Chittenden Corp. of Burlington, Vt., has reached a deal to sell two branches to a hometown competitor, clearing the way for its purchase of Vermont Financial Services Corp.

The branches, in Rutland and Bellows Falls, would be sold to Merchants Bancshares, a $636 million-asset company with 34 branches. Merchants would gain $44 million of deposits and $40 million of loans. Chittenden announced in December that it would buy Brattleboro-based Vermont Financial for $454 million. As a condition of approval from the Justice Department and Federal Reserve Board, $2.1 billion-asset Chittenden agreed to divest 17 branches in Vermont.

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