principal offices are in Worcester,
Massachusetts and it has six additional locations in the greater Worcester,
Massachusetts area. MBT's principal offices are in Portland, Maine and it has
fourteen additional locations in southern Maine. CCC operates three mortgage
company facilities in Vermont and Massachusetts. The offices of all
subsidiaries are in good physical condition with modern equipment and
facilities considered adequate to meet the banking needs of customers in the
communities served.

ITEM 3  LEGAL PROCEEDINGS

   A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2001. Management, after reviewing
these claims with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the consolidated financial
statements.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   None

                                      12

<PAGE>

                                    PART II

ITEM 5  MARKETFOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
 MATTERS

   The $1 par value common stock of Chittenden Corporation has been publicly
traded since November 14, 1974. As of February 28, 2002, there were 4,796
holders of record of the Company's common stock.

   The Company's stock trades on the NYSE under the symbol "CHZ". The following
table sets forth the range of the high and low sales prices for the Company's
common stock, and the dividends declared, for each quarterly period within the
past two years:

<TABLE>
<CAPTION>
                                                 Dividends
                     Quarter ended  High   Low     Paid
                     ------------- ------ ------ ---------
                     <S>           <C>    <C>    <C>
                     2001
                     March 31..... $25.52 $23.00   $0.19
                     June 30......  27.27  23.64    0.19
                     September 30.  28.47  21.75    0.19
                     December 31..  28.99  23.63    0.19

                     2000
                     March 31..... $24.75 $19.80   $0.18
                     June 30......  24.40  18.05    0.19
                     September 30.  21.90  19.00    0.19
                     December 31..  25.25  18.20    0.19
</TABLE>

   For a discussion of dividend restrictions on the Company's common stock, see
"Dividends" under the caption Regulation on page 6 of this report.

                                      13

<PAGE>

ITEM 6  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                 ---------------------------------------------------------------
                                                                    2001         2000         1999         1998         1997
                                                                 -----------  -----------  -----------  -----------  -----------
                                                                        (In thousands, except share and per share amounts)
<S>                                                              <C>          <C>          <C>          <C>          <C>
Statements of operating income:
   Interest income.............................................. $   266,497  $   288,102  $   288,737  $   299,476  $   276,021
   Interest expense.............................................      96,192      121,030      113,252      126,199      115,462
                                                                 -----------  -----------  -----------  -----------  -----------
   Net interest income..........................................     170,305      167,072      175,485      173,277      160,559
   Provision for loan losses....................................       8,041        8,700        8,700        8,235        7,300
                                                                 -----------  -----------  -----------  -----------  -----------
   Net interest income after provision for loan losses..........     162,264      158,372      166,785      165,042      153,259
   Noninterest income...........................................      63,733       53,109       63,403       66,780       55,577
   Noninterest expense..........................................     135,760      123,928      145,137      152,204      136,199
   Special charges..............................................          --          833       58,472           --           --
                                                                 -----------  -----------  -----------  -----------  -----------
   Income before income taxes...................................      90,237       86,720       26,579       79,618       72,637
   Income tax expense...........................................      31,736       28,033       29,075       29,840       26,105
                                                                 -----------  -----------  -----------  -----------  -----------
   Net income (loss)............................................ $    58,501  $    58,687  $    (2,496) $    49,778  $    46,532
                                                                 ===========  ===========  ===========  ===========  ===========
Total assets at year-end........................................ $ 4,153,714  $ 3,769,861  $ 3,828,296  $ 4,256,052  $ 4,074,602
Common shares outstanding at year-end...........................  32,070,446   32,621,355   35,472,790   34,921,338   35,739,971
Balance sheets--average daily balances:
   Total assets................................................. $ 3,871,017  $ 3,813,366  $ 4,104,497  $ 4,090,244  $ 3,656,334
   Loans, net of allowance......................................   2,871,899    2,902,303    2,834,961    2,694,097    2,463,250
   Investment securities and interest-bearing cash equivalents..     729,027      643,837      931,076    1,009,881      852,355
   Deposits.....................................................   3,407,439    3,207,857    3,528,426    3,494,945    3,098,744
   Stockholders' equity.........................................     353,529      341,081      373,742      379,615      337,871
Per common share:
   Basic earnings (loss)........................................ $      1.82  $      1.74  $     (0.07) $      1.41  $      1.38
   Diluted earnings (loss)......................................        1.80         1.72        (0.07)        1.38         1.36
   Operating basic earnings (4).................................        1.82         1.76         1.56         1.41         1.38
   Operating diluted earnings (4)...............................        1.80         1.74         1.54         1.38         1.36
   Cash dividends declared (3)..................................        0.76         0.75         0.65         0.55         0.76
   Book value...................................................       11.56        10.49        10.22        11.22        10.57
Weighted average common shares outstanding......................  32,163,734   33,760,531   35,215,531   35,403,639   33,571,888
Weighted average common and common equivalent shares
 outstanding (6)................................................  32,547,029   34,100,113   35,794,799   36,038,104   34,158,776
Selected financial percentages:
   Return on average stockholders' equity (1)(4)................       16.55%       17.44%       14.69%       13.05%       13.77%
   Return on average total assets (1)(4)........................        1.51         1.56         1.34         1.22         1.27
   Net yield on earning assets..................................        4.74         4.73         4.67         4.71         4.88
   Interest rate spread.........................................        4.08         3.95         3.98         4.01         4.20
   Net charge-offs as a percent of average loans................        0.24         0.32         0.31         0.46         0.43
   Nonperforming assets ratio (2)...............................        0.46         0.42         0.33         0.72         1.02
   Allowance for loan losses as a percent of year-end loans.....        1.59         1.41         1.42         1.51         1.69
   Year-end leverage capital ratio..............................        7.99         8.65         8.17         7.58         7.35
   Risk-based capital ratios:
      Tier 1....................................................       10.32        10.82        11.96        10.76        10.82
      Total.....................................................       11.57        12.08        13.23        12.02        12.14
   Average stockholders' equity to average assets...............        9.13         8.94         9.11         9.28         9.24
   Common stock dividend payout ratio (1)(3)(4).................       42.15        34.28        33.24        31.44        44.02
</TABLE>
--------
(1)Ratios calculated based on operating net income for the year.
(2)The sum of nonperforming assets (nonaccrual loans, restructured loans, and
   other real estate owned) divided by the sum of total loans and other real
   estate owned
(3)Common stock cash dividends declared divided by operating net income;
   dividends declared during 1997 included a special cash dividend of $0.48 per
   share.
(4)Operating earnings per share are computed by adding back the impact of
   one-time special charges (net of the effect of income taxes) of $792,000 and
   $57.4 million in 2000 and 1999, respectively to net income (loss). One-time
   special charges are related to the acquisition of VFSC in 1999.
(5)All information for the years 1997-1998 has been restated to include VFSC,
   which was acquired May 28, 1999, in a transaction accounted for as a pooling
   of interests.
(6)Used only for operating purposes in 1999.

                                      14

<PAGE>

ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

  For the Years Ended December 31, 2001, 2000, and 1999

   The following discussion and analysis of financial condition and results of
operations of the Company and its subsidiaries should be read in conjunction
with the consolidated financial statements and accompanying notes and selected
statistical information incorporated by reference.

Critical Accounting Policies

   The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements included in Item 8 of this Form 10-K. The
Company considers the following accounting policies to be most critical in
their potential effect on its financial position or results of operations:

Allowances for Loan Losses.  The allowance for loan losses is established
through a charge to the provision for loan losses. Provisions are made to
reserve for estimated losses in outstanding loan balances. The allowance for
loan losses is a significant estimate and is regularly reviewed by the Company
for adequacy by assessing such factors as changes in the mix and volume of the
loan portfolio; trends in portfolio credit quality, including delinquency and
charge-off rates; and current economic conditions that may affect a borrower's
ability to repay. The Company's methodology with respect to the assessment of
the adequacy of the allowance for loan losses is more fully discussed on pages
20-23 of Management's Discussion and Analysis.

Income Taxes.  The Company must estimate income tax expense in each of the
jurisdictions in which it operates for each period for which a statement of
operations is presented. This involves estimating the Company's actual current
tax exposure as well as assessing temporary differences resulting from
differing treatment of items, such as timing of the deduction of expenses, for
tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included in the Company's consolidated balance
sheets. The Company must also assess the likelihood that any deferred tax
assets will be recovered from future taxable income and to the extent that
recovery is not likely, a valuation allowance must be established. Significant
management judgment is required in determining income tax expense, and deferred
tax assets and liabilities. As of December 31, 2001, there were no valuation
allowances set aside against any deferred tax assets.

Interest Income Recognition.  Interest on loans is included in income as earned
based upon interest rates applied to unpaid principal. Interest is not accrued
on loans 90 days or more past due unless they are adequately secured and in the
process of collection, or on other loans when management believes collection is
doubtful. All loans considered impaired are nonaccruing. Interest on
nonaccruing loans is recognized as payments are received when the ultimate
collectibility of interest is no longer considered doubtful. When a loan is
placed on nonaccrual status, all interest previously accrued is reversed
against current-period interest income.

Mortgage Servicing Rights.  Servicing assets are recognized as separate assets
when rights are acquired through purchase or through sale of financial assets.
Capitalized servicing rights are reported in other assets and are amortized
into noninterest income in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets. Servicing
assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by
predominant characteristics, such as interest rates and terms. The Company
utilizes a single stratum for measuring the fair value of its mortgage
servicing rights because of the homogeneity of its serviced loan portfolio.
Fair value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions.

                                      15

<PAGE>

Results of Operations

   On April 30, 2001, the Company acquired Maine Bank Corp., headquartered in
Portland, Maine and its subsidiary, Maine Bank & Trust for $49.25 million in
cash. The acquisition has been accounted for as a purchase and, accordingly,
the operations of Maine Bank & Trust (MBT) are included in these financial
statements from the date of acquisition.

   On May 28, 1999, the Company completed the acquisition of Vermont Financial
Services Corp. in a stock-for-stock transaction accounted for as a pooling of
interests. Accordingly, the consolidated financial statements of the Company
have been restated to reflect the acquisition as of the beginning of the
earliest period presented. The Company recognized $57.4 million of after-tax
special charges in 1999 (and an additional $792,000 in 2000) and the results
excluding these special charges are referred to in the following discussion as
operating.

   A reconciliation of the Company's net income (loss) to its operating net
income for the years ended December 31, 2001, 2000, and 1999 is presented below:

<TABLE>
<CAPTION>
                                                   2001    2000      1999
                                                  ------- -------  --------
    <S>                                           <C>     <C>      <C>
    Net income (loss), as reported............... $58,501 $58,687  $ (2,496)
    Less:
       Gain (loss) on branch sales...............      --    (833)   12,523
       Impaired goodwill written off upon merger.      --      --   (21,129)
       Merger costs..............................      --      --   (49,866)
       Tax effect of gain (loss) on branch sales.      --      41   (13,398)
       Tax effect of merger costs................      --      --    14,465
                                                  ------- -------  --------
    Operating Net Income......................... $58,501 $59,479  $ 54,909
                                                  ======= =======  ========
    Diluted Operating EPS........................ $  1.80 $  1.74  $   1.54
</TABLE>

Performance Summary

   Operating net income for 2001 was $58.5 million, a decrease of $978,000, or
1.7% from the $59.5 million recorded in 2000. Operating net income of $59.5
million in 2000 increased $4.6 million, or 8.4% from the $54.9 million recorded
for 1999. Diluted earnings per share for 2001 were $1.80 compared to $1.74 for
2000 and $1.54 for 1999.

   Return on average assets and return on average equity are two industry
measures on which the financial performance of a banking institution is
generally measured. During 2001, the Company's operating ROA was 1.51% compared
to 1.56% in 2000 and 1.34% in 1999. The decline in ROA was primarily due to the
acquisition of MBT and to excess liquidity on hand in the last four months of
2001 due to unusually high deposit levels. During 2001, the Company's operating
ROE was 16.55% compared to 17.44% and 14.69% in 2000 and 1999, respectively.
The decrease in operating return on equity from 2000 to 2001 was primarily
attributable to significantly higher levels of unrealized gains in the
investment portfolio due to lower overall market interest rates. Excluding the
unrealized gains (losses) in the investment portfolio, the return on average
equity would have been 16.92% for 2001 and 17.09% a year ago. The increase in
operating return on equity between 1999 and 2000 was attributable to higher
levels of operating net income and lower levels of average stockholders' equity
resulting from special charges taken in 1999 and the Company's share repurchase
plan which commenced on January 19, 2000.

   Overall, operating net income was flat in 2001 compared to 2000. Net
interest income increased $3.2 million, primarily as a result of the
acquisition of MBT. The provision for loan losses was $659,000 lower in 2001
due to lower levels of charge-offs. Noninterest income increased $10.6 million
in 2001 primarily due to increases of $8.4 million in gains on sales of
mortgage loans and $2.2 million in investment management income. The increase
in gains on sales of loans was primarily due to higher volumes of loans sold in
mortgage banking

                                      16

<PAGE>

activities as well as to the gain of $4.3 million on the sale of the Company's
credit card portfolio. Noninterest expenses were $135.8 million in 2001
compared with $124.8 million in 2000. Salaries and employee benefits increased
$10.3 million from the 2000 level. The inclusion of MBT amounted to $4.9
million of the increase. Also, incentive accruals were $2.2 million higher in
2001 than 2000. In addition, a $1.3 million pension curtailment gain taken in
the first quarter of 2000 upon the merger of the Vermont National and
Chittenden Bank pension plans reduced expenses for the previous year. Net
occupancy and amortization expenses increased $1.5 million and $862,000,
respectively as a result of the inclusion of MBT in the 2001 amounts.

   The $4.6 million increase in operating net income from 1999 to 2000 was
primarily attributable to reductions in noninterest expenses, which net of
special charges, totaled $125.6 million for 2000, down from $145.1 million for
1999. The reduction in noninterest expenses was due to lower levels of
amortization of intangibles resulting from the recovery of goodwill related to
the merger, reduced compensation expense caused by lower staffing levels and
reduced depreciation expense related to duplicative fixed assets written off as
a result of the merger. These reduced expenses outpaced declines in net
interest income and noninterest income, which were primarily attributable to
the sale of eighteen branches in late 1999 and early 2000, which were required
as a condition of regulatory approval of the VFSC acquisition.

   Total assets increased from $3.770 billion at December 31, 2000 to $4.154
billion at December 31, 2001 primarily as a result of the acquisition of MBT.
Total assets decreased from $3.828 billion in 1999 to $3.770 billion in 2000,
as a result of the final branch sale, which was required as a condition of
regulatory approval of the VFSC acquisition. Divested in the final branch sale
were $3.9 million in loans, $27.1 million in deposits, and $755,000 in fixed
assets.

  Financial Condition

Loans

   Chittenden's loan portfolio at December 31, 2001 totaled $2.838 billion
compared to $2.856 billion at year-end 2000. The classification of the
Company's loan portfolio is based on underlying collateral. Acquired in the MBT
transaction were loans totaling $172.9 million, of which $45.6 million were
commercial loans; $80.5 million were commercial real estate loans; $9.0 million
were residential real estate loans, including construction loans; $34.2 million
were home equity loans; and $3.6 million were consumer loans.

   Residential real estate loans decreased $211.4 million to $672.6 million in
2001. The reduction in the balance of residential real estate was caused by an
extremely high volume of payoffs as customers refinanced in the lower interest
rate environment, as well as the securitization of $66 million in residential
real estate loans. The securitized loans were retained in the Company's
investment portfolio as mortgage-backed securities. The overall proportion of
the loan portfolio comprised of residential real estate loans declined because
new loans are being added at a slower rate than the existing portfolio is
paying down. Total paydowns of the residential real estate portfolio were
$175.4 million compared with $97.9 million in 2000, which was a more typical
year. Over time, this will increase the percentage of the portfolio comprised
of higher yielding commercial loans. Construction loans amounted to $79.8
million at December 31, 2001, up from $57.7 million the year before. The
increase was due primarily to increases in owner occupied construction.

   Residential mortgages originated during 2001 totaled $561.9 million,
compared to $259.4 million during 2000. This increase was due to an increase in
the volume of fixed rate residential loans caused by low market rates
throughout 2001. The Company underwrites substantially all of its residential
mortgages to secondary market standards. The Company continues to follow its
policy of selling substantially all of its fixed-rate residential mortgage
production on a servicing-retained non-recourse basis. Secondary market sales
of mortgage loans totaled $480.3 million in 2001, compared to $179.6 million in
2000.

   The portfolio of residential mortgages serviced for investors totaled $1.961
billion at December 31, 2001 compared to $1.991 billion at year-end 2000. These
assets are owned by investors other than Chittenden and

                                      17

<PAGE>

therefore are not included in the Company's consolidated balance sheets. Of the
loans serviced, the Company originated $1.656 billion and the balance consisted
of loans whose mortgage-servicing rights were purchased in prior years.

   Included in the real estate portfolio are home equity credit lines, totaling
$182.9 million at December 31, 2001 compared to $140.2 million the previous
year. The unused portion of these lines totaled $202.7 million at December 31,
2001 compared to $168.9 million at year-end 2000.

   The total real estate portfolio, including home equity credit lines,
increased $34.0 million or 1.8% from year-end 2000. This increase was caused by
increases in the commercial real estate portfolio, consistent with the
Company's ongoing focus on commercial lending.

   The overall proportion of commercial-related loans continued to increase in
2001. At December 31, 2001, commercial loans secured by non-real estate
business assets totaled $645.2 million or 23% of total loans, up from the
$599.5 million posted at year-end 2000. Commercial real estate loans,
representing 32% of the portfolio, increased $180.5 million or 20% to $903.8
million at year-end 2001, compared to $723.3 million at December 31, 2000.
Included in the commercial portfolio are business credit cards, which amounted
to $5.9 million in 2001 compared to $6.7 million in 2000. Unused portions of
credit card lines totaled $28.0 million at the end of 2001, down from $137.5
million one year earlier. The sale of the Company's retail credit card
portfolio, in the first quarter of 2001, accounted for the decline in the
unused portions of credit card lines.

   Consumer loans decreased $97.6 million or 28% in 2001, ending the year at
$353.8 million. This decrease reflects paydowns on the automotive finance
portfolio, driven by lower market interest rates, which outpaced originations.
The Company underwrites all of its indirect automotive loans on substantially
the same credit standards as for car loans directly originated in its branch
offices. Indirect installment lending through auto dealers was down $47.8
million from year-end 2000 to $229.3 million at the end of 2001. Lease
financing receivables outstanding at December 31, 2001 were $98.4 million, down
from $136.5 million a year earlier, of which $66.8 million and $86.8 million
represented the residual value of these leases. The Company has insurance
through outside insurance companies which substantially eliminates the risk
associated with the residual value of its leased vehicle portfolio. Direct
installment balances at December 31, 2001 stood at $27.5 million compared with
$31.5 million at the end of 2000.

   The Company's lending activities are conducted in market areas focused in
Vermont, western and central Massachusetts, southern Maine, and southern New
Hampshire, with additional activity related to nearby trading areas in Quebec,
New York, and Connecticut. In addition to the geographic portfolio
diversification described above, the loans are widely diversified by borrowers
and industry groups. The following table shows the composition of the loan
portfolio for the five years ended December 31, 2001:

<TABLE>
<CAPTION>
                                                 December 31,
                          ----------------------------------------------------------
                             2001        2000        1999        1998        1997
                          ----------  ----------  ----------  ----------  ----------
                                                (in thousands)
<S>                       <C>         <C>         <C>         <C>         <C>
Commercial............... $  645,231  $  599,492  $  591,875  $  581,132  $  529,261
Real estate:
   Residential...........    672,666     884,024     917,505     927,454   1,042,530
   Commercial............    903,819     723,339     641,494     573,756     548,970
   Construction..........     79,801      57,701      55,448      68,744      60,965
Home equity..............    182,895     140,150     149,347     159,641     178,236
Consumer.................    255,343     314,914     414,173     309,055     276,235
Lease financing..........     98,422     136,478     134,967     107,058      72,562
                          ----------  ----------  ----------  ----------  ----------
Total gross loans........  2,838,177   2,856,098   2,904,809   2,726,840   2,708,759
Allowance for loan losses    (45,268)    (40,255)    (41,079)    (41,209)    (45,664)
                          ----------  ----------  ----------  ----------  ----------
Net loans................ $2,792,909  $2,815,843  $2,863,730  $2,685,631  $2,663,095
                          ==========  ==========  ==========  ==========  ==========
Loans held for sale...... $   50,208  $   44,950  $    2,926  $   53,684  $   49,651
</TABLE>

                                      18

<PAGE>

   December 31, 1999 amounts are net of loans divested in the sale of the
Vermont National branches totaling $127.6 million. Commercial loans divested in
1999 were $112.1 million; residential real estate loans divested were $10.5
million; home equity loans divested were $1.3 million and consumer loans
divested were $3.7 million.

Nonperforming Assets

   Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Management classifies loans as nonaccrual loans when they
become 90 days past due as to principal or interest, unless they are adequately
secured and are in the process of collection. In addition, loans that have not
met this delinquency test may be placed on nonaccrual at management's
discretion. Consumer and residential loans are included when management
considers it to be appropriate, based upon evidence of collectibility, the
value of any underlying collateral and other general criteria. Nonaccrual loans
with a related guarantee by a governmental agency are reflected net of those
guarantees in nonperforming statistics. Generally, a loan remains on nonaccrual
status until the factors which indicated doubtful collectibility no longer
exist or the loan is determined to be uncollectible and is charged off against
the allowance for loan losses.

   A loan is classified as a restructured loan when the interest rate is
reduced and/or other terms are modified because of the inability of the
borrower to service debt at current market rates and terms. Other real estate
owned ("OREO") is real estate that has been formally acquired through
foreclosure.

   The following table shows the composition of nonperforming assets and loans
past due 90 days or more and still accruing interest for the five years ended
December 31, 2001:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                            -------------------------------------------
                                                             2001     2000     1999     1998     1997
                                                            -------  -------  -------  -------  -------
                                                                           (in thousands)
<S>                                                         <C>      <C>      <C>      <C>      <C>
Loans on nonaccrual........................................ $12,374  $11,376  $ 9,172  $17,865  $23,487
Troubled debt restructurings...............................      --       --       --       --      767
Other real estate owned....................................     703      513      416    1,870    3,541
                                                            -------  -------  -------  -------  -------
Total nonperforming assets................................. $13,077  $11,889  $ 9,588  $19,735  $27,795
                                                            =======  =======  =======  =======  =======
Loans past due 90 days or more and still accruing.......... $ 4,583  $ 4,595  $ 5,016  $ 4,184  $ 8,893
Percentage of nonperforming assets to total loans and other
  real estate owned........................................    0.46%    0.42%    0.33%    0.72%    1.02%
Nonperforming assets to total assets.......................    0.31     0.32     0.25     0.46     0.68
Allowance for loan losses to nonperforming loans,
  excluding OREO...........................................  365.83   353.86   447.87   230.66   188.27
</TABLE>

   Nonaccrual loans at December 31, 2001 consisted of approximately 182 loans,
which were diversified across a range of industries, sectors and geography.
Nonaccrual loans with payments less than 30 days past due are 50% of total
loans on nonaccrual. The remaining 50% consist of loans past due over 30 days.

Allowance for loan losses

   The allowance for loan losses is based on management's estimate of the
amount required to reflect the potential inherent losses in the loan portfolio,
based on circumstances and conditions known at each reporting date in
accordance with Generally Accepted Accounting Principles ("GAAP"). There are
three components of the allowance for loan losses: 1) specific reserves for
loans considered to be impaired or for other loans for which management
considers a specific reserve to be necessary; 2) allocated reserves based upon
management's formula-based process for assessing the adequacy of the allowance
for loan losses; and 3) a non-specific environmentally-driven allowance
considered necessary by management based on its assessment of other qualitative
factors. Adequacy of the allowance is determined using a consistent, systematic
methodology which analyzes the size and risk of the loan portfolio. In addition
to evaluating the collectibility of specific loans when

                                      19

<PAGE>

determining the adequacy of the allowance for loan losses, management also
takes into consideration other factors such as changes in the mix and size of
the loan portfolio, historic loss experience, the amount of delinquencies and
loans adversely classified, and economic trends. The adequacy of the allowance
for loan losses is assessed by an allocation process whereby specific loss
allocations are made against certain adversely classified loans, and general
loss allocations are made against segments of the loan portfolio which have
similar attributes. The Company's historical loss experience, industry trends,
and the impact of the local and regional economy on the Company's borrowers,
were considered by management in determining the adequacy of the allowance for
loan losses.

   The allowance for loan losses is increased by provisions charged against
current earnings. Loan losses are charged against the allowance when management
believes that the collectibility of the loan principal is unlikely. Recoveries
on loans previously charged off are credited to the allowance. Management
believes that the allowance for loan losses is adequate. While management uses
available information to assess possible losses on loans, future additions to
the allowance may be necessary based on increases in non-performing loans,
changes in economic conditions, or for other reasons. Any future additions to
the allowance would be recognized in the period in which they were determined
to be necessary. In addition, various regulatory agencies periodically review
the Company's allowance for loan losses as an integral part of their
examination process. Such agencies may require the Company to recognize
additions to the allowance based on judgements different from those of
management.

   Credit quality of the commercial portfolios is quantified by a corporate
credit rating system designed to parallel regulatory criteria and categories of
loan risk. Individual lenders monitor their loans to ensure appropriate rating
assignments are made on a timely basis. Risk ratings and quality of both
commercial and consumer credit portfolios are also assessed on a regular basis
by an independent Credit Review Department, which reports to the Executive Vice
President in charge of Credit Policy and Administration. Credit Review
personnel conduct ongoing portfolio trend analyses and individual credit
reviews to evaluate loan risk and compliance with corporate lending policies.
The level of allowance allocable to each group of risk-rated loans is then
determined by applying a loss factor that estimates the amount of probable loss
in each category. The assigned loss factor for each risk rating is based upon
management's assessment of historical loss data, portfolio characteristics,
economic trends, overall market conditions and past experience.

   Consumer and residential real estate loan quality is evaluated on the basis
of delinquency data and other credit data available due to the large number of
such loans and the relatively small size of individual credits. Allocations for
these loan categories are principally determined by applying loss factors that
represent management's estimate of inherent losses. In each category, inherent
losses are estimated based upon management's assessment of historical loss
data, portfolio characteristics, economic trends, overall market conditions and
past experience. In addition, certain loans in these categories may be
individually risk-rated if considered necessary by management.

   The other method used to allocate the allowance for loan losses entails the
assignment of reserve amounts to individual loans on the basis of loan
impairment. Certain loans are evaluated individually and are judged to be
impaired when management believes it is probable that the Company will not
collect all of the contractual interest and principal payments as scheduled in
the loan agreement. Under this method, loans are selected for evaluation based
on internal risk rating or non-accrual status. A specific reserve amount is
allocated to an individual loan when that loan has been deemed impaired and
when the amount of a probable loss is estimable on the basis of its collateral
value, the present value of anticipated future cash flows, or its realizable
fair value. At December 31, 2001, impaired loans with a specific reserve
totaled $5,615,000 (all of these loans were on nonaccrual status) and the
amount of such reserve was $1,900,000.

   Results and recommendations from these processes provide senior management
and the Board of Directors with independent information on loan portfolio
condition. The Board of Directors monitors asset quality throughout the year.

                                      20

<PAGE>

   The following table summarizes the activity in the Company's allowance for
loan losses for the five years ended December 31, 2001:

<TABLE>
<CAPTION>
                                                                     December 31,
                                              ----------------------------------------------------------
                                                 2001        2000        1999        1998        1997
                                              ----------  ----------  ----------  ----------  ----------
                                                                    (in thousands)
<S>                                           <C>         <C>         <C>         <C>         <C>
Balance of allowance for loan losses at
  beginning of year.......................... $   40,255  $   41,079  $   41,209  $   45,664  $   41,743
Allowance acquired through acquisitions......      4,083          --          --          --       7,488
Provision charged to expense.................      8,041       8,700       8,700       8,235       7,300
                                              ----------  ----------  ----------  ----------  ----------
Balance of allowance for loan losses after
  provision..................................     52,379      49,779      49,909      53,899      56,531
                                              ----------  ----------  ----------  ----------  ----------
Loans charged off:
   Commercial................................      2,881       4,335       4,747       6,941       6,127
   Real estate:
       Residential...........................        402         454         600       2,647       1,593
       Commercial............................      1,073         332         248         399       2,088
       Construction..........................         60          --          --         101         204
   Home equity...............................        263         120         124         502         235
   Consumer..................................      5,780       8,198       7,697       7,101       4,695
                                              ----------  ----------  ----------  ----------  ----------
          Total loans charged off............     10,459      13,439      13,416      17,691      14,942
                                              ----------  ----------  ----------  ----------  ----------
Recoveries of loans previously charged off:
   Commercial................................        806         720       1,661       1,779       1,380
   Real estate:
       Residential...........................        130         164         116         329         165
       Commercial............................        349         230         272         320       1,390
       Construction..........................         66         112          64           5          12
   Home equity...............................         15          51          67         110          59
   Consumer..................................      1,982       2,638       2,406       2,458       1,069
                                              ----------  ----------  ----------  ----------  ----------
          Total recoveries...................      3,348       3,915       4,586       5,001       4,075
                                              ----------  ----------  ----------  ----------  ----------
Net loans charged off........................      7,111       9,524       8,830      12,690      10,867
                                              ----------  ----------  ----------  ----------  ----------
Balance of allowance for loan losses at year-
  end........................................ $   45,268  $   40,255  $   41,079  $   41,209  $   45,664
                                              ==========  ==========  ==========  ==========  ==========
Amount of loans outstanding at end of year... $2,838,177  $2,856,098  $2,904,809  $2,726,840  $2,708,759
Average amount of loans outstanding during
  the year...................................  2,915,271   2,943,018   2,877,218   2,739,617   2,508,559
Ratio of net charge-offs during year to
  average loans outstanding..................       0.24%       0.32%       0.31%       0.46%       0.43%
Allowance as a percent of loans outstanding
  at end of year.............................       1.59        1.41        1.42        1.51        1.69
</TABLE>

   The provision for loan losses represents the charge to expense that is
required to maintain an adequate level of allowance for loan losses.
Management's periodic evaluation of the adequacy of the allowance considers
past loan loss experience, known and inherent risks in the loan portfolio,
adverse situations which may affect the borrowers' ability to repay, the
estimated value of the underlying collateral, if any, and current and
prospective economic conditions.

   The allowance for loan losses is allocated to various loan categories as
part of the Company's process of evaluating the adequacy of the allowance for
loan losses. Allocated reserves increased by approximately $1.7

                                      21

<PAGE>

million to $37.6 million at December 31, 2001. Changes in the distribution of
the allocated allowance principally occurred due to increases in the amount
allocated to commercial and commercial real estate loans, while the amount
allocated to consumer loans declined.

   The following table summarizes the allocation of the allowance for loan
losses for the five years ended December 31, 2001:

<TABLE>
<CAPTION>
                                                                     December 31,
                  -------------------------------------------------------------------------------------------
                           2001                   2000                   1999                   1998
                  ---------------------  ---------------------  ---------------------  ---------------------
                   Amount       Loan      Amount       Loan      Amount       Loan      Amount       Loan
                  Allocated Distribution Allocated Distribution Allocated Distribution Allocated Distribution
                  --------- ------------ --------- ------------ --------- ------------ --------- ------------
                                                                    (in thousands)
<S>               <C>       <C>          <C>       <C>          <C>       <C>          <C>       <C>
Commercial.......  $ 9,381       23%      $ 7,861       21%      $ 8,207       20%      $ 6,885       21%
Real estate:
   Residential...    1,950       24         2,276       31         2,985       32         3,818       34
   Commercial....   15,637       32        13,510       25        11,333       22         5,919       21
   Construction..    1,250        3           865        2           882        2         2,276        3
Home equity......      671        6           566        5           616        5           928        6
Consumer and
 leasing.........    5,139       12         7,290       16         7,912       19         7,488       15
Other............   11,240       --         7,887       --         9,144       --        13,895       --
                   -------      ---       -------      ---       -------      ---       -------      ---
                   $45,268      100%      $40,255      100%      $41,079      100%      $41,209      100%
                   =======      ===       =======      ===       =======      ===       =======      ===
</TABLE>
<TABLE>
<CAPTION>
                 -----------------------
                           1997
                 -----------------------
                  Amount        Loan
                 Allocated  Distribution
                 ---------  ------------
<S>              <C>        <C>
Commercial....... $ 7,253        20%
Real estate:
   Residential...   4,942        38
   Commercial....  10,141        20
   Construction..     576         2
Home equity......   1,091         7
Consumer and
 leasing.........   6,196        13
Other............  15,465        --
                  -------       ---
                  $45,664       100%
                  =======       ===
</TABLE>

   During 2001, the allowance for loan loss allocated to commercial loans
increased by $1.5 million and the amount allocated to commercial real estate
loans increased by $2.4 million. This was due primarily to increases in the
amount of these loans in the overall loan portfolio, as well as to increases in
the levels of criticized assets. Commercial loans increased from 21% to 23% of
the overall portfolio in the last year, while commercial real estate loans
increased from 25% to 32% over the same time. During 2001, the amount allocated
to the consumer and leasing portfolios declined by approximately $2.1 million,
while the overall percentage of portfolio loans in these categories declined
from 16% to 12%. This was primarily due to the sale of the Company's retail
credit card portfolio in early 2001, as well as to the reduction in the
indirect and leasing portfolios.

   As noted in the Nonperforming Assets table, the overall level of the
allowance for loan losses at December 31, 2001, when viewed as a percentage of
nonperforming loans, excluding OREO, increased slightly to 365.83% from 353.86%
in 2000. The other category is the allowance considered necessary by management
based on its assessment of historical loss experience, industry trends, and the
impact of the local and regional economy on the Company's borrowers that may
not have been captured in the specific risk classifications. Due to the
imprecise nature of the loan loss estimation process and the effects of
changing environmental conditions, these risk attributes may not be adequately
captured in the data related to the formula-based loan loss components used to
determine allocations in the Company's analysis of the adequacy of the
allowance for loan losses. Therefore, management maintains a non-specific
environmentally-driven allowance for loan losses. As 2001 drew to a close,
empirical data showed that the U.S. economy had entered a recession. Through
December 31, 2001, the economic slowdown has not had a significant effect on
the overall credit quality or incidence of default within the Company's loan
portfolios. However, certain segments, such as manufacturing and retail, are
showing significant signs of weakness on a national level and components of the
Company's loan portfolio, particularly commercial and commercial real estate
loan are believed to be potentially vulnerable to a slowdown in economic
activity. Also contributing to the need for a non-specific
environmentally-driven allowance was the growth in the commercial and
commercial real estate portfolios during 2001. These portfolios are inherently
riskier than the consumer and residential real estate portfolios and the
Company's loss factors used in its allocation process might not fully reflect
any additional risk which may be caused by this growth.

   Notwithstanding the foregoing analytical allocations, the entire allowance
for loan losses is available to absorb charge-offs in any category of loans.

                                      22

<PAGE>

Investment Securities

   The investment portfolio is used to meet liquidity demands, mitigate
interest rate sensitivity, invest excess liquidity, and generate interest
income. At December 31, 2001, the Company held investments available for sale
totaling $826.5 million. This compares with investments of $585.3 million
available for sale at December 31, 2000. The increase from 2000 to 2001 is
primarily attributable to deposit growth. Deposit levels in the last four
months of 2001 were unusually high due to uncertainties in the stock market.
The increase in mortgage-backed securities from 2000 to 2001 reflects this
excess liquidity in the market as well as the $66 million in company originated
residential mortgages that were securitized in 2001 and repurchased by the
Company. At December 31, 2001, unrealized gains (net of taxes) were $8.621
million. This compares with unrealized gains (net of taxes) of $164,000 at
December 31, 2000. These amounts are reflected as an increase in stockholders'
equity as accumulated other comprehensive income.

   The following tables show the composition of the Company's investment
portfolio, at:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                      --------------------------------------------
                                                        2001     2000     1999     1998     1997
                                                      -------- -------- -------- -------- --------
                                                                     (in thousands)
<S>                                                   <C>      <C>      <C>      <C>      <C>
Securities available for sale (at market value)
   U.S. Treasury securities.......................... $  3,376 $  4,724 $ 18,942 $ 53,519 $ 57,713
   U.S. government agency obligations................  232,593  251,826  230,479  388,434  399,599
   Obligations of states and political subdivisions..    4,728    6,142    8,297    8,123   10,301
   Mortgage-backed securities........................  374,663  152,902  197,596  289,086  290,559
   Corporate bonds and notes.........................  178,512  163,606  193,208  216,570   90,812
   Marketable equity securities......................   31,700    5,248      307   25,941   25,425
   Other debt securities.............................      923      833      642    9,142    9,171
                                                      -------- -------- -------- -------- --------
      Total Securities available for sale............ $826,495 $585,281 $649,471 $990,815 $883,580
                                                      -------- -------- -------- -------- --------
</TABLE>

   The following table shows the maturity distribution of the amortized cost of
the Company's investment securities and weighted average yields of such
securities on a fully taxable equivalent basis at December 31, 2001, with
comparative totals for 2000. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations:

<TABLE>
<CAPTION>
                                              After One But    After Five But                       No Fixed
                           Within One Year  Within Five Years Within Ten Years  After Ten Years     Maturity
                          ----------------  ----------------  ----------------  ---------------  --------------
                           Amount  Yield(2)  Amount  Yield(2)  Amount  Yield(2) Amount  Yield(2) Amount Yield(2)
                          -------- -------- -------- -------- -------- -------- ------- -------- ------ --------
                                                                       (in thousands)
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>    <C>
Securities Available
 For Sale
U.S. Treasury securities. $  1,999   6.12%  $  1,297   4.74%  $     --    -- %  $    --    -- %   $ --    -- %
U.S. government agency
 obligations.............    9,892   5.89     91,496   5.86    126,801   6.31        --     --      --     --
Obligations of states and
 political subdivisions..    3,203   6.45      1,335   6.05         60   8.79        65   8.79      --     --
Mortgage-backed
 securities(1)...........   88,899   6.07    194,136   6.06     68,083   6.09    20,513   6.08      --     --
Corporate bonds and
 notes...................   36,717   6.70    135,919   6.84         --     --        --     --      --     --
Marketable equity
 securities..............   31,700   2.41         --     --         --     --        --     --      --     --
Other debt securities....       50   6.68        853   6.78         20   5.87        --     --      --     --
                          --------   ----   --------   ----   --------   ----   -------   ----    ----    ---
Total available for sale. $172,460   5.53%  $425,036   6.26%  $194,964   6.24%  $20,578   6.09%   $ --    -- %
                          ========   ====   ========   ====   ========   ====   =======   ====    ====    ===
Comparative totals
  for 2000............... $145,457   6.25%  $391,368   6.41%  $ 44,315   7.05%  $ 3,625   5.81%   $250    -- %
</TABLE>
<TABLE>
<CAPTION>

                                Total
                          ----------------
                           Amount  Yield(2)
                          -------- --------

<S>                       <C>      <C>
Securities Available
 For Sale
U.S. Treasury securities. $  3,296   5.57%
U.S. government agency
 obligations.............  228,189   6.11
Obligations of states and
 political subdivisions..    4,663   6.36
Mortgage-backed
 securities(1)...........  371,631   6.07
Corporate bonds and
 notes...................  172,636   6.81
Marketable equity
 securities..............   31,700   2.41
Other debt securities....      923   6.75
                          --------   ----
Total available for sale. $813,038   6.10%
                          ========   ====
Comparative totals
  for 2000............... $585,015   6.41%
</TABLE>
--------
(1)Maturities of mortgage-backed securities are based on contractual payments
   and estimated mortgage loan prepayments.
(2)Tax-equivalent yield computed using historical cost balances and does not
   give effect to changes in fair value.

                                      23

<PAGE>

Deposits

   During 2001, total deposits averaged $3.407 billion, up from $3.208 billion
in 2000. This increase was due to the inclusion of MBT, which accounted for
$221 million of the change. Noninterest-bearing demand deposits averaged $546
million, up from $506 million in 2000. Average NOW and money market deposits
increased $168 million to $1.695 billion for 2001. During 2001, time accounts
(retirement and certificates of deposit) averaged $841 million, compared to
$848 million in 2000. The Company has a number of institutional customers
within its franchise whose investments needs are frequently met by purchasing
certificates of deposit over $100,000. Depositors in this category tend to seek
bids regularly, and the Company raises or lowers the interest rates it offers
depending on its liquidity needs and investment opportunities.

   The following table shows average balances of the Company's deposits for the
periods indicated:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                                   --------------------------------
                                                                      2001       2000       1999
                                                                   ---------- ---------- ----------
                                                                            (in thousands)
<S>                                                                <C>        <C>        <C>
Demand deposits................................................... $  545,664 $  506,192 $  579,631
Savings deposits..................................................    325,824    326,157    386,600
NOW and money market deposits.....................................  1,695,038  1,527,419  1,588,525
Certificates of deposit less than $100,000 and other time deposits    630,779    621,826    795,361
Certificates of deposit $100,000 and over.........................    210,134    226,263    178,309
                                                                   ---------- ---------- ----------
   Total deposits................................................. $3,407,439 $3,207,857 $3,528,426
                                                                   ========== ========== ==========
</TABLE>

   The Company's ending balances of outstanding certificates of deposit and
other time deposits in denominations of $100,000 and over had maturities as
follows:

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                  --------------------------------------------
                                    2001     2000     1999     1998     1997
                                  -------- -------- -------- -------- --------
                                                 (in thousands)
 <S>                              <C>      <C>      <C>      <C>      <C>
 Three months or less............ $119,696 $135,263 $135,371 $108,597 $101,967
 Over three months to six months.   42,179   35,065   39,647   48,471   36,637
 Over six months to twelve months   39,770   42,433   45,439   45,978   40,260
 Over twelve months..............   21,828   28,100   15,252   23,311   29,475
                                  -------- -------- -------- -------- --------
                                  $223,473 $240,861 $235,709 $226,357 $208,339
                                  ======== ======== ======== ======== ========
</TABLE>

Borrowings

   During 2001, short-term borrowings averaged $52.8 million, down from the
$214.8 million posted in 2000. This funding consists of treasury, tax and loan
deposits, securities sold under agreements to repurchase, Federal Home Loan
Bank (FHLB) borrowings, and federal funds purchased. FHLB borrowings averaged
$37.5 million for 2001, down from $146.8 million in 2000. Treasury borrowings
averaged $4.7 million for 2001 compared with $17.4 million during 2000.
Treasury funding is attractive to the Company because the rate of interest paid
on borrowings floats at 25 basis points below the federal funds rate, there are
no reserve requirements, and there are no FDIC insurance costs. Repurchase
agreements averaged $10 million for 2001, down from $45.5 million in 2000.
These borrowings are with franchise customers, primarily municipalities and
corporate customers, and have neither reserve requirements nor FDIC insurance
costs. Overall, the higher levels of borrowings in 2000 resulted from the
required branch divestitures in late 1999 and early 2000.

Capital Resources

   The Company's capital forms the foundation for maintaining investor
confidence as well as for developing programs for growth and new activities. At
December 31, 2001, capital stood at $370.7 million, an increase of $28.6
million from the $342.1 million at December 31, 2000. Net income of $58.5
million increased the capital position in 2001, while dividend payments of
$24.6 million and share repurchases of $16.5 million (666,000 shares) reduced
it. The increase in capital was also affected by increases in the net
unrealized gain on securities available for sale of $8.5 million.

                                      24

<PAGE>

   During 2000, share repurchases of $66.5 million (3.125 million shares) and
cash dividend payments totaling $25.5 million reduced the capital position,
while net income of $58.7 million and an increase in the net unrealized gain on
securities available for sale of $7.2 million increased the capital position.

   The Company periodically repurchases its own stock under a share repurchase
program originally authorized by the Board of Directors on January 19, 2000.
The total number of shares authorized to be repurchased is six million. The
Company has repurchased 3.8 million shares at a total cost of $83 million since
inception under this program.

   Both the Board of Governors of the Federal Reserve System (the "FRB") and
the Federal Deposit Insurance Corporation (the "FDIC") have defined leverage
capital requirements. At December 31, 2000, the Company's leverage capital
ratio (which is calculated pursuant to the FRB's regulations) was 7.99%, CTC's,
BWM's, FBT's and MBT's leverage capital ratios (which are calculated pursuant
to the FDIC's regulations) were 7.55%, 7.85%, 6.82% and 8.85%, respectively.
The ratios in 2000 were 8.65% for the Company, 8.44% for CTC, 7.50% for BWM,
and 6.61% for FBT.

   Additionally, the FRB and the FDIC have a risk-based capital standard. Under
this measure of capital, banks are required to hold more capital against
certain assets perceived as higher risk, such as commercial loans, than against
other assets perceived as lower risk, such as residential mortgage loans and
U.S. Treasury securities. Further, off-balance sheet items such as unfunded
loan commitments and standby letters of credit, are included for the purposes
of determining risk-weighted assets. Commercial banking organizations are
required to have total capital equal to 8% of risk-weighted assets, and Tier 1
capital--consisting of common stock and certain types of preferred stock--equal
to at least 4% of risk-weighted assets. Tier 2 capital, included in total
capital, includes the allowance for loan losses up to a maximum of 1.25% of
risk-weighted assets. At December 31, 2001, the Company's risk-based capital
ratio was 11.57% and its Tier 1 capital, consisting entirely of common stock,
was 10.32% of risk-weighted assets. This compares with year-end 2000 ratios of
12.08% and 10.82%, respectively.

   FDIC regulations pertaining to capital adequacy, which apply to the Banks,
require a minimum 3% leverage capital ratio for those institutions with the
most favorable composite regulatory examination rating. In addition, a 4% Tier
1 risk-based capital ratio, and an 8% total risk-based capital ratio are
required for a bank to be considered adequately capitalized. Leverage, Tier 1
risk-based, and total risk-based capital ratios exceeding 5%, 6%, and 10%,
respectively, qualify a bank for the "well-capitalized" designation. At
December 31, 2001, CTC's leverage capital ratio was 7.55%, its Tier 1
risk-based capital ratio was 10.04%, and its total risk-based capital ratio was
11.30%; BWM's ratios were 7.85%, 9.55%, and 10.80%, respectively; FBT's ratios
were 6.82%, 9.34%, and 10.60%, respectively; and MBT's ratios were 8.85%,
9.81%, and 11.07%, respectively. These ratios placed the Banks in the FDIC's
highest capital category of "well capitalized". Capital ratios in excess of
minimum requirements indicate capacity to take advantage of profitable and
credit-worthy opportunities as well as the potential to respond to unforeseen
adverse conditions.

                                      25

<PAGE>

   The following table presents regulatory capital components and ratios of the
Company at:

<TABLE>
<CAPTION>
                                                    December 31,
                             ----------------------------------------------------------
                                2001        2000        1999        1998        1997
                             ----------  ----------  ----------  ----------  ----------
                                                   (in thousands)
<S>                          <C>         <C>         <C>         <C>         <C>
Leverage
Stockholders' equity........ $  324,363  $  322,929  $  350,715  $  313,273  $  295,717
Total average assets (1)....  4,057,839   3,735,584   4,294,030   4,135,637   4,022,061
                                   7.99%       8.65%       8.17%       7.58%       7.35%
Risk-based
Capital components:
   Tier 1................... $  324,363  $  322,929  $  350,715  $  313,273  $  295,717
   Tier 2 (2)...............     39,357      37,301      36,647      36,394      34,186
                             ----------  ----------  ----------  ----------  ----------
       Total................ $  363,720  $  360,230  $  387,362  $  349,667  $  329,903
                             ==========  ==========  ==========  ==========  ==========
Risk-weighted assets:
   On-balance sheet......... $2,960,493  $2,787,046  $2,824,133  $3,628,633  $3,461,939
   Off-balance sheet........    188,079     212,812     126,100     118,628     128,885
                             ----------  ----------  ----------  ----------  ----------
                             $3,148,572  $2,999,858  $2,950,233  $3,747,261  $3,590,824
                             ==========  ==========  ==========  ==========  ==========
Ratios:
   Tier 1...................      10.32%      10.82%      11.96%      10.76%      10.82%
   Total (including Tier 2).      11.57       12.08       13.23       12.02       12.14
</TABLE>
--------
(1)Total average assets for the most recent quarter.
(2)Allowable portion of allowance for loan losses.

   The components of capital under GAAP that are not considered capital for
regulatory purposes include goodwill, unrealized gains (losses) on investments
and directors deferred compensation to be settled in stock.

Liquidity and Rate Sensitivity

   The Company's liquidity and rate sensitivity are monitored by the asset and
liability committee, based upon policies approved by the Board of Directors.
Strategies are implemented by the Banks' asset and liability committee. This
committee meets periodically to review and direct the Banks' lending and
deposit-gathering functions. Investment and borrowing activities are managed by
the Company's Treasury function.

   The measure of an institution's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other assets
to cash at a reasonable price. At December 31, 2001, the Company maintained
cash balances and short-term investments of approximately $308.0 million,
compared with $178.6 million at December 31, 2000. During 2001, the Company
reduced borrowings by $49.3 million. Borrowings at December 31, 2001 were $44.4
million compared to $93.8 million on December 31, 2000. The decline was
attributable to increased balances in deposits. The borrowings were used in
1999 to fund cash payments to acquiring institutions in exchange for
liabilities assumed net of assets acquired.

   To measure the sensitivity of its income to changes in interest rates, the
Company uses a variety of methods, including simulation, valuation techniques
and gap analyses. Interest rate risk is the sensitivity of income to variations
in interest rates over both short-term and long-term horizons. The primary goal
of interest-rate management is to control this risk within limits approved by
the Board of Directors. These limits and guidelines reflect the Company's
tolerance for interest-rate risk. The Company attempts to control interest-rate
risk by identifying exposures, quantifying them and taking appropriate actions.

   The Company uses simulation analyses to measure the exposure of net interest
income to changes in interest rates over a relatively short (i.e., within one
year) time horizon. Simulation analysis incorporates what management believes
to be the most appropriate assumptions about customer and competitor behavior
in the specified interest rate scenario. These assumptions are the basis for
projecting future interest income and expense

                                      26

<PAGE>

from the Company's assets and liabilities under various scenarios. Simulation
analysis may have certain limitations caused by market conditions varying from
those assumed in a model. Actual results can often differ due to the effects of
prepayments and refinancings of loans and investments, as well as deposits
ability to reprice or runoff, which may be different from that which has been
assumed.

   The Company's limits on interest-rate risk specify that if interest rates
were to shift immediately, (shocked) up or down 200 basis points, estimated net
interest income for the next 12 months should neither improve or be impacted by
greater than 10%. The results of the simulations over the next 12 months based
on an increase in interest rates of 200 basis points would result in an
increase of 1.85% in net interest income and a decline of 200 basis points
would result in a decrease of 2.09% in net interest income. An additional
analysis is performed to review results if interest rates were to shift
quarterly, (ramped) up or down 100 and 200 basis points over a twelve-month
period. The results of the simulations over the next 12 months based on a
gradual increase in interest rates of 100 and 200 basis points would result in
a increase of .57% and 1.16%, respectively, in net interest income and a
decline of 100 and 200 basis points would result in an decrease of .82% and
1.48%, respectively, in net interest income.

   As noted above, one of the tools used to measure rate sensitivity is the
funds gap. The funds gap is defined as the amount by which a bank's rate
sensitive assets exceed its rate sensitive liabilities. A positive gap exists
when rate sensitive assets exceed rate sensitive liabilities. This indicates
that a greater volume of assets than liabilities will reprice during a given
period. This mismatch will improve earnings in a rising rate environment and
inhibit earnings when rates decline. Conversely, when rate sensitive
liabilities exceed rate sensitive assets, the gap is referred to as negative
and indicates that a greater volume of liabilities than assets will reprice
during the period. In this case, a rising rate environment will inhibit
earnings and declining rates will improve earnings. Notwithstanding this
general description of the effect on income of the gap position, it may not be
an accurate predictor of changes in net interest income. The Company's limits
on interest-rate risk specify that the cumulative one-year gap should be less
than 15% of total assets. As of December 31, 2001, the estimated exposure was
2.53% and the Company was asset-sensitive.

   The following table shows the amounts of interest-earning assets and
interest-bearing liabilities at December 31, 2001 that reprice during the
periods indicated:

<TABLE>
<CAPTION>
                                                           Repricing Date
                                       ------------------------------------------------------
                                                   Over Six
                                                    Months    Over One
                                       One Day To   To One    Year To   Over Five
                                       Six Months    Year    Five Years   Years      Total
                                       ----------  --------  ---------- ---------  ----------
                                                           (in thousands)
<S>                                    <C>         <C>       <C>        <C>        <C>
Interest-earning assets:
Loans................................. $1,543,244  $360,814  $  838,881 $ 145,446  $2,888,385
Investment securities (1).............    112,632    72,242     445,770   196,007     826,651
Interest-bearing cash equivalents.....    157,166       150         829        45     158,190
                                       ----------  --------  ---------- ---------  ----------
   Total interest-earning assets......  1,813,042   433,206   1,285,480   341,498   3,873,226
                                       ----------  --------  ---------- ---------  ----------
Interest-bearing liabilities:
Deposits..............................  1,949,699   203,710     290,763   604,846   3,049,018
Borrowings............................        354        21      22,108    21,926      44,409
                                       ----------  --------  ---------- ---------  ----------
   Total interest-bearing liabilities.  1,950,053   203,731     312,871   626,772   3,093,427
                                       ----------  --------  ---------- ---------  ----------
Net interest rate sensitivity gap..... $ (137,011) $229,475  $  972,609 $(285,274) $  779,799
                                       ==========  ========  ========== =========  ==========
Cumulative gap at December 31, 2001... $ (137,011) $104,997  $1,077,606 $ 779,799
Cumulative gap at December 31, 2000... $ (236,727) $ (2,329) $1,021,300 $ 681,316
</TABLE>
--------
(1)Amounts are based on amortized cost balances.

                                      27

<PAGE>

   The following table shows scheduled maturities of selected loans at December
31, 2001:

<TABLE>
<CAPTION>
                                                      One Year
                                            Less Than To Five  Over Five
                                            One Year   Years     Years    Total
                                            --------- -------- --------- --------
                                                       (in thousands)
<S>                                         <C>       <C>      <C>       <C>
Predetermined rates:
   Commercial.............................. $ 43,376  $ 74,527 $ 45,660  $163,563
   Commercial real estate and construction.   45,334   239,983  150,218   435,535
                                            --------  -------- --------  --------
                                              88,710   314,510  195,878   599,098
                                            ========  ======== ========  ========
Floating or adjustable rates:
   Commercial..............................  164,172   128,438  103,579   396,189
   Commercial real estate and construction.   86,655   262,236  199,194   548,085
                                            --------  -------- --------  --------
                                            $250,827  $390,674 $302,773  $944,274
                                            ========  ======== ========  ========
</TABLE>

Results of Operations

  Comparison of Years Ended December 31, 2001 and 2000

Net Interest Income

   Net interest income from the Banks represents the primary source of
recurring income for the Company. Net interest income is the amount by which
interest income on interest earning assets, including investments and loans,
exceeds interest paid on interest bearing liabilities, including interest paid
to deposits and interest paid on other borrowed funds. Fluctuations in interest
rates, as well as changes in the amount and type of interest earning assets and
interest bearing liabilities, combine to affect net interest income.

   For 2001, net interest income was $170.3 million, up $3.2 million from the
2000 level. On a fully tax equivalent basis, net interest income increased $3.1
million from 2000, to $172.6 million in 2001. These increases resulted from
higher levels of interest earning assets, which were up $57.4 million from
2000, to $3.644 billion for 2001. The increased level of earning assets
accentuated a slight increase in the net yield on earning assets from 4.73% in
2000 to 4.74% in 2001.

                                      28

<PAGE>

   The following table presents an analysis of average rates and yields on a
fully taxable equivalent basis for the years indicated:

<TABLE>
<CAPTION>
                                               2001                            2000                           1999
                                  ------------------------------  -----------------------------  ------------------------------
                                               Interest  Average               Interest  Average              Interest    Rate
                                   Average     Income/    Yield/   Average     Income/   Yield/   Average     Income/   Average
                                   Balance    Expense(1) Rate (1)  Balance    Expense(1) Rate(1)  Balance    Expense(1) Yield(1)
                                  ----------  ---------- -------- ----------  ---------- ------- ----------  ---------- --------
                                                                          (in thousands)
<S>                               <C>         <C>        <C>      <C>         <C>        <C>     <C>         <C>        <C>
Assets
Interest-earning assets:
  Loans.......................... $2,915,271   $225,601    7.74%  $2,943,018   $248,946   8.46%  $2,877,218   $235,393    8.18%
  Investments:
   Taxable.......................    682,494     41,201    6.04      619,485     39,991   6.46      847,076     51,158    6.04
   Tax-favored equity
    securities...................     30,303      1,393    4.60        8,379        519   6.19       41,108      2,569    6.25
   Interest-bearing deposits in
    banks........................        225          8    3.56          241         10   4.15        1,423         71    4.99
  Federal funds sold.............     16,005        632    3.95       15,732      1,062   6.75       41,469      2,032    4.90
                                  ----------   --------           ----------   --------          ----------   --------
   Total interest-earning
    assets.......................  3,644,298    268,835    7.38    3,586,855    290,528   8.10    3,808,294    291,223    7.65
                                               --------                        --------                       --------
Noninterest-earning assets.......    270,091                         267,226                        338,460
Allowance for loan losses........    (43,372)                        (40,715)                       (42,257)
                                  ----------                      ----------                     ----------
   Total assets.................. $3,871,017                      $3,813,366                     $4,104,497
                                  ==========                      ==========                     ==========
Interest-bearing liabilities:
  Savings deposits............... $  325,824   $  6,585    2.02%  $  326,157   $  7,871   2.41%  $  386,600   $  9,062    2.34%
  NOW and money market
   deposits......................  1,695,038     44,932    2.65    1,527,419     55,433   3.63    1,588,525     48,813    3.07
  Certificates of deposit under
   $100,000 and other time
   deposits......................    630,779     31,443    4.98      621,826     31,383   5.05      795,361     40,018    5.03
  Certificates of deposit
   $100,000 and over.............    210,134     10,086    4.80      226,263     12,699   5.61      178,309      8,471    4.75
                                  ----------   --------           ----------   --------          ----------   --------
   Total interest-bearing
    deposits.....................  2,861,775     93,046    3.25    2,701,665    107,386   3.97    2,948,795    106,364    3.61
  Borrowings.....................     52,752      3,146    5.96      214,777     13,644   6.35      139,340      6,871    4.93
                                  ----------   --------           ----------   --------          ----------   --------
   Total interest-bearing
    liabilities..................  2,914,527     96,192    3.30    2,916,442    121,030   4.15    3,088,135    113,235    3.67
                                               --------                        --------                       --------
Noninterest-bearing liabilities:
  Demand deposits................    545,664                         506,192                        579,631
  Other liabilities..............     57,297                          49,651                         62,989
                                  ----------                      ----------                     ----------
   Total liabilities.............  3,517,488                       3,472,285                      3,730,755
Stockholders' equity.............    353,529                         341,081                        373,742
                                  ----------                      ----------                     ----------
      Total liabilities and
       stockholders'
       equity.................... $3,871,017                      $3,813,366                     $4,104,497
                                  ==========                      ==========                     ==========
Net interest income..............              $172,643                        $169,498                       $177,988
                                               ========                        ========                       ========
Interest rate spread (2).........                          4.08%                          3.95%                           3.98%
Net yield on earning
 assets (3)......................                          4.74%                          4.73%                           4.67%
</TABLE>
--------
(1)On a fully taxable equivalent basis. Calculated using a Federal income tax
   rate of 35%. Loan income includes fees.
(2)Interest rate spread is the average rate earned on total interest-earning
   assets less the average rate paid on interest-bearing liabilities.
(3)Net yield on earning assets is net interest income divided by total
   interest-earning assets.

                                      29

<PAGE>

   The significant declines noted in the yield on earning assets and the costs
of interest-bearing liabilities relate to the numerous cuts in short-term
interest rates by the Federal Reserve during 2001 and the resulting declines in
market interest rates.

   The following table attributes changes in the Company's net interest income
(on a fully taxable equivalent basis) to changes in either average balances or
average rates. Changes due to both interest rate and volume have been allocated
to change due to balance and change due to rate in proportion to the
relationship of the absolute dollar amounts of the change in each.

<TABLE>
<CAPTION>
                                                              2001 Compared With 2000        2000 Compared With 1999
                                                           -----------------------------  -----------------------------
                                                           Increase (Decrease)            Increase (Decrease)
                                                            Due to Change in:              Due to Change in:
                                                           ------------------    Total    ------------------    Total
                                                            Average   Average   Increase  Average   Average    Increase
                                                             Rate     Balance  (Decrease)  Rate     Balance   (Decrease)
                                                           --------   -------  ---------- --------  --------  ----------
                                                                                  (in thousands)
<S>                                                        <C>        <C>      <C>        <C>       <C>       <C>
Interest income:
   Loans.................................................. $(21,256)  $(2,089)  $(23,345) $  7,987  $  5,566   $ 13,553
   Investments:
      Taxable.............................................   (2,601)    3,811      1,210     3,525   (14,692)   (11,167)
      Tax-favored debt securities.........................     (134)    1,008        874       (23)   (2,027)    (2,050)
   Interest-bearing deposits in banks.....................       (1)       (1)        (2)      (12)      (49)       (61)
   Federal funds sold.....................................     (441)       11       (430)      767    (1,737)      (970)
                                                           --------   -------   --------  --------  --------   --------
         Total interest income............................  (24,433)    2,740    (21,693)   12,244   (12,939)      (695)
                                                           --------   -------   --------  --------  --------   --------
Interest expense:
   Savings deposits.......................................    1,280         6      1,286      (268)    1,459      1,191
   NOW and money market deposits..........................   14,956    (4,455)    10,501    (8,837)    2,217     (6,620)
   Certificates of deposit under $100,000 and other time
    deposits..............................................      387      (447)       (60)     (123)    8,758      8,635
   Certificates of deposit $100,000 and over..............    1,837       776      2,613    (1,537)   (2,691)    (4,228)
                                                           --------   -------   --------  --------  --------   --------
      Total deposits......................................   18,460    (4,120)    14,340   (10,765)    9,743     (1,022)
   Short-term borrowings..................................      833     9,665     10,498    (1,981)   (4,792)    (6,773)
                                                           --------   -------   --------  --------  --------   --------
         Total interest expense...........................   19,293     5,545     24,838   (12,746)    4,951     (7,795)
                                                           --------   -------   --------  --------  --------   --------
Change in net interest income............................. $ (5,140)  $ 8,285   $  3,145  $   (502) $ (7,988)  $ (8,490)
                                                           ========   =======   ========  ========  ========   ========
</TABLE>

Noninterest Income and Noninterest Expense

   Noninterest income was $63.7 million in 2001, up $10.6 million from the
$53.1 million reported in 2000. The increase was due primarily to higher gains
on sales of loans, which increased $8.4 million. The increase in gains on sales
of loans was due to the sale of the Company's retail credit card portfolio in
the first quarter of 2001 for a net gain of $4.3 million, as well as a $4.1
million increase in mortgage banking gains for the year. Also affecting the
increase from 2000 was higher investment management and trust income, of which
$2.1 million was due to the purchase of MBT.

   Noninterest expense totaled $135.8 million in 2001, an increase of $11.9
million, compared to $123.9 million of operating expenses in 2000. The
inclusion of MBT amounted to $4.9 million of the increase. Salaries increased
$5.9 million from $55.4 million in 2000, of which MBT amounted to $3.9 million
of the increase. Employee benefits increased $4.3 million in 2001. This
increase was primarily attributable to incentive accruals, which increased $2.2
million in 2001. In addition, a $1.3 million pension curtailment gain taken in
the first quarter of 2000 upon the merger of the Vermont National and
Chittenden Bank pension plans reduced expenses for that year. Net occupancy and
amortization expenses increased $1.5 million and $862,000, respectively, as a
result of the inclusion of MBT in the 2001 amounts. The Company also charged $1
million in 2000 to other noninterest expense for additional reserves against
the residual value of leased vehicles. The Company carries insurance, which
covers any shortfall between the projected residual value of the vehicle and
the published wholesale value of the vehicle at lease end. The Company's
reserves cover any shortfall between the published wholesale value and the
actual sale price, if lower, at lease end.

                                      30

<PAGE>

   Other noninterest expense for 2001 totaled $40.2 million, which was down
slightly from the $41.0 million in 2000. The components of other noninterest
expense for the years presented are as follows:

<TABLE>
<CAPTION>
                                     2001    2000    1999     1998    1997
                                    ------- ------- -------  ------- -------
                                                 (in thousands)
   <S>                              <C>     <C>     <C>      <C>     <C>
   Data processing................. $11,430 $11,160 $10,618  $ 7,366 $ 7,671
   Legal and professional..........   1,320   1,522   2,216    4,234   2,562
   Marketing.......................   2,746   2,749   3,143    3,608   3,249
   Software and Supplies...........   4,884   4,722   4,755    4,641   4,320
   Net OREO and collection expenses      86      48    (147)     472   1,019
   Telephone.......................   2,799   3,118   3,979    4,133   3,103
   Postage.........................   2,338   2,553   3,147    3,112   2,565
   Other (1).......................  14,599  15,171  17,155   18,463  18,461
                                    ------- ------- -------  ------- -------
                                    $40,202 $41,043 $44,866  $46,029 $42,950
                                    ======= ======= =======  ======= =======
</TABLE>
--------
(1)Includes a $1 million charge in 2000 to increase the lease end reserve.

Income Taxes

   The Company and the Banks are taxed on income by the IRS at the Federal
level and by various states in which they do business. The majority of the
Company's income is generated in the State of Vermont, which levies franchise
taxes on banking institutions based upon average deposit levels in lieu of
taxing income. Franchise taxes are included in income tax expense in the
consolidated statements of operations.

Income Tax Provision

   For the years ended December 31, 2001 and 2000, Federal and state income tax
provisions amounted to $31.7 million and $28.0 million, respectively. The
provision for 2000 includes a $1.5 million tax benefit recorded in the fourth
quarter reflecting the reconciliation of the 1999 income tax provision to the
1999 tax returns filed in 2000. Included in the provision for 1999 was a tax
benefit of $14.4 million associated with the tax-deductible portion of the
merger related one-time charge, and a $13.4 million provision related to the
branch gains recognized upon the sale of divested branches.

Effective Tax Rates

   Excluding the effect of the benefit recorded in 2000, the effective tax
rates for the respective periods were 35.2% for 2001 and 34.2% for 2000. During
both periods, the Company's statutory Federal corporate tax rate was 35%. The
Company's effective tax rates differed from the statutory rates primarily
because of state income taxes paid, net of benefit on Federal taxes;
non-deductible goodwill amortization; the proportion of interest income from
state and municipal securities and loans and corporate dividends, which are
partially exempt from Federal taxation and tax credits on investments in
qualified low income housing projects. The increase in the Company's effective
tax rate from 2000 to 2001 reflects lower levels of tax credits from qualified
housing projects.

   As noted above, the Company recorded $58.5 million in special charges in
1999, which included $49.9 million in merger related expenses and $21.1 million
related to the write-off of impaired goodwill, offset by a $12.5 million gain
recorded on sales of branches. No tax benefit was recorded in relation to the
goodwill reductions since that expense is not tax deductible. Tax benefits were
recognized at the Company's marginal federal tax rate of 35% in relation to all
deductible merger related expenses including severance and related expenses,
conversion of systems, and dispositions of duplicative assets.

                                      31

<PAGE>

Results of Operations

  Comparison of Years Ended December 31, 2000 and 1999

Net Interest Income

   For 2000, net interest income was $167.1 million, compared with $175.5
million for 1999. On a fully taxable equivalent basis, net interest income
decreased $8.5 million from 1999 to $169.5 million in 2000. Average
interest-earning assets totaled $3.587 billion for 2000, down $221.4 million
from the 1999 level. The taxable equivalent net yield on earning assets was
4.73% in 2000, an increase of 6 basis points from 4.67% in 1999. The increase
in the net yield on earning assets was due to higher yields on both the loan
and investment portfolios.

Noninterest Income and Noninterest Expense

   Noninterest income was $53.1 million in 2000, down $10.3 million from the
$63.4 million reported in 1999. The decline was primarily attributable to lower
service charges on deposit accounts, which declined $4.5 million from the $18.3
million reported in 1999. The decline in service charges on deposit accounts
was due primarily to the required divestiture of eighteen branches in late 1999
and early 2000. The decline in noninterest income is also attributable to lower
gains on sales of loans, which decreased to $2.8 million, compared to gains of
$5.4 million in 1999. This was a result of the decrease in the volume of loans
sold from $386.1 million in 1999 to $179.6 million in 2000.

   Operating noninterest expenses totaled $123.9 million in 2000, down $21.2
million compared to $145.1 million in 1999. Salaries decreased $6.3 million
from $61.7 million in 1999. This was primarily attributable to lower staffing
levels after the merger with VFSC and to the required divestitures. Employee
benefits were down $4.0 million from 1999, partially as a result of the staff
reductions, as well as a $1.3 million gain recognized in pension expense upon
the merger of the CTC and VNB pension plans in 2000. Occupancy expenses
decreased $5.2 million from 1999 due to lower levels of depreciation expense
resulting from the write-off of duplicative fixed assets and the elimination of
occupancy expenses relating to the divested branches. Finally, amortization of
intangible assets was $1.9 million lower than in 1999 due to the write-off of
goodwill recorded by VFSC relative to the Eastern acquisition. Upon the
effective date of the Chittenden-VFSC merger, impaired goodwill totaling $21.1
million related to former Eastern locations in markets already occupied by
Chittenden was written off. In addition, $25.7 million of goodwill allocated to
the branches sold was recovered.

Income Taxes

   For 2000, the Federal and state income tax provisions amounted to $28.0
million. This compares with an income tax provision of $29.1 million for 1999.
The provision for 2000 includes a $1.5 million tax benefit recorded in the
fourth quarter reflecting the reconciliation of the 1999 income tax provision
to the 1999 tax returns filed in 2000. The provision for 1999 includes a $14.4
million tax benefit associated with the tax-deductible portion of the merger
related one-time charge and a $13.4 million provision related to the branch
gains recognized upon the sale of divested branches. Excluding the effect of
the special provision and benefit, the effective tax rates for the respective
periods were 34.2% and 35.4%. During 2000 and 1999, the Company's statutory
Federal corporate tax rate was 35%. The Company's effective tax rates differed
from the statutory rates primarily because of non tax-deductible amortization
of goodwill related to VFSC's acquisition of Eastern Bancorp. This
non-tax-deductible amortization was netted against the proportion of interest
income from state and municipal securities and loans and corporate dividend
income, which are partially exempt from Federal taxation, and tax credits on
investments in qualified low-income housing projects. The reduction in the
Company's effective tax rate from 1999 to 2000 reflects lower levels of non-tax
deductible goodwill resulting from impaired goodwill written off in the second
quarter of 1999 upon the consummation of the merger of Chittenden and VFSC and
goodwill recovered in relation to the branch sales in the fourth quarter.

                                      32

<PAGE>

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            CHITTENDEN CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                               ----------------------
                                                                                  2001        2000
                                                                               ----------  ----------
                                                                                   (in thousands)
<S>                                                                            <C>         <C>
Assets
Cash and cash equivalents..................................................... $  308,023  $  178,621
Securities available for sale.................................................    826,495     585,281
FHLB stock....................................................................     13,613      12,311
Loans held for sale...........................................................     50,208      44,950
Loans.........................................................................  2,838,177   2,856,098
Less: Allowance for loan losses...............................................    (45,268)    (40,255)
                                                                               ----------  ----------
   Net loans..................................................................  2,792,909   2,815,843
Accrued interest receivable...................................................     23,357      25,642
Other real estate owned.......................................................        703         513
Other assets..................................................................     49,954      39,020
Premises and equipment, net...................................................     55,104      51,959
Intangible assets.............................................................     33,348      15,721
                                                                               ----------  ----------
   Total assets............................................................... $4,153,714  $3,769,861
                                                                               ==========  ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
   Demand deposits............................................................ $  620,828  $  530,975
   Savings deposits...........................................................    346,974     302,122
   NOW and money market deposits..............................................  1,870,835   1,632,105
   Certificates of deposit less than $100,000 and other time deposits.........    634,992     615,336
   Certificates of deposit $100,000 and over..................................    196,217     211,869
                                                                               ----------  ----------
       Total deposits.........................................................  3,669,846   3,292,407
Borrowings....................................................................     44,409      93,757
Accrued expenses and other liabilities........................................     68,805      41,631
                                                                               ----------  ----------
       Total liabilities......................................................  3,783,060   3,427,795
Stockholders' Equity:
Preferred stock--$100 par value--authorized: 200,000 shares--issued and
  outstanding: none...........................................................         --          --
Common stock--$1 par value--authorized: 60,000,000 shares--issued and
  outstanding: 35,743,473 in 2001 and 35,736,785 in 2000......................     35,743      35,736
Surplus.......................................................................    145,687     146,327
Retained earnings.............................................................    256,677     222,140
Treasury stock, at cost--3,673,027 shares in 2001 and 3,115,430 shares in 2000    (79,733)    (65,637)
Accumulated other comprehensive income........................................      8,621         164
Directors deferred compensation to be settled in stock........................      3,746       3,414
Unearned portion of employee restricted stock.................................        (87)        (78)
                                                                               ----------  ----------
       Total stockholders' equity.............................................    370,654     342,066
                                                                               ----------  ----------
       Total liabilities and stockholders' equity............................. $4,153,714  $3,769,861
                                                                               ==========  ==========
</TABLE>

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

                                      33

<PAGE>

                            CHITTENDEN CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                           ---------------------------------------
                                                                               2001           2000         1999
                                                                             --------       --------     --------
                                                                           (in thousands, except per share amounts)
<S>                                                                        <C>            <C>          <C>
Interest Income:
   Interest on loans...................................................... $223,661       $246,683     $233,580
   Interest on investment securities:
       Taxable............................................................   41,201         39,991       51,158
       Tax-favored........................................................      995            356        1,896
   Short-term investments.................................................      640          1,072        2,103
                                                                           --------       --------     --------
          Total interest income...........................................  266,497        288,102      288,737
                                                                           --------       --------     --------
Interest Expense:
   Deposits:
       Savings............................................................    6,585          7,871        9,062
       NOW and money market...............................................   44,932         55,433       48,813
       Certificates of deposit under $100,000 and other time deposits.....   31,443         31,383       40,018
       Certificates of deposit $100,000 and over..........................   10,086         12,699        8,471
                                                                           --------       --------     --------
          Total interest on deposits......................................   93,046        107,386      106,364
   Borrowings.............................................................    3,146         13,644        6,888
                                                                           --------       --------     --------
          Total interest expense..........................................   96,192        121,030      113,252
                                                                           --------       --------     --------
Net interest income.......................................................  170,305        167,072      175,485
Provision for loan losses.................................................    8,041          8,700        8,700
                                                                           --------       --------     --------
Net interest income after provision for loan losses.......................  162,264        158,372      166,785
                                                                           --------       --------     --------
Noninterest Income:
   Investment management income...........................................   15,722         13,567       14,290
   Service charges on deposit accounts....................................   14,294         13,875       18,330
   Mortgage servicing income..............................................    3,564          4,079        3,589
   Gains on sales of loans, net...........................................   11,207          2,818        5,361
   Credit card income, net................................................    3,964          5,349        5,545
   Insurance commissions, net.............................................    3,391          2,894        2,538
   Other..................................................................   11,591         10,527       13,750
                                                                           --------       --------     --------
          Total noninterest income........................................   63,733         53,109       63,403
                                                                           --------       --------     --------
Noninterest Expense:
   Salaries...............................................................   61,425         55,447       61,732
   Employee benefits......................................................   13,426          9,124       13,138
   Net occupancy expense..................................................   17,744         16,213       21,379
   Amortization of intangibles............................................    2,963          2,101        4,022
   Special charges........................................................       --            833       58,472
   Other..................................................................   40,202         41,043       44,866
                                                                           --------       --------     --------
          Total noninterest expense.......................................  135,760        124,761      203,609
                                                                           --------       --------     --------
Income before income taxes................................................   90,237         86,720       26,579
Income tax expense........................................................   31,736         28,033       29,075
                                                                           --------       --------     --------
Net income (loss)......................................................... $ 58,501       $ 58,687     $ (2,496)
                                                                           ========       ========     ========
Basic earnings (loss) per share........................................... $   1.82       $   1.74     $  (0.07)
Diluted earnings (loss) per share.........................................     1.80           1.72        (0.07)
Dividends per share.......................................................     0.76           0.75         0.65
Weighted average common shares outstanding................................   32,164         33,761       35,216
Weighted average common and common equivalent shares outstanding..........   32,547         34,100       35,216
</TABLE>

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

                                      34

<PAGE>

                            CHITTENDEN CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME

Years ended December 31, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                                        Accumulated Director's
                                                        Comp--                                          Other Comp-  Deferred
                                                       rehensive Common             Retained  Treasury   rehensive    Comp.
                                                        Income   Stock    Surplus   Earnings   Stock      Income      Stock
                                                       --------- -------  --------  --------  --------  ----------- ----------
<S>                                                    <C>       <C>      <C>       <C>       <C>       <C>         <C>
Balance at December 31, 1998..........................           $37,692  $180,893  $214,329  $(49,650)  $  6,462     $2,102
Comprehensive Income:
Net income (loss)..................................... $ (2,496)      --        --    (2,496)       --         --         --
   Total Other Comprehensive Income (Note 8)..........  (13,480)      --        --        --        --    (13,480)        --
                                                       --------
   Total Comprehensive Income......................... $(15,976)
                                                       ========
Cash dividends ($0.65 per share)......................                --        --   (22,815)       --         --         --
Shares issued/forfeited under various stock plans, net               234     2,476       326     6,250         --         --
Amortization of deferred compensation for restricted
 stock earned.........................................                --        --        --        --         --         --
Directors deferred compensation.......................                --        --        --        --         --        347
Cash paid for fractional shares.......................                --       (37)       --        --         --         --
Treasury stock retired in connection with acquisition
 of VFSC..............................................            (2,451)  (40,925)       --    43,376         --         --
                                                                 -------  --------  --------  --------   --------     ------
Balance at December 31, 1999..........................            35,475   142,407   189,344       (24)    (7,018)     2,449
Comprehensive Income:
Net income (loss)..................................... $ 58,687       --        --    58,687        --         --         --
   Total Other Comprehensive Income (Note 8)..........    7,182       --        --        --        --      7,182         --
                                                       --------
   Total Comprehensive Income......................... $ 65,869
                                                       ========
Cash dividends ($0.75 per share) .....................                --        --   (25,484)       --         --         --
Shares issued/forfeited under various stock plans, net               261     3,920      (407)      865         --         --
Amortization of deferred compensation for restricted
 stock earned.........................................                --        --        --        --         --         --
Directors deferred compensation.......................                --        --        --        --         --        965
Purchase of treasury stock............................                --        --        --   (66,478)        --         --
                                                                 -------  --------  --------  --------   --------     ------
Balance at December 31, 2000..........................            35,736   146,327   222,140   (65,637)       164      3,414
Comprehensive Income:
   Net income (loss).................................. $ 58,501       --        --    58,501        --         --         --
   Total Other Comprehensive Income (Note 8)..........    8,457       --        --        --        --      8,457         --
                                                       --------
   Total Comprehensive Income......................... $ 66,958
                                                       ========
Cash dividends ($0.76 per share)......................                --        --   (24,661)       --         --         --
Shares issued/forfeited under various stock plans, net                 7      (640)      697     2,377         --       (143)
Amortization of deferred compensation for restricted
 stock earned.........................................                --        --        --        --         --         --
Directors deferred compensation.......................                --        --        --        --         --        475
Purchase of treasury stock............................                --        --        --   (16,473)        --         --
                                                                 -------  --------  --------  --------   --------     ------
Balance at December 31, 2001..........................           $35,743  $145,687  $256,677  $(79,733)  $  8,621     $3,746
                                                                 =======  ========  ========  ========   ========     ======
</TABLE>
<TABLE>
<CAPTION>
                                                        Unearned
                                                       Portion of  Total
                                                        Employee   Stock-
                                                       Restricted holders'
                                                         Stock     Equity
                                                       ---------- --------
<S>                                                    <C>        <C>
Balance at December 31, 1998..........................   $(266)   $391,562
Comprehensive Income:
Net income (loss).....................................      --      (2,496)
   Total Other Comprehensive Income (Note 8)..........      --     (13,480)

   Total Comprehensive Income.........................

Cash dividends ($0.65 per share)......................      --     (22,815)
Shares issued/forfeited under various stock plans, net      --       9,286
Amortization of deferred compensation for restricted
 stock earned.........................................      93          93
Directors deferred compensation.......................      --         347
Cash paid for fractional shares.......................      --         (37)
Treasury stock retired in connection with acquisition
 of VFSC..............................................      --          --
                                                         -----    --------
Balance at December 31, 1999..........................    (173)    362,460
Comprehensive Income:
Net income (loss).....................................      --      58,687
   Total Other Comprehensive Income (Note 8)..........      --       7,182

   Total Comprehensive Income.........................

Cash dividends ($0.75 per share) .....................      --     (25,484)
Shares issued/forfeited under various stock plans, net      --       4,639
Amortization of deferred compensation for restricted
 stock earned.........................................      95          95
Directors deferred compensation.......................      --         965
Purchase of treasury stock............................      --     (66,478)
                                                         -----    --------
Balance at December 31, 2000..........................     (78)    342,066
Comprehensive Income:
   Net income (loss)..................................      --      58,501
   Total Other Comprehensive Income (Note 8)..........      --       8,457

   Total Comprehensive Income.........................

Cash dividends ($0.76 per share)......................      --     (24,661)
Shares issued/forfeited under various stock plans, net     (66)      2,232
Amortization of deferred compensation for restricted
 stock earned.........................................      57          57
Directors deferred compensation.......................      --         475
Purchase of treasury stock............................      --     (16,473)
                                                         -----    --------
Balance at December 31, 2001..........................   $ (87)   $370,654
                                                         =====    ========
</TABLE>

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

                                      35

<PAGE>

                            CHITTENDEN CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   Years Ended December 31,
                                                                                               -------------------------------
                                                                                                 2001       2000       1999
                                                                                               ---------  ---------  ---------
                                                                                                        (in thousands)
<S>                                                                                            <C>        <C>        <C>
Cash Flows From Operating Activities:
   Net income (loss).......................................................................... $  58,501  $  58,687  $  (2,496)
   Adjustments to reconcile net income (loss) to net cash provided by operating activities:
      Provision for loan losses...............................................................     8,041      8,700      8,700
      Depreciation............................................................................     6,130      5,296      8,780
      Amortization of intangible assets.......................................................     2,963      2,101      4,022
      Amortization (accretion) of premiums, fees, and discounts, net..........................     2,514      1,461     (1,696)
      Merger related expenses.................................................................        --         --     49,866
      Write-off of impaired intangible assets.................................................        --         --     21,129
      Loss (gain) on branch sales.............................................................        --        833    (12,523)
      Investment securities (gains) losses....................................................        72        393         --
      Deferred (prepaid) income taxes.........................................................     7,808     15,168     (8,895)
      Loans originated and purchased for sale.................................................  (485,516)  (182,600)  (330,832)
      Proceeds from sales of loans............................................................   491,465    182,423    386,951
      Gains on sales of loans, net............................................................   (11,207)    (2,818)    (5,361)
   Changes in assets and liabilities:
      Accrued interest receivable.............................................................     3,153       (416)     2,011
      Other assets............................................................................    (6,555)     3,826      3,610
      Accrued expenses and other liabilities..................................................    15,550    (22,346)    (4,173)
                                                                                               ---------  ---------  ---------
         Net cash provided by operating activities............................................    92,919     70,708    119,093
                                                                                               ---------  ---------  ---------
Cash Flows From Investing Activities:
   Cash acquired, net of cash paid in acquisition of Maine Bank & Trust.......................     8,001         --         --
   Net cash used in branch divestitures.......................................................        --    (22,195)  (265,142)
   Proceeds from sale (purchase) of Federal Home Loan Bank stock..............................      (616)     6,065      5,100
   Proceeds from sales of securities available for sale.......................................   203,485    156,305    109,394
   Proceeds from maturing securities and principal payments on securities available for sale..   387,374    269,339    922,556
   Purchases of securities available for sale.................................................  (814,214)  (352,669)  (711,153)
   Loans originated, net of principal repayments..............................................   179,533     (6,468)  (301,512)
   Purchases of premises and equipment........................................................    (3,478)   (16,702)    (9,715)
                                                                                               ---------  ---------  ---------
         Net cash provided by (used in) investing activities..................................   (39,915)    33,675   (250,472)
                                                                                               ---------  ---------  ---------
Cash Flows From Financing Activities:
   Net increase (decrease) in deposits........................................................   165,014    113,888    (32,493)
   Net increase (decrease) in borrowings......................................................   (49,348)  (103,166)    61,010
   Cash paid for fractional shares............................................................        --         --        (37)
   Proceeds from issuance of treasury and common stock........................................     1,866      3,714      9,479
   Dividends on common stock..................................................................   (24,661)   (25,484)   (22,815)
   Repurchase of common stock.................................................................   (16,473)   (66,478)        --
                                                                                               ---------  ---------  ---------
         Net cash provided by (used in) financing activities..................................    76,398    (77,526)    15,144
                                                                                               ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents..........................................   129,402     26,857   (116,235)
Cash and cash equivalents at beginning of year................................................   178,621    151,764    267,999
                                                                                               ---------  ---------  ---------
Cash and cash equivalents at end of year...................................................... $ 308,023  $ 178,621  $ 151,764
                                                                                               =========  =========  =========
Supplemental disclosure of cash flow information:
   Cash paid during the year for:
      Interest................................................................................ $  97,923  $ 120,267  $ 114,340
      Income taxes............................................................................    27,213     24,816     18,160
   Non-cash investing and financing activities:
      Portfolio loans transferred to loans held for sale......................................        --     39,029         --
      Loans transferred to other real estate owned............................................     2,014      2,026      1,066
      Issuance of treasury and restricted stock...............................................       612         70         52
   Assets acquired and liabilities assumed through acquisitions:
      Fair value of assets acquired...........................................................   239,253         --         --
      Fair value of liabilities assumed.......................................................   212,389         --         --
      Cash paid...............................................................................    47,452         --         --
      Excess of cost over fair value of net assets acquired...................................    20,590         --         --
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      36

<PAGE>

                            CHITTENDEN CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Summary of Significant Accounting Policies

  Principles of Consolidation

   The accompanying consolidated financial statements include the accounts of
Chittenden Corporation (the "Company") and its subsidiaries: Chittenden Trust
Company (CTC), and its subsidiaries The Pomerleau Agency (Pomerleau) and
Chittenden Securities, Inc. (CSI); The Bank of Western Massachusetts (BWM);
Flagship Bank & Trust Company (FBT); Maine Bank & Trust (MBT); and Chittenden
Connecticut Corporation (CCC). (CTC, BWM, FBT, and MBT are collectively
referred to as the "Banks.") All material intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to prior year balances to conform to the current year
presentation.

  Nature of Operations

   CTC operates fifty-three branches throughout the state of Vermont, one
branch in New Hampshire and eleven branches in New Hampshire under the trade
name "First Savings of New Hampshire". BWM operates twelve branches in the
western Massachusetts area, FBT operates seven branches in the greater
Worcester, Massachusetts area, and MBT operates fifteen branches in the greater
Portland, Maine area. The Banks' primary business is providing loans, deposits,
and other banking services to commercial, individual, and public sector
customers. CCC is a mortgage banking operation with offices in Burlington,
Vermont, Brattleboro, Vermont and Lexington, Massachusetts. The Pomerleau
Agency is an independent insurance agency with offices in Rutland and
Burlington, Vermont, as well as Springfield, Massachusetts and Manchester, New
Hampshire operating under the trade name "Chittenden Insurance Agency".
Chittenden Securities, Inc. is a registered broker/dealer providing brokerage
services to its customers through existing branch locations located in Vermont,
Massachusetts, and New Hampshire.

  Use of Estimates in the Preparation of Financial Statements

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant changes in the near
term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate, deferred tax assets, mortgage-servicing
assets and the unrealized gains (losses) on investment securities.

  Cash and Cash Equivalents

   Cash and cash equivalents consist of cash on hand, amounts due from banks,
interest-bearing deposits and certain money market fund investments. Cash
equivalents are accounted for at cost, which approximates fair value.

  Securities

   Investments in debt securities may be classified as held for investment and
measured at amortized cost only if the Company has the positive intent and
ability to hold such securities to maturity. Investments in debt securities
that are not classified as held for investment and equity securities that have
readily determinable fair values are classified as either trading securities or
securities available for sale. Trading securities are investments purchased and
held principally for the purpose of selling in the near term; securities
available for sale are investments not classified as trading or held for
investment.

   Securities transferred between categories are accounted for at market value.
Unrealized holding gains and losses on trading securities are included in
earnings; unrealized holding gains and losses on securities available for sale
or on securities transferred into the available for sale category from the held
for investment category are reported as a separate component of stockholders'
equity, net of applicable income taxes. Unrealized losses, which are considered
other than temporary in nature, are recognized in earnings.

                                      37

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Loans

   Loans are stated at the amount of unpaid principal, net of unearned
discounts, unearned net loan origination fees and net of any government agency
guarantees. Such fees and discounts are accreted using methods that approximate
the effective-interest method.

   A loan is impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Impaired loans are measured based
on the present value of the expected future cash flows discounted at the loan's
effective interest rate. In the case of collateral dependent loans, impairment
may be measured based on the fair value of the collateral. When the measure of
the impaired loan is less than the recorded investment in the loan, the
impairment is recorded through a valuation allowance.

   Interest on loans is included in income as earned based upon interest rates
applied to unpaid principal. Interest is not accrued on loans 90 days or more
past due unless they are adequately secured and in the process of collection,
or on other loans when management believes collection is doubtful. All loans
considered impaired (except troubled debt restructurings), as defined below,
are nonaccruing. Interest on nonaccruing loans is recognized as payments are
received when the ultimate collectibility of interest is no longer considered
doubtful. When a loan is placed on nonaccrual status, all interest previously
accrued is reversed against current-period interest income.

  Allowance for Loan Losses

   The allowance for loan losses is based on management's estimate of the
amount required to reflect the inherent losses in the loan portfolio, based on
circumstances and conditions known or anticipated at each reporting date. There
are inherent uncertainties with respect to the collectibility of the Banks'
loans. Because of these inherent uncertainties, it is reasonably possible that
actual losses experienced in the near term may differ from the amounts
reflected in these consolidated financial statements.

   Adequacy of the allowance is determined using a consistent, systematic
methodology which analyzes the size and risk of the loan portfolio. In addition
to evaluating the collectibility of specific loans when determining the
adequacy of the allowance for loan losses, management also takes into
consideration other factors such as changes in the mix and volume of the loan
portfolio, historic loss experience, the amount of delinquencies and loans
adversely classified, and economic trends. The adequacy of the allowance for
loan losses is assessed by an allocation process whereby specific loss
allocations are made against certain adversely classified loans, and general
loss allocations are made against segments of the loan portfolio which have
similar attributes. The Company's historical loss experience, industry trends,
and the impact of the local and regional economy on the Company's borrowers,
were considered by management in determining the adequacy of the allowance for
loan losses.

   The allowance for loan losses is increased by provisions charged against
current earnings. Loan losses are charged against the allowance when management
believes that the collectibility of the loan principal is doubtful. Recoveries
on loans previously charged off are credited to the allowance. Management
believes that the allowance for loan losses is adequate. While management uses
available information to assess possible losses on loans, future additions to
the allowance may be necessary. In addition, various regulatory agencies
periodically review the Company's allowance for loan losses as an integral part
of their examination process. Such agencies may require the Company to
recognize additions to the allowance based on judgements different from those
of management.

   Credit quality of the commercial portfolios is quantified by a corporate
credit rating system designed to parallel regulatory criteria and categories of
loan risk. Individual lenders monitor their loans to ensure appropriate rating
assignments are made on a timely basis. Risk ratings and quality of both
commercial and consumer credit portfolios are also assessed on a regular basis
by an independent Credit Review Department,


                                      38

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

which reports to the Executive Vice President in charge of Credit Policy and
Administration. Credit Review personnel conduct ongoing portfolio trend
analyses and individual credit reviews to evaluate loan risk and compliance
with corporate lending policies. Results and recommendations from this process
provide senior management and the Board of Directors with independent
information on loan portfolio condition. The Board of Directors monitors asset
quality throughout the year. Consumer and residential real estate loan quality
is evaluated on the basis of delinquency data and other credit data available
due to the large number of such loans and the relatively small size of
individual credits. Historical trend analyses are reviewed on a monthly basis
by senior management and the Company's Board of Directors.

   Key elements of the above estimates, including assumptions used in
developing independent appraisals, are dependent on the economic conditions
prevailing at the time such estimates are made. Accordingly, uncertainty exists
as to the final outcome of certain valuation judgments as a result of changes
in economic conditions in the Banks' lending areas.

  Loan Origination and Commitment Fees

   Loan origination and commitment fees, and certain loan origination costs,
are deferred and amortized over the contractual term of the related loans as
yield adjustments using primarily the level-yield method. When loans are sold
or paid off, the unamortized net fees and costs are recognized in income. Net
deferred loan fees amounted to $6,835,000 and $6,096,000 at December 31, 2001
and 2000, respectively.

  Mortgage Servicing Rights

   Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized into noninterest income
in proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. The Company utilizes a
single stratum for measuring the fair value of its mortgage servicing rights
because of the homogeneity of its serviced loan portfolio. Fair value is
determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions.

  Loans Held for Sale

   Loans held for sale are carried at the lower of aggregate cost or market
value. Gains and losses on sales of mortgage loans are recognized at the time
of the sale and are adjusted when the interest rate charged to the borrower and
the interest rate paid to the purchaser, after considering a normal servicing
fee (and, in the case of mortgage-backed securities, a guarantee fee), differ.

  Premises and Equipment

   Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight line method over the estimated
useful lives of the premises and equipment. Leasehold improvements are
amortized over the shorter of the terms of the respective leases or the
estimated useful lives of the improvements. Expenditures for maintenance,
repairs, and renewals of minor items are charged to expense as incurred.

  Other Real Estate Owned

   Collateral acquired through foreclosure ("Other Real Estate Owned" or
"OREO") is recorded at the lower of the carrying amount of the loan or the fair
value of the property, less estimated costs to sell, at the time of
acquisition. Net operating income or expense related to OREO is included in
noninterest expense in the accompanying consolidated statements of operations.

                                      39

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Intangible Assets

   Intangible assets include the excess of the purchase price over the fair
value of net assets acquired (goodwill) in the acquisitions of Eastern Bancorp,
BWM, MBT and Pomerleau, as well as a core deposit intangible related to BWM and
the acquisition of certain trust business by VNB. Goodwill is being amortized
on a straight-line basis over 15 years. The core deposit intangible is being
amortized on an accelerated basis over 10 years. The Company periodically
evaluates intangible assets for impairment on the basis of whether these assets
are fully recoverable from projected, undiscounted net cash flows of the
related acquired entity.

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations ("SFAS 141").
Statement No. 141 requires that the purchase accounting method be used for all
business combinations initiated after June 30, 2001.

   The Company will adopt Statement of Financial Accounting Standards, No. 142,
Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002.
Statement No. 142 addresses the method of identifying and measuring goodwill
and other intangible assets acquired in a business combination, eliminates
further amortization of goodwill and requires periodic evaluation of the
impairment of goodwill balances using a fair value test. In relation to SFAS
142, the Company expects that its annualized goodwill amortization of $2.7
million will be eliminated beginning in 2002.

  Income Taxes

   The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary differences are realized or settled.

  Earnings Per Share

   The calculation of basic earnings per share is based on the weighted average
number of shares of common stock outstanding during the period. Diluted
earnings per share is based on the weighted average number of shares of common
stock outstanding adjusted for the incremental shares attributed to outstanding
common stock equivalents, using the treasury stock method. Common stock
equivalents include options granted under the Company's stock plans and shares
to be issued under the Company's Directors' Deferred Compensation Plan.

  Investment Management

   Trust administered assets of approximately $5.7 billion and $5.2 billion at
December 31, 2001 and 2000, respectively, held by the Banks in a fiduciary or
agency capacity for customers, are not included in the accompanying
consolidated balance sheets as they are not assets of the Company. Trust income
is recorded on the cash basis (which approximates the accrual basis) in
accordance with industry practice.

  Credit Card Income

   Credit card income includes annual fees and interchange income from credit
cards issued by the Company, and merchant discount income. Merchant discount
income consists of the fees charged on credit card receipts submitted by the
Company's commercial customers. Credit card income is presented net of credit
card expense, which includes fees paid by the Company to credit card issuers
and third-party processors. Such amounts are recognized on the accrual basis,
and are presented in the noninterest income section of the statement of
operations.

                                      40

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Insurance Commissions

   Insurance commissions income is recognized when billed to the customer, net
of commissions paid to the producing agent. In addition, certain contingent
commissions may be received by the Company, from underwriting companies, based
on its ability to meet sales goals and loss experience targets. These
contingent commissions are recognized as income when received.

  Stock-Based Compensation

   Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, encourages but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
The Company has provided Pro Forma disclosures of net income and earnings per
share and other disclosures, as if the fair value based method had been
applied. The Pro Forma disclosures include effects of all awards granted on or
after January 1, 1995. (See Note 9.)

  Recently Adopted Accounting Policies

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 establishes the accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or a liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the statement of operations,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment.
Statement 133, was effective for the Company's fiscal year beginning January 1,
2001. The Company's derivatives include certain commitments to fund mortgage
loans, which are intended for sale and the related forward sale agreements with
investors. Adoption did not have a material impact on the Company's financial
position or results of operation.

   During 2001, the Company adopted Statement of Financial Accounting Standards
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities  ("SFAS 140"). SFAS 140 replaces FASB Statement
No. 125 and revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of Statement 125's provisions without reconsideration.
The adoption of this statement did not have a material impact on the Company's
financial position or results of operation.

Note 2   Acquisitions and Divestitures

  Maine Bank & Trust

   On April 30, 2001, the Company acquired Maine Bank Corp., headquartered in
Portland, Maine and its subsidiary, Maine Bank & Trust for $49.25 million in
cash. In accordance with the purchase agreement, certain transaction related
costs borne by the seller were deducted from the purchase price, so that the
net amount paid was $47.4 million. The acquisition has been accounted for as a
purchase and, accordingly, the operations of Maine Bank & Trust (MBT) are
included in these financial statements from the date of acquisition.

                                      41

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The purchase price has been allocated to assets acquired and liabilities
assumed based on estimates of fair value at the date of acquisition. The excess
of purchase price over the fair value of assets acquired has been recorded as
goodwill. The fair value of these assets and liabilities is summarized as
follows (in thousands):

<TABLE>
               <S>                                    <C>
               Cash and cash equivalents............. $  55,453
               FHLB Stock............................       686
               Securities available for sale.........     5,034
               Net loans.............................   168,860
               Premises and equipment................     5,798
               Goodwill..............................    20,590
               Prepaid expenses and other assets.....     3,422
               Deposits..............................  (212,425)
               Accrued expenses and other liabilities        34
                                                      ---------
               Total cash paid....................... $  47,452
                                                      =========
</TABLE>

   Following is supplemental information, on an operating level, reflecting
selected pro forma results as if this acquisition had been consummated as of
January 1, 1999 (in thousands, except EPS):

<TABLE>
<CAPTION>
                                                   For the years ended
                                                       December 31,
                                                --------------------------
                                                  2001     2000     1999
                                                -------- -------- --------
     <S>                                        <C>      <C>      <C>
     Total revenue............................. $240,105 $238,740 $238,888
     Operating income before income taxes......   91,208   91,538   86,925
     Operating net income......................   58,967   61,601   56,322
     Operating diluted earnings per share (EPS)     1.81     1.81     1.57
</TABLE>

   Total revenue includes net interest income and noninterest income.

  Vermont Financial Services Corporation

   On May 28, 1999, the Company acquired Vermont Financial Services Corp. of
Brattleboro, Vermont for stock. VFSC's subsidiary banks included Vermont
National Bank, headquartered in Brattleboro, Vermont and United Bank,
headquartered in Greenfield, Massachusetts. Under the agreement, VFSC
shareholders received 1.07 shares of Chittenden Corporation common stock for
each share of VFSC stock. Total shares outstanding of Chittenden Corporation
stock increased by approximately 17.5 million shares as a result of the
acquisition. Based on the closing price of Chittenden stock as of May 28, 1999,
the market value of the shares exchanged totaled $387.2 million. The
acquisition was accounted for as a pooling of interests.

   Special charges of $58.5 million (pre-tax) were recorded during 1999 related
to the VFSC transaction. These charges included merger related expenses of
$49.9 million, and $21.1 million related to the write-off of impaired goodwill,
less a net gain of $12.5 million from branch sales (see below). The merger
related expenses included asset disposal write-downs of $23.9 million, and
conversion, severance and transaction costs, such as legal, advisory and
accounting fees which totaled $26.0 million. The impaired goodwill, which
related to VFSC's purchase of Eastern Bancorp, was written-off as a result of
divestitures required by the U.S. Department of Justice and the Federal
Reserve. On an after-tax basis, special charges amounted to $57.4 million in
1999. Included in accrued expenses and other liabilities at December 31, 2001,
are merger-related expenses totaling $313,000, which will be paid in future
periods.

                                      42

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The change in accrued merger related expenses at December 31, 2001 is
summarized below:

<TABLE>
<CAPTION>
                               Accrual                             Accrual
                            Balance As of         Less:         Balance as of
                          December 31, 2000 Cash Transactions December 31, 2001
                          ----------------- ----------------- -----------------
<S>                       <C>               <C>               <C>
Compensation and Benefits      $1,218             $905              $313
                               ------             ----              ----
   Total.................      $1,218             $905              $313
                               ======             ====              ====
</TABLE>

   As noted above, the Company recognized a net $12.5 million gain on branch
sales in 1999. One of the conditions of regulatory approval of the VFSC
transaction was the divestiture of eighteen VNB branches. Seventeen of the
required divestitures were completed in 1999. The final branch divestiture was
completed in the first quarter of 2000. Divested in the sale of the eighteen
branches were $131.5 million in loans, $469.2 million in deposits and $9.0
million in fixed assets. Total cash transferred to the buyers was $287.3
million. To fund the cash transferred, $92.1 million and $70.0 million in
securities available for sale were sold in 2000 and 1999, respectively, at
losses of $688,000 and $1,148,000, which are netted in the $833,000 loss and
the $12.5 million gain on the branch sales in 2000 and 1999, respectively.

Note 3  Securities

   Investment securities at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                     Amortized Unrealized Unrealized  Fair
                                                       Cost      Gains      Losses    Value
                                                     --------- ---------- ---------- --------
                                                                  (in thousands)
<S>                                                  <C>       <C>        <C>        <C>
2001
Securities Available for Sale:
   U.S. Treasury securities......................... $  3,296   $    80    $    --   $  3,376
   U.S. government agency obligations...............  228,189     4,651       (247)   232,593
   Obligations of states and political subdivisions.    4,663        65         --      4,728
   Mortgage-backed securities.......................  371,631     4,489     (1,457)   374,663
   Corporate bonds and notes........................  172,636     5,958        (82)   178,512
   Other debt securities............................      923        --         --        923
   Marketable equity securities.....................   31,700        --         --     31,700
                                                     --------   -------    -------   --------
Total securities available for sale................. $813,038   $15,243    $(1,786)  $826,495
                                                     ========   =======    =======   ========
2000
Securities Available for Sale:
   U.S. Treasury securities......................... $  4,696   $    28    $    --   $  4,724
   U.S. government agency obligations...............  251,778       751       (703)   251,826
   Obligations of states and political subdivisions.    6,133        19        (10)     6,142
   Mortgage-backed securities.......................  152,377     1,048       (523)   152,902
   Corporate bonds and notes........................  163,948       627       (969)   163,606
   Other debt securities............................      833        --         --        833
   Marketable equity securities.....................    5,250        --         (2)     5,248
                                                     --------   -------    -------   --------
Total securities available for sale................. $585,015   $ 2,473    $(2,207)  $585,281
                                                     ========   =======    =======   ========
</TABLE>

   Proceeds from sales of debt securities amounted to $203,485,000,
$156,305,000 and $109,394,000 in 2001, 2000, and 1999, respectively. Realized
losses on sales of debt securities were $1,234,000 and $469,000 in 2001

                                      43

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and 2000, respectively. Realized losses in 2000 and 1999 of $688,000 and
$1,148,000, respectively, were netted against the gain on sale of branch
divestitures, since all sales were to fund cash transferred to the acquirers.
Realized gains on sales of debt securities were $1,162,000 and $76,000 in 2001
and 2000, respectively.

   The market value of securities pledged to secure U.S. Treasury borrowings,
public deposits, securities sold under agreements to repurchase, and for other
purposes required by law, amounted to $205,530,000 and $258,539,000 at December
31, 2001 and 2000, respectively.

   The following table shows the maturity distribution of the amortized cost of
the Company's investment securities at December 31, 2001, with comparative
totals for 2000. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations:

<TABLE>
<CAPTION>
                                                 After One  After Five
                                                    But        But
                                         Within    Within     Within     After   No Fixed
                                        One Year Five Years Ten Years  Ten Years Maturity  Total
                                        -------- ---------- ---------- --------- -------- --------
                                                              (in thousands)
<S>                                     <C>      <C>        <C>        <C>       <C>      <C>
Investment Securities:
   U.S. Treasury securities............ $  1,999  $  1,297   $     --   $    --    $ --   $  3,296
   U.S. government agency obligations..    9,892    91,496    126,801        --      --    228,189
   Obligations of states and political
     subdivisions......................    3,203     1,335         60        65      --      4,663
   Mortgage-backed securities (1)......   88,899   194,136     68,083    20,513      --    371,631
   Corporate bonds and notes...........   36,717   135,919         --        --      --    172,636
   Other debt securities...............       50       853         20        --      --        923
   Marketable equity securities........   31,700        --         --        --      --     31,700
                                        --------  --------   --------   -------    ----   --------
Total investment securities............ $172,460  $425,036   $194,964   $20,578    $ --   $813,038
                                        ========  ========   ========   =======    ====   ========
Comparative totals for 2000............ $145,457  $391,368   $ 44,315   $ 3,625    $250   $585,015
</TABLE>
--------
(1)Maturities of mortgage-backed securities are based on contractual payments
   and estimated mortgage loan prepayments.

   The following table shows the maturity distribution of the fair value of the
Company's investment securities at December 31, 2001, with comparative totals
for 2000. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations:

<TABLE>
<CAPTION>
                                                 After One  After Five
                                                    But        But
                                         Within    Within     Within     After   No Fixed
                                        One Year Five Years Ten Years  Ten Years Maturity  Total
                                        -------- ---------- ---------- --------- -------- --------
                                                              (in thousands)
<S>                                     <C>      <C>        <C>        <C>       <C>      <C>
Investment Securities:
   U.S. Treasury securities............ $  2,049  $  1,327   $     --   $    --    $ --   $  3,376
   U.S. government agency obligations..   10,083    92,638    129,872        --      --    232,593
   Obligations of states and political
     subdivisions......................    3,243     1,360         60        65      --      4,728
   Mortgage-backed securities (1)......   89,624   195,720     68,638    20,681      --    374,663
   Corporate bonds and notes...........   37,167   141,345         --        --      --    178,512
   Other debt securities...............       50       853         20        --      --        923
   Marketable equity securities........   31,700        --         --        --      --     31,700
                                        --------  --------   --------   -------    ----   --------
Total investment securities............ $173,916  $433,243   $198,590   $20,746    $ --   $826,495
                                        ========  ========   ========   =======    ====   ========
Comparative totals for 2000............ $145,638  $391,231   $ 44,540   $ 3,924    $248   $585,281
</TABLE>
--------
(1)Maturities of mortgage-backed securities are based on contractual repayments
   and estimated mortgage loan prepayments.

                                      44

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 4  Loans

   Major classifications of loans at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                              2001        2000
                                           ----------  ----------
                                               (in thousands)
             <S>                           <C>         <C>
             Commercial................... $  645,231  $  599,492
             Real estate:
                Residential...............    672,666     884,024
                Commercial................    903,819     723,339
                Construction..............     79,801      57,701
                                           ----------  ----------
                    Total real estate.....  1,656,286   1,665,064
             Home equity..................    182,895     140,150
             Consumer.....................    255,343     314,914
             Lease financing..............     98,422     136,478
                                           ----------  ----------
                    Total gross loans.....  2,838,177   2,856,098
             Allowance for loan losses....    (45,268)    (40,255)
                                           ----------  ----------
             Net loans.................... $2,792,909  $2,815,843
                                           ==========  ==========
             Loans held for sale.......... $   50,208  $   44,950
                                           ==========  ==========
</TABLE>

   Lease financing receivable includes the estimated residual value of leased
vehicles of approximately $66,786,000 and $86,771,000 at December 31, 2001 and
2000, respectively, and is net of unearned interest income of approximately
$13,220,000 and $21,643,000 at those dates.

   Acquired in the MBT transaction were loans totaling $172.9 million, of which
$45.6 million were commercial loans; $80.5 million were commercial real estate
loans; $9.0 million were residential real estate loans, including construction
loans; $34.2 million were home equity loans; and $3.6 million were consumer
loans.

   CTC's lending activities are conducted primarily in Vermont and New
Hampshire, with additional activity relating to nearby trading areas in Quebec,
New York, and Connecticut. BWM's lending activities are conducted primarily in
the western Massachusetts area while FBT's lending activities are conducted
primarily in the greater Worcester, Massachusetts area. MBT's lending
activities are conducted primarily in the southern Maine area. The Banks make
single-family and multi-family residential loans, commercial real estate loans,
commercial loans, and a variety of consumer loans. In addition, the Banks make
loans for the construction of residential homes, multi-family and commercial
properties, and for land development. The ability and willingness of the Banks'
borrowers to honor their repayment commitments are impacted by many factors,
including the level of overall economic activity within the borrowers'
geographic areas.

   Changes in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>
                                               2001      2000      1999
                                             --------  --------  --------
                                                    (in thousands)
     <S>                                     <C>       <C>       <C>
     Balance at beginning of year........... $ 40,255  $ 41,079  $ 41,209
     Allowance acquired through acquisitions    4,083        --        --
     Provision for loan losses..............    8,041     8,700     8,700
     Loan recoveries........................    3,348     3,915     4,586
     Loans charged off......................  (10,459)  (13,439)  (13,416)
                                             --------  --------  --------
     Balance at end of year................. $ 45,268  $ 40,255  $ 41,079
                                             ========  ========  ========
</TABLE>

                                      45

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The principal amount of loans on nonaccrual status was $12,374,000 and
$11,376,000 at December 31, 2001 and 2000, respectively. There were no loans
whose terms have been substantially modified in troubled debt restructurings
during 2001, 2000 and 1999. At December 31, 2001, the Banks were not committed
to lend any additional funds to borrowers with loans whose terms have been
restructured.

   The amount of interest which was not earned but which would have been earned
had nonaccrual loans performed in accordance with their original terms and
conditions was as follows:

<TABLE>
<CAPTION>
                                                          2001   2000   1999
                                                         ------ ------ ------
                                                            (in thousands)
  <S>                                                    <C>    <C>    <C>
  Interest income in accordance with original loan terms $1,375 $3,964 $1,365
  Interest income recognized............................    535  3,090    454
                                                         ------ ------ ------
  Reduction in interest income.......................... $  840 $  874 $  911
                                                         ====== ====== ======
</TABLE>

   The recorded investment in loans that were considered to be impaired under
SFAS 114 was $7,177,000, $6,794,000 and $4,049,000 in 2001, 2000 and 1999,
respectively. Information regarding the impaired loans is as follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                          --------------------
                                                           2001   2000   1999
                                                          ------ ------ ------
                                                             (in thousands)
 <S>                                                      <C>    <C>    <C>
 Impaired loans with no specific reserve................. $1,562 $4,107 $1,949
 Impaired loans with a specific reserve..................  5,615  2,687  2,100
 Specific reserve for impaired loans.....................  1,900  1,440    637
 Average investment in impaired loans during the year....  7,415  6,627  4,412
 Cash-basis interest income recognized during the year...     90    183     58
 Accrual-basis interest income recognized during the year     86    153     --
</TABLE>

   Residential mortgage loans serviced for others, which are not reflected in
the consolidated balance sheets, totaled approximately $1.961 billion and
$1.991 billion at December 31, 2001 and 2000, respectively. No recourse
provisions exist in connection with such servicing.

   The following table is a summary of activity for mortgage servicing rights
purchased and originated for three years ended December 31, 2001:

<TABLE>
<CAPTION>
                                        Purchased Originated  Total
                                        --------- ---------- -------
                                               (in thousands)
           <S>                          <C>       <C>        <C>
           Balance at December 31, 1998  $4,789    $ 8,383   $13,172
              Additions................      --      3,259     3,259
              Amortization.............    (598)    (1,590)   (2,188)
                                         ------    -------   -------
           Balance at December 31, 1999   4,191     10,052    14,243
              Additions................      --      1,654     1,654
              Amortization.............    (565)    (1,163)   (1,728)
                                         ------    -------   -------
           Balance at December 31, 2000   3,626     10,543    14,169
              Additions................      --      4,080     4,080
              Amortization.............    (573)    (1,654)   (2,227)
                                         ------    -------   -------
           Balance at December 31, 2001  $3,053    $12,969   $16,022
                                         ======    =======   =======
</TABLE>

   SFAS 140 requires enterprises to measure the impairment of servicing rights
based on the difference between the carrying amount of the servicing rights and
current fair value. At December 31, 2001 no allowance for impairment in the
Company's mortgage servicing rights was necessary.

                                      46

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 5  Premises and Equipment

   Premises and equipment at December 31, 2001 and 2000 are summarized as
follows:

<TABLE>
<CAPTION>
                                                                  Estimated
                                                                   Original
                                               2001      2000    Useful Lives
                                             --------  --------  ------------
                                               (in thousands)
   <S>                                       <C>       <C>       <C>
   Land..................................... $  7,893  $  6,766      --
   Buildings and improvements...............   29,779    25,773  25-50 years
   Leasehold improvements...................   22,293    21,555  2-50 years
   Furniture and equipment..................   42,989    38,640  3-15 years
   Construction in progress.................        8     1,372      --
                                             --------  --------
   Premises and equipment, gross............  102,962    94,106
   Accumulated depreciation and amortization  (47,858)  (42,147)
                                             --------  --------
   Premises and equipment, net.............. $ 55,104  $ 51,959
                                             ========  ========
</TABLE>

   Total depreciation expense amounted to approximately $6,130,000, $5,296,000
and $8,780,000 in 2001, 2000 and 1999.

   The Company is obligated under various noncancelable operating leases for
premises and equipment expiring in various years through the year 2021. Total
lease expense, net of income from subleases, amounted to approximately
$3,646,000, $4,211,000 and $4,694,000 in 2001, 2000, and 1999, respectively.

   Future minimum rental commitments for noncancelable operating leases on
premises and equipment with initial or remaining terms of one year or more at
December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                   Lease
                  Year                          Obligations
                  ----                         --------------
                                               (in thousands)
                  <S>                          <C>
                  2002........................    $ 3,785
                  2003........................      3,250
                  2004........................      2,903
                  2005........................      2,739
                  2006........................      2,069
                  Thereafter..................      5,011
                                                  -------
                  Total minimum lease payments    $19,757
                                                  =======
</TABLE>

                                      47

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 6  Borrowings

   Borrowings at December 31, 2001 and 2000 consisted of the following:

<TABLE>
<CAPTION>
                                                                                   2001    2000
                                                                                  ------- -------
                                                                                  (in thousands)
<S>                                                                               <C>     <C>
Federal funds purchased, rate 6.50%, maturing January 2, 2001.................... $    -- $ 1,325
Securities sold under agreements to repurchase:
   Due through April 1, 2002, weighted average rate of 9.20%.....................  10,000      --
   Due through January 2, 2001, weighted average rate of 9.20%...................      --  10,000
U.S. Treasury borrowings, 1.41% in 2001 and 5.75% in 2000, due on demand.........      92  17,116
Note Payable, 6.30% in 2001 and 8.03% in 2000, due January 1, 2015...............     240     251
FHLB Advances:
   Affordable Housing Program, 5.14% in 2001 and 5.17% in 2000, due May 29, 2018.      --     330
   Maturing January 31, 2001 @ 6.69%.............................................      --  25,000
   Maturing February 2, 2001 @ 5.88%.............................................      --   5,000
   Maturing February 27, 2003 @ 5.77%............................................  11,925  11,925
   Maturing December 27, 2010 @ 4.80%, callable..................................  20,000  20,000
   Maturing April 19, 2011 @ 3.50%...............................................   1,592   1,632
   Maturing August 1, 2011 @ 5.00%...............................................     560     560
   Maturing October 29, 2013 @ 5.50%.............................................      --      32
   Maturing April 2, 2013 @ 5.50%................................................      --     586
                                                                                  ------- -------
Total Borrowings................................................................. $44,409 $93,757
                                                                                  ======= =======
</TABLE>

   Short-term borrowings, securities sold under agreements to repurchase and
U.S. treasury borrowings are collateralized by U.S. Treasury and agency
securities, mortgage-backed securities and corporate notes. These assets had a
carrying value and a market value of $12,396,000 and $12,910,000 respectively,
at December 31, 2001, and $28,881,000 and $28,907,000, respectively, at
December 31, 2000. The borrowings from Federal Home Loan Bank of Boston are
secured by mortgage loans held in the Company's loan portfolio. Federal funds
purchased and note payables are unsecured.

   The following information relates to securities sold under agreements to
repurchase:

<TABLE>
<CAPTION>
                                                 2001      2000     1999
                                                -------  --------  -------
                                                      (in thousands)
    <S>                                         <C>      <C>       <C>
    Average balance outstanding during the year $10,000  $ 45,452  $89,583
    Average interest rate during the year......    9.20%     6.23%    4.85%
    Maximum amount outstanding at any month-end $10,000  $136,699  $99,995
</TABLE>

   The following information relates to U.S. Treasury borrowings:

<TABLE>
<CAPTION>
                                                  2001     2000     1999
                                                 -------  -------  -------
                                                       (in thousands)
     <S>                                         <C>      <C>      <C>
     Average balance outstanding during the year $ 4,672  $17,426  $13,138
     Average interest rate during the year......    4.81%    5.98%    4.73%
     Maximum amount outstanding at any month-end $20,664  $34,930  $37,369
</TABLE>

                                      48

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following information relates to FHLB borrowings:

<TABLE>
<CAPTION>
                                                 2001      2000     1999
                                                -------  --------  -------
                                                      (in thousands)
    <S>                                         <C>      <C>       <C>
    Average balance outstanding during the year $37,468  $146,818  $29,663
    Average interest rate during the year......    5.26%     6.39%    5.82%
    Maximum amount outstanding at any month-end $40,063  $220,095  $96,865
</TABLE>

Note 7  Income Taxes

   Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                      2001     2000    1999
                                     -------  ------- -------
                                          (in thousands)
                  <S>                <C>      <C>     <C>
                  Current payable
                     Federal........ $20,600  $ 9,638 $33,786
                     State..........   3,328    3,227   4,184
                                     -------  ------- -------
                                      23,928   12,865  37,970
                  Deferred (prepaid)
                     Federal........   7,851   14,675  (8,548)
                     State..........     (43)     493    (347)
                                     -------  ------- -------
                                       7,808   15,168  (8,895)
                                     -------  ------- -------
                  Income tax expense $31,736  $28,033 $29,075
                                     =======  ======= =======
</TABLE>

   Current income taxes receivable, included in other assets, were $6,961,000
and $2,878,000, at December 31, 2001 and 2000, respectively.

   The State of Vermont assesses a franchise tax for banks in lieu of a bank
income tax. The franchise tax, assessed based on deposits, amounted to
approximately $2,592,000, $2,749,000, and $2,975,000 in 2001, 2000, and 1999,
respectively. These amounts are included in income tax expense in the
accompanying consolidated statements of operations. The Company is also taxed
on income in the other states in which it operates.

   The following is a reconciliation of the provision for Federal income taxes,
calculated at the statutory rate, to the recorded income tax expense:

<TABLE>
<CAPTION>
                                                                   2001     2000     1999
                                                                  -------  -------  -------
                                                                        (in thousands)
<S>                                                               <C>      <C>      <C>
Computed tax at statutory Federal rate........................... $31,583  $30,348  $ 9,331
Increase (decrease) in taxes from:
   Amortization and impairment of intangible assets..............     709      684   17,223
   Tax-exempt interest, net......................................  (1,275)  (1,421)  (1,638)
   Dividends received deduction..................................    (208)     (35)    (315)
   Non-deductible merger expenses................................      --       --    1,599
   State taxes, net of Federal tax benefit.......................   2,135    2,418    2,494
   Tax credits...................................................  (1,282)  (2,118)    (385)
   Other, net....................................................      74   (1,843)     766
                                                                  -------  -------  -------
       Total..................................................... $31,736  $28,033  $29,075
                                                                  =======  =======  =======
Effective income tax rate........................................    35.2%    32.3%   109.7%
Effective income tax rate excluding the effect of special charges    35.2%    34.2%    35.4%
</TABLE>

                                      49

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The components of the net deferred tax liability at December 31, 2001 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                           2001       2000
                                                         ---------  ---------
                                                            (in thousands)
 <S>                                                     <C>        <C>
 Allowance for loan losses..............................  $ 16,814   $ 15,180
 Deferred compensation and pension......................     5,015      4,498
 Other real estate owned writedowns.....................        68        298
 Depreciation...........................................    (2,551)      (188)
 Accrued liabilities....................................       770        890
 Unrealized (gain) loss on securities available for sale    (4,835)      (102)
 Basis differences, purchase accounting.................       269        579
 Core deposit intangible................................      (594)      (777)
 Lease financing........................................   (21,762)   (18,127)
 Mortgage servicing.....................................    (5,169)    (4,420)
 Other..................................................    (3,010)      (275)
                                                         ---------  ---------
                                                         ($ 14,985) ($  2,444)
                                                         =========  =========
</TABLE>

Note 8  Stockholders' Equity

  Treasury Stock

   The Company periodically repurchases its own stock under a share repurchase
program originally authorized by the Board of Directors on January 19, 2000.
Subsequent authorizations have increased the number of shares authorized to be
repurchased under the program to six million shares. The Company repurchased
666,000 shares at a cost of $16.5 million during 2001 and 3,125,000 shares at a
cost of $66.5 million in 2000.

  Dividends

   Dividends paid by the Banks are the primary source of funds available to the
Company for payment of dividends to its stockholders and for other corporate
needs. Applicable federal and state statutes, regulations, and guidelines
impose restrictions on the amount of dividends that may be declared by the
Banks.

   The Company paid dividends of $24,661,000, $25,484,000, and $22,815,000
during 2001, 2000, and 1999, respectively. These amounts represented $0.76,
$0.75, and $0.65 per share.

  Surplus

   The payment of dividends by BWM and FBT to the Company are subject to
Massachusetts banking law restrictions, which requires that the capital stock
and surplus accounts of the banks must amount, in the aggregate, to at least
10% of the bank's deposit liability or there shall be transferred from net
profits to the surplus account: (1) the amount required to increase the surplus
account so that it, together with the capital stock, will amount to at least
10% of deposit liability, or (2) the amount required to increase the surplus
account so that it shall amount to 50% of the common stock, and thereafter, the
amount, not exceeding 50% of net profits, required to increase the surplus
account so that it shall amount to 100% of capital stock. Because one or both
of these tests were met at the individual banks, no transfers were made during
the year.

                                      50

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Earnings Per Share

   The following table summarizes the calculation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
                                                                       2001         2000     1999
                                                                      -------     -------  -------
                                                                     (in thousands except per share
                                                                              information)
<S>                                                                  <C>          <C>      <C>
Net income (loss)................................................... $58,501      $58,687  $(2,496)
                                                                      -------     -------  -------
Weighted average common shares outstanding..........................  32,164       33,761   35,216
Dilutive effect of common stock equivalents.........................     383          339       --
                                                                      -------     -------  -------
   Weighted average common and common equivalent shares outstanding.  32,547       34,100   35,216
                                                                      =======     =======  =======
Basic earnings per share............................................ $  1.82      $  1.74  $ (0.07)
Dilutive effect of common stock equivalents.........................   (0.02)       (0.02)      --
                                                                      -------     -------  -------
Diluted earnings per share.......................................... $  1.80      $  1.72  $ (0.07)
                                                                      =======     =======  =======
</TABLE>

   The following table summarizes options that could potentially dilute
earnings per share in the future which were not included in the computation of
the common stock equivalents because to do so would have been antidilutive:


<TABLE>
<CAPTION>
                                            2001    2000     1999
                                           ------- ------- ---------
           <S>                             <C>     <C>     <C>
           Anti-dilutive options.......... 569,712 605,313 1,371,373
           Weighted average exercise price  $29.37  $28.14    $18.97
</TABLE>

  Comprehensive Income

   Comprehensive income is the total of net income and all other non-owner
changes in equity. The Company has chosen to display comprehensive income in
the Consolidated Statements of Changes in Stockholders' Equity.

   The following table summarizes reclassification detail for other
comprehensive income for the years:

<TABLE>
<CAPTION>
                                                                                   2001   2000    1999
                                                                                  ------ ------ --------
                                                                                      (in thousands)
<S>                                                                               <C>    <C>    <C>
Unrealized gains (losses) on securities available for sale for period, net of tax $8,410 $6,479 $(14,254)
Reclassification adjustment for (gains) losses arising during period, net of tax.     47    703      774
                                                                                  ------ ------ --------
Total Other Comprehensive Income................................................. $8,457 $7,182 $(13,480)
                                                                                  ====== ====== ========
</TABLE>

Note 9  Stock Plans

   The Company has three stock option plans: a 1988 Employee Stock Option plan,
a 1993 Stock Incentive Plan, and a 1998 Directors' Omnibus Long-term Incentive
Plan. The Company accounts for these plans in accordance with APB Opinion No.
25, under which no compensation cost for stock options has been recognized,
since all options qualify for fixed plan accounting and all options are granted
at fair market value, or higher in the case of stepped options.

   Under the plans, certain key employees and directors are eligible to receive
various types of stock incentives, including options to purchase a specified
number of shares of stock at a specified price (including incentive stock
options and non-qualified stock options); restricted stock which vests after a
specified period of time; and non-employee directors' stock options to purchase
stock at predetermined fixed prices over a five-year

                                      51

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

period. At December 31, 2001 and 2000, there were a total of 3,300,659 and
2,050,659 shares, respectively, available to be issued under the plans. Of
these shares, 2,179,346 and 1,632,984 were issued at December 31, 2001 and 2000
respectively.

   During 2001, 3,175 shares of restricted stock were granted, with a
weighted-average grant-date fair value of $23.81 per share. There were no
similar grants of restricted stock issued in 1999 or 2000. Issuance of
restricted stock results in a compensation charge.

   The following tables summarize information regarding the Company's stock
option plans:

<TABLE>
<CAPTION>
                                       Weighted
                                   Average Exercise
                                   Price Per Share   Options
                                   ---------------- ---------
                 <S>               <C>              <C>
                 December 31, 1998      $16.47      1,683,923
                    Granted.......       29.47        168,750
                    Exercised.....       13.75       (472,603)
                    Expired.......       23.04         (8,698)
                                        ------      ---------
                 December 31, 1999       18.97      1,371,372
                    Granted.......       24.70        138,750
                    Exercised.....       12.71       (306,116)
                    Expired.......       24.74        (17,114)
                                        ------      ---------
                 December 31, 2000       21.16      1,186,892
                    Granted.......       25.21        599,988
                    Exercised.....       15.62       (106,788)
                    Expired.......       28.03        (39,677)
                                        ------      ---------
                 December 31, 2001      $22.82      1,640,415
                                        ======      =========
</TABLE>

Options Outstanding and Exercisable

<TABLE>
<CAPTION>
                              Options Outstanding                Options Exercisable
December 31, 2001 ------------------------------------------- --------------------------
                              Weighted Average    Weighted                   Weighted
   Range of         Options      Remaining        Average       Options      Average
Exercise Prices:  Outstanding Contractual Life Exercise Price Outstanding Exercise Price
----------------  ----------- ---------------- -------------- ----------- --------------
<S>               <C>         <C>              <C>            <C>         <C>
  $3.29-$9.66        201,789        2.78           $ 8.76        201,789      $ 8.76
  $10.65-$15.04       41,223        1.66            11.78         41,223       11.78
  $15.72-$20.23      231,965        3.41            18.07        231,965       18.07
  $20.68-$25.08      526,976        8.41            23.76        447,976       23.73
  $25.19-$30.75      516,578        8.32            27.01        509,078       27.03
  $32.67-$45.02      121,884        6.44            37.01        105,634       35.77
                   ---------        ----           ------      ---------      ------
  $3.29-$45.02     1,640,415        6.67           $22.82      1,537,665      $22.51
                   =========        ====           ======      =========      ======
</TABLE>

                                      52

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   If compensation cost for these plans had been determined in accordance with
SFAS 123, the Company's net income (loss) and earnings (loss) per share would
have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
                                       2001         2000        1999
                                     -------       -------     -------
                                   (in thousands, except per share data)
        <S>                        <C>           <C>         <C>
        Net Income(Loss):
           As Reported............ $58,501       $58,687     $(2,496)
           Pro Forma..............  56,500        57,893      (4,427)
        Earnings (Loss) Per Share:
         Basic:
           As Reported............ $  1.82       $  1.74     $ (0.07)
           Pro Forma..............    1.76          1.72       (0.13)
         Diluted:
           As Reported............ $  1.80       $  1.72     $ (0.07)
           Pro Forma..............    1.74          1.70       (0.13)
</TABLE>

   The SFAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995; the resulting pro forma compensation cost may not be
representative of that to be expected in future years.

   The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2001, 2000 and 1999 :

<TABLE>
<CAPTION>
                                          2001  2000  1999
                                          ----  ----  ----
                    <S>                   <C>   <C>   <C>
                    Expected life (years) 7.49  7.80  7.60
                    Interest rate........ 4.92% 6.11% 6.40%
                    Volatility........... 21.9  29.7  29.6
                    Dividend yield....... 3.11% 3.28% 2.72%
</TABLE>

   Using these assumptions, the weighted average fair value of options granted
was $5.35, $6.82 and $7.67 in 2001, 2000 and 1999, respectively.

Note 10  Employee Benefits

  Pension Plan

   The Company has a noncontributory pension plan covering substantially all of
its employees. Benefits are based on years of service and the level of
compensation during the final years of employment. The Company's funding policy
for the plan is to contribute annually the amount necessary to meet the minimum
funding standards established by the Employee Retirement Income Security Act
(ERISA). Additional contributions may be made at the election of the Company.
This contribution is based on an actuarial method that recognizes estimated
future salary levels and service.

   The changes in the benefit obligation for the years ended December 31, 2001
and 2000 are as follows:

<TABLE>
<CAPTION>
                                                         2001     2000
                                                        -------  -------
                                                         (in thousands)
      <S>                                               <C>      <C>
      Projected benefit obligation at beginning of year $36,840  $37,743
         Service cost..................................   1,679    1,575
         Interest cost.................................   2,905    2,786
         Plan amendments...............................      44       --
         Actuarial (gain) loss.........................   2,202   (2,277)
         Disbursements.................................  (3,544)  (2,687)
         Settlements or curtailments...................      --     (300)
                                                        -------  -------
      Projected benefit obligation at end of year...... $40,126  $36,840
                                                        =======  =======
</TABLE>

                                      53

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The changes in the plan assets for the years ended December 31, 2001 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                     2001     2000
                                                    -------  -------
                                                     (in thousands)
          <S>                                       <C>      <C>
          Fair value of assets at beginning of year $49,149  $45,808
             Actual return on plan assets..........  (7,467)   6,028
             Disbursements.........................  (3,544)  (2,687)
                                                    -------  -------
          Fair value of assets at end of year...... $38,138  $49,149
                                                    =======  =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                        2001     2000
                                                                                       -------  -------
                                                                                        (in thousands)
<S>                                                                                    <C>      <C>
Funded status......................................................................... $(1,988) $12,309
Prior service cost not yet recognized in net periodic pension cost....................  (4,098)  (4,764)
Unrecognized net transition asset being amortized over participants' period of service    (368)    (497)
Unrecognized net (gain) loss from past experience different from that assumed.........   5,513   (8,441)
                                                                                       -------  -------
Accrued pension cost included in accrued expenses and other liabilities............... $  (941) $(1,393)
                                                                                       =======  =======

                                                                                        2001     2000
                                                                                       -------  -------
Weighted-average assumptions as of December 31, 2001 and 2000:
Discount rate.........................................................................    7.25%    7.75%
Expected return on plan assets........................................................    9.00%    9.00%
Rate of compensation increase.........................................................    5.00%    5.00%
</TABLE>


   Net pension expense components included in employee benefits in the
consolidated statements of operations are as follows:

<TABLE>
<CAPTION>
                                                 December 31,
                                          -------------------------
                                           2001     2000     1999
                                          -------  -------  -------
                                                (in thousands)
           <S>                            <C>      <C>      <C>
           Service cost.................. $ 1,679  $ 1,575  $ 2,438
           Interest cost.................   2,905    2,786    3,013
           Expected return on plan assets  (4,141)  (4,065)  (3,706)
                                          -------  -------  -------
           Net amortization:
              Prior service cost.........    (622)    (644)    (260)
              Net actuarial loss/(gain)..    (145)    (137)     (53)
              Transition amount..........    (128)    (129)    (131)
                                          -------  -------  -------
           Total amortization............    (895)    (910)    (444)
           Curtailment...................      --   (1,300)      --
                                          -------  -------  -------
           Net pension (income) expense.. $  (452) $(1,914) $ 1,301
                                          =======  =======  =======
</TABLE>

   Amounts resulting from changes in actuarial assumptions used to measure the
Bank's benefit obligations are not recognized as they occur, but are amortized
systematically over subsequent periods.

   CTC has supplemental pension arrangements with certain retired employees.
The liability, included in accrued expenses and other liabilities, related to
such arrangements was $2,043,000 and $1,754,000 at December 31, 2001 and 2000,
respectively.

                                      54

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company has established a supplemental executive retirement plan (SERP)
for members of the executive management group. This unfunded plan is intended
to cover only those benefits excluded from coverage under the Bank's qualified
defined benefit pension plan as a result of IRS regulations. The design
elements of this SERP mirror those of the Bank's qualified plan. In addition to
the SERP, the Company has a separate arrangement with its Chief Executive
Officer under which contributions are accrued based upon the Company's return
on equity (ROE). An ROE of 10% is the minimum threshold at which any
contribution will be made. Benefits are payable upon attaining the age of 55,
except in the event of death or disability. The liability related to the SERPs,
included in accrued expenses and other liabilities was $2,580,000 and
$2,097,000 at December 31, 2001 and 2000 respectively. Expenses related to this
plan were $483,000, $628,000 and $508,000 in 2001, 2000 and 1999, respectively.

  Other Benefit Plans

   CTC and its affiliates (the Banks) have an incentive savings and profit
sharing plan to provide eligible employees with a means to save and invest a
portion of their earnings, supplemented by contributions from the Banks.
Investment in the Company's common stock is one of nine investment options
available to employees, however, there are no restrictions on transfers or
required holding periods.

   Eligible employees of the corporation may contribute, by salary reductions,
up to 6% of their compensation as a basic employee contribution and may
contribute up to an additional 10% of their compensation as a supplemental
employee contribution. The corporation makes an incentive savings contribution
in an amount equal to 35% of each employee's basic contribution. In 2001, 2000,
and 1999, 60,477, 94,844, and 82,816 shares, respectively, of the Company's
common stock were purchased through the incentive savings and profit sharing
plan; $1,005,000, $1,006,000, and $1,347,000, respectively, were charged to
expense for contributions and payments made or to be made under the plan.

   In 1997, the Company established a supplemental executive savings plan. This
plan is intended to cover only those benefits excluded from coverage under the
Corporation's qualified defined benefit pension plan as a result of IRS
regulations. Under this plan, participants agree to elect a reduction in their
earnings and the Company credits their retirement account in the amount of the
reduction. This contribution, when combined with the regular pre-tax
contributions, shall not exceed 16% of the individual's earnings. Expenses
related to this plan were $32,906, $32,721 and $22,789 in 2001, 2000 and 1999,
respectively, and are included in the contribution expenses above.

   CTC and its affiliates may also make an additional matching contribution to
the incentive savings and profit sharing plan based on the extent to which the
annual corporate profitability goals established by the Board of Directors are
met. Expenses related to achievement of profitability goals totaled $501,000,
$420,000, and $480,000, in 2001, 2000, and 1999, respectively.

   CTC also has an Executive Management Incentive Compensation Plan. Executives
at defined levels of responsibility are eligible to participate in the plan.
Incentive award payments are determined on the basis of corporate profitability
and individual performance, with incentive awards ranging from zero to 100% of
annual compensation. Expenses for this plan totaled $1,144,000, $108,000 and
$671,000 in 2001, 2000, and 1999, respectively.

   The Company has a Directors' Deferred Compensation Plan. Under the plan,
Directors may defer fees and retainers that would otherwise be payable
currently. Deferrals may be made to an uninsured interest bearing account or an
account recorded in equivalents of the Company's common stock. Directors are
required to defer 50% of their compensation (and may defer as much as 100%) in
the Company's common stock. Expenses for this plan totaled $787,000, $868,000,
and $876,000 for 2001, 2000, and 1999, respectively. Based on these elections,
shares, which will be issued under the plan, totaled 324,831 at December 31,
2001.

                                      55

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 11  Financial Instruments with Off-Balance Sheet Risk

   In the normal course of business, to meet the financing needs of their
customers and to reduce their own exposure to fluctuations in interest rates,
the Banks are parties to financial instruments with off-balance sheet risk,
held for purposes other than trading. The financial instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The Banks' exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument, for loan commitments and standby letters of credit, is represented
by the contractual amount of those instruments, assuming that the amounts are
fully advanced and that collateral or other security is of no value. The Banks
use the same credit policies in making commitments and conditional obligations
as they do for on-balance sheet instruments. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Banks upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

   Commitments to originate loans, unused lines of credit, and unadvanced
portions of construction loans are agreements to lend to a customer provided
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. Many of the commitments are expected to expire
without being drawn upon. Therefore, the amounts presented below do not
necessarily represent future cash requirements.

   Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance by a customer to a third party. These guarantees are
issued primarily to support public and private borrowing arrangements, bond
financing, and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
commitments to customers.

   Financial instruments whose contractual amounts represent off-balance sheet
risk at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                             2001     2000
                                                           -------- --------
                                                            (in thousands)
    <S>                                                    <C>      <C>
    Commitments to originate loans........................ $162,248 $ 66,211
    Unused home equity lines of credit....................  202,706  168,907
    Unused portions of credit card lines..................   27,976  137,469
    Standby letters of credit fully collateralized by cash   33,695   31,690
    Other standby letters of credit.......................   36,335   35,371
    Unadvanced portions of construction loans.............  119,462   60,605
    Equity investment commitments to limited partnerships.    7,221    3,465
</TABLE>

Note 12  Commitments And Contingencies

   As nonmembers of the Federal Reserve System, the Banks are required to
maintain certain reserve requirements of vault cash and/or deposits with the
Federal Reserve Bank of Boston. The amount of this reserve requirement,
included in cash and cash equivalents, was $15,853,000 and $5,270,000 at
December 31, 2001 and 2000, respectively.

   CTC has a contract for data processing services that extends to June 2005.
Base fees to be paid during the remaining term of the contracts are
approximately $28,710,000. Total fees to be paid may be the same as or exceed
the base fees depending on additional services rendered and consumer price
index changes during the remaining term of the contract.


                                      56

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The Company has entered into severance agreements with the Chief Executive
Officer and several members of senior management. These agreements are
triggered by a change of control under certain circumstances. Payments are
equal to 2.99 times annual salary for the Chief Executive Officer and from 1 to
2 times annual salary for the individual participating members of senior
management.

   Various legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2001. Management, after reviewing
these claims with legal counsel, is of the opinion that the resolution of these
claims will not have a material effect on the financial condition or results of
operations of the Company.

Note 13  Other Noninterest Expense

   The components of other noninterest expense for the years presented are as
follows:

<TABLE>
<CAPTION>
                                             2001    2000    1999
                                            ------- ------- -------
                                                 (in thousands)
           <S>                              <C>     <C>     <C>
           Data processing................. $11,430 $11,160 $10,618
           Legal and professional..........   1,320   1,522   2,216
           Marketing.......................   2,746   2,749   3,143
           Software and supplies...........   4,884   4,722   4,755
           Net OREO and collection expenses      86      48    (147)
           Telephone.......................   2,799   3,118   3,979
           Postage.........................   2,338   2,553   3,147
           Other...........................  14,599  15,171  17,155
                                            ------- ------- -------
                                            $40,202 $41,043 $44,866
                                            ======= ======= =======
</TABLE>

Note 14  Related Party Transactions

   Directors and executive officers of the Banks and their associates are
credit customers of the Banks in the normal course of business. All loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons, and do not involve more
than normal risk of collectibility or present other unfavorable features. An
analysis of loans to directors and executive officers of the Banks and their
associates, for 2001, is as follows (in thousands):

<TABLE>
<CAPTION>
                Balance at                            Balance at
            December 31, 2000 Additions Reductions December 31, 2001
            ----------------- --------- ---------- -----------------
            <S>               <C>       <C>        <C>
                 $30,649       $7,677     $7,438        $30,888
                 =======       ======     ======        =======
</TABLE>

Note 15  Fair Value of Financial Instruments

  Cash and Cash Equivalents

   The carrying amounts for cash and cash equivalents approximate fair value
because they mature in 90 days or less and do not present unanticipated
valuation risk.

  Securities

   The fair value of investment securities, other than Federal Home Loan Bank
(FHLB) stock, is based on quoted market prices. The carrying value of FHLB
stock represents its redemption value.

  Loans

   Fair values are estimated for portfolios of loans with similar financial and
credit characteristics. The loan portfolio was evaluated in the following
segments: commercial, residential real estate, commercial real estate,
construction, home equity, lease financing and other consumer loans.

                                      57

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The fair value of performing commercial and real estate loans is estimated
by discounting cash flows through the estimated maturity using discount rates
that reflect the expected maturity and the credit and interest rate risk
inherent in such loans. The fair value of nonperforming commercial and real
estate loans is estimated using historical net charge-off experience applied to
the nonperforming balances. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market sources.
The fair value of municipal loans is estimated to be equal to amortized cost
since most of these loans mature within six months. The fair value of home
equity, lease financing and other consumer loans is estimated based on
secondary market prices for asset-backed securities with similar
characteristics.

  Mortgage Servicing Rights

   The fair value is estimated by discounting the future cash flows through the
estimated maturity of the underlying mortgage loans.

  Deposits

   The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings and N.O.W. accounts, and money
market and checking accounts, is equal to the amount payable on demand, that
is, the carrying amount. The fair value of certificates of deposit and
retirement accounts is based on the discounted value of contractual cash flows.
The discount rate used is based on the estimated rates currently offered for
deposits of similar remaining maturities.

  Borrowings

   The carrying amounts for short-term borrowings approximate fair value
because they mature or are callable in ten days or less and do not present
unanticipated valuation risk. Long-term debt has an estimated fair value equal
to its carrying amount.

  Commitments to Extend Credit and Standby Letters of Credit

   The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of financial standby letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties.

  Assumptions

   Fair value estimates are made at a specific point in time, based on relevant
market information and information about specific financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Banks' entire holdings of a particular
financial instrument. Because no active observable market exists for a
significant portion of the Banks' financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.

                                      58

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The estimated fair values of the Company's financial instruments are as
follows:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                           -------------------------------------------
                                                                   2001                  2000
-                                                          --------------------- ---------------------
                                                            Carrying              Carrying
                                                             Amount   Fair Value   Amount   Fair Value
                                                           ---------- ---------- ---------- ----------
                                                                         (in thousands)
<S>                                                        <C>        <C>        <C>        <C>
Financial assets:
   Cash and cash equivalents.............................. $  308,023 $  308,023 $  178,621 $  178,621
   Securities available for sale..........................    826,495    826,495    585,281    585,281
   FHLB stock.............................................     13,613     13,613     12,311     12,311
   Loans, net.............................................  2,792,909  2,802,660  2,815,843  2,828,184
   Loans held for sale....................................     50,208     50,208     44,950     48,853
   Mortgage servicing rights..............................     16,020     17,161     14,169     17,332
Financial liabilities:
   Deposits:
       Demand deposits....................................    620,828    620,828    530,975    530,975
       Savings deposits...................................    346,974    346,974    355,381    355,381
       NOW and money market deposits......................  1,870,835  1,870,835  1,578,846  1,578,846
       Certificates of deposit less than $100,000 and
         other time deposits..............................    634,992    643,166    615,336    617,504
       Certificates of deposit $100,000 and over..........    196,217    197,216    211,869    212,308
   Borrowings.............................................     44,409     41,831     93,757     91,901
   Commitments............................................        674        674        616        616
</TABLE>

Note16  Parent Company Financial Statements

Chittenden Corporation (Parent Company Only)

Balance Sheets

<TABLE>
<CAPTION>
                                                             December 31,
                                                           -----------------
                                                             2001     2000
                                                           -------- --------
                                                            (in thousands)
    <S>                                                    <C>      <C>
    Assets
    Cash and cash equivalents............................. $ 13,113 $ 11,018
    Investment in subsidiaries............................  351,472  324,408
    Investment securities.................................       --      248
    Other assets..........................................    9,802    9,446
                                                           -------- --------
           Total assets................................... $374,387 $345,120
                                                           ======== ========
    Liabilities and stockholders' equity
    Liabilities:
       Accrued expenses and other liabilities.............    3,733    3,054
                                                           -------- --------
           Total liabilities..............................    3,733    3,054
                                                           -------- --------
    Total stockholders' equity............................  370,654  342,066
                                                           -------- --------
           Total liabilities and stockholders' equity..... $374,387 $345,120
                                                           ======== ========
</TABLE>

                                      59

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Statements of Operations
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                   ----------------------------
                                                                     2001      2000      1999
                                                                   --------  --------  --------
                                                                          (in thousands)
<S>                                                                <C>       <C>       <C>
Operating income:
   Dividends from bank subsidiaries............................... $ 88,900  $ 78,500  $ 32,033
   Interest income................................................      168       250       356
   Gain on sale of securities.....................................       --        13        --
   Other operating income.........................................        7        39       186
                                                                   --------  --------  --------
       Total operating income.....................................   89,075    78,802    32,575
                                                                   --------  --------  --------
Operating expense.................................................    1,384     1,006     1,211
Special charges...................................................       --        --    12,173
                                                                   --------  --------  --------
       Total expense..............................................    1,384     1,006    13,384
                                                                   --------  --------  --------
Income before income taxes and equity in undistributed earnings of
  subsidiaries....................................................   87,691    77,796    19,191
Income tax benefit................................................      381       221     1,052
                                                                   --------  --------  --------
Income before equity in undistributed earnings of subsidiaries....   88,072    78,017    20,243
Equity in undistributed earnings of subsidiaries..................  (29,571)  (19,330)  (22,739)
                                                                   --------  --------  --------
Net income (loss)................................................. $ 58,501  $ 58,687  $ (2,496)
                                                                   ========  ========  ========
</TABLE>

Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                                             ----------------------------
                                                                               2001      2000      1999
                                                                             --------  --------  --------
                                                                                    (in thousands)
<S>                                                                          <C>       <C>       <C>
Cash flows from operating activities:
   Net income (loss)........................................................ $ 58,501  $ 58,687  $ (2,496)
Adjustments to reconcile net income (loss) to net cash provided by operating
  activities:
   Equity in undistributed earnings of bank subsidiaries....................   29,571    19,330    22,739
   Gain on sale of securities...............................................       --       (13)       --
   (Increase) decrease in other assets......................................      206    11,585    (3,479)
   Increase (decrease) in accrued expenses and other liabilities............      622       597    (5,249)
                                                                             --------  --------  --------
       Net cash provided by operating activities............................   88,900    90,186    11,515
                                                                             --------  --------  --------
Cash flows from investing activities:
   Investments in and advanced to subsidiaries..............................  (47,452)       --        --
   Proceeds from the sale of securities.....................................      250       295        --
                                                                             --------  --------  --------
       Net cash provided by investing activities............................  (47,202)      295        --
                                                                             --------  --------  --------
Cash flows from financing activities:
   Proceeds from issuance of treasury and common stock......................    1,531     2,750     9,484
   Dividends paid on common stock...........................................  (24,661)  (25,484)  (22,815)
   Repurchase of common stock...............................................  (16,473)  (66,478)       --
   Cash paid for fractional shares..........................................       --        --       (37)
                                                                             --------  --------  --------
       Net cash used in financing activities................................  (39,603)  (89,212)  (13,368)
                                                                             --------  --------  --------
   Net increase (decrease) in cash and cash equivalents.....................    2,095     1,269    (1,853)
   Cash and cash equivalents at beginning of year...........................   11,018     9,749    11,602
                                                                             --------  --------  --------
   Cash and cash equivalents at end of year................................. $ 13,113  $ 11,018  $  9,749
                                                                             ========  ========  ========
</TABLE>

                                      60

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 17  Regulatory Matters

   The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Banks must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. Each entity's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.

   Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios (set
forth in the tables below) of total and Tier I capital (as defined in the
regulation) to risk-weighted assets (as defined), and of Tier I capital to
average assets (as defined). Management believes, as of December 31, 2001, that
the Company and the Banks meet all capital adequacy requirements.

   As of December 31, 2001, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Company and the Banks as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as adequately or well capitalized, the Company and the Banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the tables below. There are no conditions or events
since that notification that management believes have changed the institutions'
categories.

   The Company's and the Banks' actual capital amounts (dollars in thousands)
and ratios are presented in the following tables:

<TABLE>
<CAPTION>
                                                                             To Be Well
                                                           For Capital   Capitalized Under
                                                             Adequacy    Prompt Corrective
                                              Actual         Purposes    Action Provisions:
                                          --------------  -------------  -----------------
                                           Amount  Ratio   Amount  Ratio   Amount    Ratio
                                          -------- -----  -------- -----  --------   -----
<S>                                       <C>      <C>    <C>      <C>   <C>         <C>
As of December 31, 2001

Total Capital (to Risk Weighted Assets):
   Consolidated.......................... $363,720 11.57% $251,413 8.00% $314,266    10.00%
   Chittenden Trust Company..............  247,857 11.30   175,546 8.00   219,433    10.00
   Bank of Western Massachusetts.........   42,541 10.80    31,510 8.00    39,388    10.00
   Flagship Bank & Trust.................   33,730 10.60    25,461 8.00    31,826    10.00
   Maine Bank & Trust....................   24,440 11.07    17,671 8.00    22,088    10.00
Tier 1 Capital (to Risk Weighted Assets):
   Consolidated..........................  324,363 10.32   125,706 4.00   188,560     6.00
   Chittenden Trust Company..............  220,399 10.04    87,773 4.00   131,660     6.00
   Bank of Western Massachusetts.........   37,607  9.55    15,755 4.00    23,633     6.00
   Flagship Bank & Trust.................   29,735  9.34    12,730 4.00    19,095     6.00
   Maine Bank & Trust....................   21,659  9.81     8,835 4.00    13,253     6.00
Tier 1 Capital (to Average Assets):
   Consolidated..........................  324,363  7.99   162,314 4.00   202,892     5.00
   Chittenden Trust Company..............  220,399  7.55   116,755 4.00   145,944     5.00
   Bank of Western Massachusetts.........   37,607  7.85    19,174 4.00    23,967     5.00
   Flagship Bank & Trust.................   29,735  6.82    17,453 4.00    21,816     5.00
   Maine Bank & Trust....................   21,659  8.85    19,174 4.00    12,243     5.00
</TABLE>

                                      61

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                                             To Be Well
                                                           For Capital   Capitalized Under
                                                             Adequacy    Prompt Corrective
                                              Actual         Purposes    Action Provisions:
                                          --------------  -------------  -----------------
                                           Amount  Ratio   Amount  Ratio   Amount    Ratio
                                          -------- -----  -------- -----  --------   -----
<S>                                       <C>      <C>    <C>      <C>   <C>         <C>
As of December 31, 2000:
Total Capital (to Risk Weighted Assets):
   Consolidated.......................... $360,230 12.08% $238,495 8.00% $298,118    10.00%
   Chittenden Trust Company..............  273,278 11.77   185,684 8.00   232,105    10.00
   Bank of Western Massachusetts.........   41,966 10.92    30,748 8.00    38,435    10.00
   Flagship Bank & Trust.................   31,226 10.98    22,760 8.00    28,451    10.00
Tier 1 Capital (to Risk Weighted Assets):
   Consolidated..........................  322,929 10.82   119,365 4.00   179,048     6.00
   Chittenden Trust Company..............  244,250 10.52    92,888 4.00   139,332     6.00
   Bank of Western Massachusetts.........   37,153  9.65    15,404 4.00    23,106     6.00
   Flagship Bank & Trust.................   27,658  9.69    11,418 4.00    17,127     6.00
Tier 1 Capital (to Average Assets):
   Consolidated..........................  322,929  8.65   149,423 4.00   186,779     5.00
   Chittenden Trust Company..............  244,250  8.44   115,760 4.00   144,700     5.00
   Bank of Western Massachusetts.........   37,153  7.50    19,821 4.00    24,777     5.00
   Flagship Bank & Trust.................   27,658  6.61    16,738 4.00    20,923     5.00
</TABLE>

Note 18  Business Segments

   Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information has established
standards for public companies relating to the reporting of financial and
descriptive information about their operating segments in financial statements.
Operating segments are components of an enterprise, which are evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
maker is the President and Chief Executive Officer of the Company.

   The Company has identified Commercial Banking as its reportable operating
business segment based on the fact that the results of operations are viewed as
a single strategic unit by the chief operating decision-maker. The Commercial
Banking segment is comprised of the four Commercial Banking subsidiaries and
CCC, which provide similar products and services, have similar distribution
methods, types of customers and regulatory responsibilities. Commercial Banking
derives its revenue from a wide range of banking services, including lending
activities, acceptance of demand, savings and time deposits, merchant credit
card services, trust and investment management, data processing, brokerage
services, mortgage banking, and loan servicing for investor portfolios.

   Immaterial operating segments of the Company's operations, which do not have
similar characteristics to the commercial banking operations and do not meet
the quantitative thresholds requiring disclosure, are included in the Other
category in the disclosure of business segments below. Revenue derived from
these segments includes insurance commissions from insurance related products
and services, as well as other operations associated with the parent holding
company.

   The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies. The
consolidation adjustments reflect certain eliminations of inter-segment
revenue, cash and Parent Company investments in subsidiaries.

                                      62

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following tables present the results of the Company's reportable
operating business segment results as of December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                          Commercial           Consolidation
                                           Banking   Other (2)  Adjustments  Consolidated
                                          ---------- --------- ------------- ------------
Year Ended December 31, 2001
<S>                                       <C>        <C>       <C>           <C>
Net interest revenue (1)................. $  170,305 $    280    $    (280)   $  170,305
Non interest income:
   Investment management income..........     15,722       --           --        15,722
   Service charges on deposits...........     14,294       --           --        14,294
   Mortgage servicing income.............      3,564       --           --         3,564
   Gains on sales of mortgage loans, net.     11,207       --           --        11,207
   Credit card income, net...............      3,964       --           --         3,964
   Insurance commissions, net............         --    3,466          (75)        3,391
   Other non-interest income.............     11,575       16           --        11,591
                                          ---------- --------    ---------    ----------
Total non-interest income................     60,326    3,482          (75)       63,733
                                          ---------- --------    ---------    ----------
Total income.............................    230,631    3,762         (355)      234,038
Provision for loan losses................      8,041       --           --         8,041
Depreciation and amortization expense....      8,708      385           --         9,093
Salaries and employee benefits...........     73,020    1,831           --        74,851
Other non-interest expense...............     49,916    1,900           --        51,816
                                          ---------- --------    ---------    ----------
Total non-interest expense...............    131,644    4,116           --       135,760
                                          ---------- --------    ---------    ----------
Income (loss) before income taxes........     90,946     (354)        (355)       90,237
Income tax expense (benefit).............     31,770      (34)          --        31,736
                                          ---------- --------    ---------    ----------
Net income (loss)........................ $   59,176 $   (320)   $    (355)   $   58,501
                                          ========== ========    =========    ==========
End of period assets.....................  4,130,079  385,132     (361,497)    4,153,714
End of period loans, net.................  2,792,909       --           --     2,792,909
End of period deposits...................  3,683,056       --      (13,210)    3,669,846
Expenditures for long-lived assets.......      3,457       21           --         3,478
</TABLE>

                                      63

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                             Commercial           Consolidation
                                              Banking   Other (2)  Adjustments  Consolidated
                                             ---------- --------- ------------- ------------
Year Ended December 31, 2000
<S>                                          <C>        <C>       <C>           <C>
Net interest revenue (1).................... $  167,072 $    410    $    (410)   $  167,072
Non interest income:
    Investment management income............     13,567       --           --        13,567
    Service charges on deposits.............     13,875       --           --        13,875
    Mortgage servicing income...............      4,079       --           --         4,079
    Gains on sales of mortgage loans, net...      2,818       --           --         2,818
    Credit card income, net.................      5,349       --           --         5,349
    Insurance commissions, net..............         --    2,968          (74)        2,894
    Other non-interest income...............     10,496       31           --        10,527
                                             ---------- --------    ---------    ----------
Total non-interest income...................     50,184    2,999          (74)       53,109
                                             ---------- --------    ---------    ----------
Total income................................    217,256    3,409         (484)      220,181
Provision for loan losses...................      8,700       --           --         8,700
Depreciation and amortization expense.......      7,017      380           --         7,397
Salaries and employee benefits..............     62,904    1,667           --        64,571
Special charges.............................        833       --           --           833
Other non-interest expense..................     50,394    1,566           --        51,960
                                             ---------- --------    ---------    ----------
Total non-interest expense..................    121,148    3,613           --       124,761
                                             ---------- --------    ---------    ----------
Income (loss) before income taxes...........     87,408     (204)        (484)       86,720
Income tax expense (benefit)................     28,055      (22)          --        28,033
                                             ---------- --------    ---------    ----------
Net income (loss)........................... $   59,353 $   (182)   $    (484)   $   58,687
                                             ========== ========    =========    ==========
End of period assets........................  3,766,152  354,366     (350,657)    3,769,861
End of period loans, net....................  2,815,843       --           --     2,815,843
End of period deposits......................  3,303,506       --      (11,099)    3,292,407
Expenditures for long-lived assets..........     16,604       98           --        16,702
</TABLE>

<TABLE>
<CAPTION>
                                             Commercial           Consolidation
                                              Banking   Other (2)  Adjustments  Consolidated
                                             ---------- --------- ------------- ------------
Year Ended December 31, 1999
<S>                                          <C>        <C>       <C>           <C>
Net interest revenue (1).................... $  175,455 $    404    $    (374)   $  175,485
Non interest income:
    Investment management income............     14,290       --           --        14,290
    Service charges on deposits.............     18,330       --           --        18,330
    Mortgage servicing income...............      3,589       --           --         3,589
    Gains on sales of mortgage loans, net...      5,361       --           --         5,361
    Credit card income, net.................      5,545       --           --         5,545
    Insurance commissions, net..............         --    2,603          (65)        2,538
    Other non-interest income...............     13,570      180           --        13,750
                                             ---------- --------    ---------    ----------
Total non-interest income...................     60,685    2,783          (65)       63,403
                                             ---------- --------    ---------    ----------
Total income................................    236,140    3,187         (439)      238,888
Provision for loan losses...................      8,700       --           --         8,700
Depreciation and amortization expense.......     12,269      533           --        12,802
Salaries and employee benefits..............     73,460    1,410           --        74,870
Special charges.............................     46,299   12,173           --        58,472
Other non-interest expense..................     55,785    1,680           --        57,465
                                             ---------- --------    ---------    ----------
Total non-interest expense..................    187,813   15,796           --       203,609
                                             ---------- --------    ---------    ----------
Income (loss) before income taxes...........     39,627  (12,609)        (439)       26,579
Income tax expense (benefit)................     29,973     (898)          --        29,075
                                             ---------- --------    ---------    ----------
Net income (loss)........................... $    9,654 $(11,711)   $    (439)   $   (2,496)
                                             ========== ========    =========    ==========
End of period assets........................  3,827,278  368,819     (367,801)    3,828,296
End of period loans, net....................  2,863,730       --           --     2,863,730
End of period deposits......................  3,222,473       --      (16,888)    3,205,585
Expenditures for long-lived assets..........      9,631       84           --         9,715
</TABLE>
--------
(1)The Commercial Banking segment derives a majority of its revenue from
   interest. In addition, management primarily relies on net interest revenue,
   not the gross revenue and expense amounts, in managing that segment.
   Therefore, only the net amount has been disclosed.
(2)Revenue derived from these non-reportable segments includes insurance
   commissions from various insurance related products and services, as well as
   other operations associated with the parent holding company.

                                      64

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 19  Recent Accounting Pronouncements

   In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"), which supersedes SFAS No. 121
and portions of APB Opinion No. 30. This statement addresses the recognition of
an impairment loss for long-lived assets to be held and used, or disposed of by
sale or otherwise. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Management does not expect the adoption of SFAS No. 144 to
have a significant impact on the financial position or results of operations of
the Company.

Note 20  Quarterly Financial Data (Unaudited)

   A summary of quarterly financial data for 2001 and 2000 is presented below:

<TABLE>
<CAPTION>
                                             Three Months Ended
                                  ----------------------------------------
                                  March 31     June 30  Sept. 30  Dec. 31
                                  --------    -------   --------  -------
                                  (in thousands, except per share amounts)
       <S>                        <C>         <C>       <C>       <C>
       2001
       Total interest income..... $68,139     $67,886   $66,820   $63,652
       Total interest expense....  27,963      25,202    23,242    19,785
                                  -------      -------  -------   -------
       Net interest income.......  40,176      42,684    43,578    43,867
       Provision for loan losses.   1,950       2,041     2,025     2,025
       Noninterest income........  16,966      15,190    15,934    15,643
       Noninterest expense.......  32,715      33,572    34,746    34,727
                                  -------      -------  -------   -------
       Income before income taxes  22,477      22,261    22,741    22,758
       Income tax expense........   7,965       7,935     7,930     7,906
                                  -------      -------  -------   -------
       Net income................ $14,512     $14,326   $14,811   $14,852
                                  =======      =======  =======   =======
       Basic earnings per share.. $  0.45     $  0.45   $  0.46   $  0.46
       Diluted earnings per share    0.44        0.44      0.46      0.46
       Dividends paid per share..    0.19        0.19      0.19      0.19
</TABLE>

<TABLE>
<CAPTION>
                                             Three Months Ended
                                  ----------------------------------------
                                  March 31     June 30  Sept. 30  Dec. 31
                                  --------    -------   --------  -------
                                  (in thousands, except per share amounts)
       <S>                        <C>         <C>       <C>       <C>
       2000
       Total interest income..... $70,666     $71,921   $73,202   $72,313
       Total interest expense....  27,929      30,483    31,589    31,029
                                  -------      -------  -------   -------
       Net interest income.......  42,737      41,438    41,613    41,284
       Provision for loan losses.   2,175       2,175     2,175     2,175
       Noninterest income........  13,304      13,267    13,580    12,958
       Special charges...........     833          --        --        --
       Noninterest expense.......  31,726      30,439    30,478    31,285
                                  -------      -------  -------   -------
       Income before income taxes  21,307      22,091    22,540    20,782
       Income tax expense........   6,716       7,620     7,792     5,905
                                  -------      -------  -------   -------
       Net income................ $14,591     $14,471   $14,748   $14,877
                                  =======      =======  =======   =======
       Basic earnings per share.. $  0.42     $  0.42   $  0.45   $  0.45
       Diluted earnings per share    0.41        0.42      0.44      0.45
       Dividends paid per share..    0.18        0.19      0.19      0.19
</TABLE>

                                      65

<PAGE>

                            CHITTENDEN CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Amounts for total interest income, net interest income, noninterest income
and noninterest expense vary from amounts shown on previously filed Forms 10-Q
due to immaterial reclassification adjustments made between categories in the
third quarter of 2001.
Note 21  SubsequentEvent

   On February 28, 2002, the Company completed its acquisition of Ocean
National Corporation, headquartered in Kennebunk, Maine and its subsidiary,
Ocean National Bank for $53.25 million in cash. The acquisition will be
accounted for as a purchase. Ocean National Corp. had total assets of $272
million, deposits of $223 million, and $22.5 million of stockholders' equity as
of December 31, 2001. Ocean had $205 million in loans, of which $107 million
were commercial loans and $71 million were residential real estate loans. It
presently operates eleven banking offices in southern Maine and southeastern
New Hampshire.

                                      66

<PAGE>

To the Board of Directors and Stockholders of Chittenden Corporation:

   We have audited the accompanying consolidated balance sheets of Chittenden
Corporation and its subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
and comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 financial position of Chittenden
Corporation and its subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP
Boston, Massachusetts

January 11, 2002 (except with respect to the matter discussed in Note 21, as to
        which the date is February 28, 2002)

                                      67

<PAGE>

                   MANAGEMENT'S STATEMENT OF RESPONSIBILITY

   The consolidated financial statements contained in this annual report on
Form 10-K have been prepared in accordance with generally accepted accounting
principles and, where appropriate, include amounts based upon management's best
estimates and judgements. Management is responsible for the integrity and the
fair presentation of the consolidated financial statements and related
information.

   Management maintains an extensive system of internal controls to provide
reasonable assurance that the Company's assets are safeguarded against loss and
that financial information is reliable. These internal controls include the
establishment and communication of policies and procedures, the selection and
training of qualified personnel and an internal auditing program that evaluates
the adequacy and effectiveness of such internal controls, policies and
procedures.

   The Audit Committee, which is comprised entirely of non-employee directors,
is responsible for ensuring that management, internal auditors, and the
independent public accountants fulfill their respective responsibilities with
regard to the consolidated financial statements. The Audit Committee meets
periodically with management, internal auditors and the independent public
accountants to assure that each is carrying out its responsibilities. The
internal auditors and the independent public accountants have full and free
access to the Audit Committee and meet with it, with and without management
being present, to discuss the scope and results of their audits and any
recommendations regarding the system of internal controls.

   The responsibility of the Company's independent public accountants, Arthur
Andersen LLP, is limited to an expression of their opinion as to the fairness
of the consolidated financial statements presented. Their opinion is based on
an audit conducted in accordance with auditing standards generally accepted in
the United States as described in the second paragraph of their report.

     /s/ Paul A. Perrault                     /s/ Kirk W. Walters
     Paul A. Perrault                         Kirk W. Walters
     President, Chief Executive Officer and   Executive Vice President and
       Chair of Board of Directors              Chief Financial Officer

                                      68

<PAGE>

ITEM9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   Not Applicable

                                   PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Information regarding the directors of the Registrant is included in the
Company's Definitive Proxy Statement/Prospectus for the 2002 Annual Meeting of
Stockholders of Chittenden Corporation at pages 5-7, and is specifically
incorporated herein by reference.

   At December 31, 2001, the principal officers of the Company and its
principal subsidiary, CTC, with their ages, positions, and years of
appointment, were as follows:

<TABLE>
<CAPTION>
                          Year
Name                Age Appointed                          Positions
----                --- ---------                          ---------
<C>                 <C> <C>       <S>
Paul A. Perrault... 50    1990    President, Chief Executive Officer of the Company and CTC

John P. Barnes..... 46    1990    Executive Vice President of the Company and CTC

Lawrence W. DeShaw. 56    1990    Executive Vice President of the Company and CTC

John W. Kelly...... 52    1990    Executive Vice President of the Company and CTC

Danny H. O'Brien... 52    1990    Executive Vice President of the Company and CTC

Kirk W. Walters.... 46    1996    Executive Vice President, Chief Financial Officer, and
                                  Treasurer of the Company and CTC

F. Sheldon Prentice 51    1985    Senior Vice President, General Counsel, and Secretary of the
                                  Company and CTC

Howard L. Atkinson. 57    1996    Chief Auditor of the Company and CTC
</TABLE>

   All of the current officers have been principally employed in executive
positions with CTC for more than five years.

   In accordance with the provisions of the Company's By-laws, the officers,
with the exception of the Secretary, hold office at the pleasure of the Board
of Directors. The Secretary is elected annually by the Board of Directors.

ITEM 11  EXECUTIVE COMPENSATION

   Information regarding remuneration of the directors and officers of the
Company is included in the Company's Definitive Proxy Statement for the 2002
Annual Meeting of Stockholders of Chittenden Corporation at pages 8-17 and is
specifically incorporated herein by reference.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information regarding the security ownership of directors and
director-nominees of the Company, all directors and officers of the Company as
a group, and certain beneficial owners of the Company's common stock, as of
January 31, 2002, is included in the Company's Definitive Proxy Statement for
its 2002 Annual Meeting of Stockholders of Chittenden Corporation at pages 2-3,
and is specifically incorporated herein by reference.

   There are no arrangements known to the registrant that may, at a subsequent
date, result in a change of control of the registrant.

                                      69

<PAGE>

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information regarding certain relationships and transactions between the
Company and its Directors, Director-Nominees, Executive Officers, and family
members of these individuals, is included in the Company's Definitive Proxy
Statement for its 2002 Annual Meeting of Stockholders of Chittenden Corporation
at page 18, and is specifically incorporated herein by reference.

                                    PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a)

    (1)Financial Statements

   The financial statements of the Company and its subsidiaries are included in
Part II, Item 8 hereof and are incorporated herein by reference.

    (2)Financial Statement Schedules

   There are no financial statement schedules required to be included in this
report.

    (3)Exhibits

   (a) The following are included as exhibits to this report:

<TABLE>
<C>       <S>
 3(i).1   Amended and restated Articles of Incorporation of the Company, incorporated herein by reference to
          the Proxy Statement for the 1994 Annual Meeting of Stockholders.
3(ii).1   By-laws of the Company, as amended and restated as of October 18, 1997.
     4.   Statement of the Company regarding its Dividend Reinvestment Plan is incorporated herein by
          reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
   10.1   Directors' Deferred Compensation Plan, dated April 1972, as amended May 20, 1992, incorporated
          herein by reference to the Company's Annual Report on Form 10-K for the year ended December
          31, 1992.
   10.2   Amended and Restated Pension Plan, incorporated herein by reference to the Company's Annual
          Report on Form 10-Q for the period ended September 30, 1996.
   10.3   Incentive Savings and Profit Sharing Plan, attached to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1994, as amended for the year ended December 31, 1995.
   10.4   Letter from the Company to Paul A. Perrault, dated July 26, 1990, regarding terms of employment,
          incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1990.
   10.5   The Company's 1988 Stock Option Plan, incorporated herein by reference to the Company's Annual
          Report on Form 10-K for the year ended December 31, 1987.
   10.6   The Company's Restricted Stock Plan, incorporated herein by reference to the Company's Proxy
          Statement in connection with the 1986 Annual Meeting of Stockholders.

   10.8   Executive Management Incentive Compensation Plan ("EMICP"), incorporated herein by reference
          to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
</TABLE>

                                      70

<PAGE>

<TABLE>
<C>        <S>

10.9       Amendment to EMICP to increase cap on awards from 60% to 100% of base
           salary, incorporated herein by reference to the Company's Annual
           Report on Form 10-K for the year ended December 31, 1996.

10.10      The Company's Stock Incentive Plan, amended and restated February 21,
           2001, incorporated herein by reference to the Company's Proxy
           Statement for the 2001 Annual Meeting of Stockholders.

10.11      Compensation plan of Paul A. Perrault, incorporated herein by
           reference to the Company's Annual Report on Form 10-K for the year
           ended December 31, 1996.

10.12      Supplemental Executive Retirement Plan of Paul A. Perrault,
           incorporated herein by reference to the Company's Annual Report on
           Form 10-K for the year ended December 31, 1996.

10.13      Supplemental Executive Cash Balance Restoration Plan incorporated
           herein by reference to the Company's Annual Report on Form 10-K for
           the year ended December 31, 1997.

10.14      Supplemental Executive Savings Plan, incorporated herein by reference
           to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1997.

10.15      The 1998 Directors' Omnibus Long-Term Incentive Plan, incorporated
           herein by reference to the Company's Proxy Statement for the 1998
           Annual Meeting of Stockholders.

21.        List of subsidiaries of the Registrant.

23.        Consent of Arthur Andersen LLP

   (b) Reports on Form 8-K

10/15/01   On October 5, 2001 Chittenden Corporation headquartered in
           Burlington, Vermont and Ocean National Corporation, headquartered in
           Kennebunk, Maine announced that they had signed a definitive
           agreement whereby Chittenden will acquire Ocean National Corporation,
           and its subsidiary, Ocean National Bank.

10/23/01   A copy of the quarterly earnings release and attached financial
           statements, as well as quarterly comparative financial statements.

11/16/01   A Power Point presentation distributed at various analyst meetings
           October 11, 2001 through October 31, 2001.
</TABLE>

   (c) Exhibits

EXHIBIT 21  LIST OF SUBSIDIARIES OF CHITTENDEN CORPORATION

Chittenden Trust Company, Vermont, d/b/a Chittenden Bank, Mortgage Service
Center, CUMEX Mortgage Service Center, and First Savings of New Hampshire and
Chittenden Trust Company's subsidiaries Chittenden Securities, Inc. and
Chittenden Insurance Products and Services, Inc, d/b/a The Pomerleau Agency

The Bank of Western Massachusetts, Massachusetts

Flagship Bank and Trust Company, Massachusetts

Maine Bank & Trust, Maine

Chittenden Connecticut Corporation, Vermont, d/b/a Mortgage Service Center and
CUMEX Mortgage Service Center

EXHIBIT 23  CONSENT OF ARTHUR ANDERSEN LLP HAS BEEN FILED AS AN EXHIBIT

                                      71

<PAGE>

                                  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, thereto duly authorized.

                Date: February 20, 2002  CHITTENDEN CORPORATION

                                          By: /s/  PAUL A. PERRAULT
                                            -----------------------------------
                                             Paul A. Perrault
                                             President, Chief Executive
                                             Officer and Chairman of the Board
                                             of Directors

                                      72

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

           Name            Title                                    Date
           ----            -----                                    ----

   /s/  PAUL A. PERRAULT   President, Chief Executive Officer February 20, 2002
 -------------------------   and Chairman of the Board of
     Paul A. Perrault        Directors

   /s/  KIRK W. WALTERS    Executive Vice President, Chief    February 20, 2002
 -------------------------   Financial Officer and Treasurer
      Kirk W. Walters        (principal accounting officer)

 /s/  FREDERIC H. BERTRAND Director                           February 20, 2002
 -------------------------
   Frederic H. Bertrand

  /s/  DAVID M. BOARDMAN   Director                           February 20, 2002
 -------------------------
     David M. Boardman

   /s/  PAUL J. CARRARA    Director                           February 20, 2002
 -------------------------
      Paul J. Carrara

  /s/  SALLY W. CRAWFORD   Director                           February 20, 2002
 -------------------------
     Sally W. Crawford

 /s/  PHILIP M. DRUMHELLER Director                           February 20, 2002
 -------------------------
   Philip M. Drumheller

    /s/  JOHN K. DWIGHT    Director                           February 20, 2002
 -------------------------
      John K. Dwight

      /s/  LYN HUTTON      Director                           February 20, 2002
 -------------------------
        Lyn Hutton

  /s/  PHILIP A. KOLVOORD  Director                           February 20, 2002
 -------------------------
    Philip A. Kolvoord

 /s/  JAMES C. PIZZAGALLI  Director                           February 20, 2002
 -------------------------
    James C. Pizzagalli

 /s/  ERNEST A. POMERLEAU  Director                           February 20, 2002
 -------------------------
    Ernest A. Pomerleau

   /s/  MARK W. RICHARDS   Director                           February 20, 2002
 -------------------------
     Mark W. Richards

    /s/  PALL D. SPERA     Director                           February 20, 2002
 -------------------------
       Pall D. Spera

    /s/  OWEN W. WELLS     Director                           February 20, 2002
 -------------------------
       Owen W. Wells

   MARTEL D. WILSON, JR.   Director                           February 20, 2002
 -------------------------
   Martel D. Wilson, Jr.

                                      73