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.

Charter One Financial Inc. of Cleveland and Factory Point National Bank of Manchester, Vt., have agreed to buy 15 branches. Chittenden hopes to complete its purchase of $2 billion-asset Vermont Financial next month. It expects to sell the branches in the third quarter. - Louis Whiteman

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