S-1

As filed with the Securities and Exchange Commission on June 10, 2004

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SI Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Federal	6035	Applied For
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification No.)

803 Main Street

Willimantic, Connecticut 06226

(860) 423-4581

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Rheo A. Brouillard

President and Chief Executive Officer

SI Financial Group, Inc.

803 Main Street

Willimantic, Connecticut 06226

(860) 423-4581

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Douglas P. Faucette, Esquire

Victor L. Cangelosi, Esquire

Muldoon Murphy Faucette & Aguggia LLP

5101 Wisconsin Avenue, N.W.

Washington, D.C. 20016

(202) 362-0840

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

Calculation of Registration Fee

Title of each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Unit	Proposed Maximum Aggregate Offering Price (2)	Amount of Registration Fee
Common Stock $.01 par value	4,721,325 Shares (1)	$10.00	$47,213,250	$5,982
Participation Interests	(3)	______	$5,128,575	(4)

(1) Includes shares of common stock to be issued to SI Financial Group Foundation, a private foundation.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the employee benefit plan described herein.

(4) The securities of SI Financial Group, Inc. to be purchased by Savings Institute Profit Sharing and 401(k) Savings Plan are included in the amount shown for common stock. Accordingly, no separate fee is required for the participation interests. In accordance with Rule 457(h) of the Securities Act, as amended, the registration fee has been calculated on the basis of the number of shares of common stock that may be purchased with the current assets of such Plan.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

INTERESTS IN

SAVINGS INSTITUTE BANK AND TRUST COMPANY

PROFIT SHARING

AND

401 (K) SAVINGS PLAN

AND

OFFERING OF 512,857 SHARES OF

SI FINANCIAL GROUP, INC.

COMMON STOCK ($.01 PAR VALUE)

This prospectus supplement relates to the offer and sale to participants in Savings Institute Bank and Trust Company Profit Sharing and 401(k) Savings Plan of participation interests and shares of common stock of SI Financial Group, Inc in connection with initial public offering.

Savings Plan participants may now direct the trustee of the Savings Plan to use their current account balances to subscribe for and purchase shares of SI Financial Group, Inc. common stock through the SI Financial Group, Inc. Stock Fund. Based upon the value of the Savings Plan assets as of June 1, 2004, the trustee of the Savings Plan may purchase up to 512,857 shares of SI Financial Group, Inc. common stock, assuming a purchase price of $10.00 per share. This prospectus supplement relates to the election of Savings Plan participants to direct the trustee of the Savings Plan to invest all or a portion of their Savings Plan accounts in SI Financial Group, Inc. common stock.

The prospectus dated             , 2004 of SI Financial Group, Inc., which we have attached to this prospectus supplement, includes detailed information regarding the offering of shares of SI Financial Group, Inc. common stock and the financial condition, results of operations and business of Savings Institute Bank and Trust Company (“Savings Institute”). This prospectus supplement provides information regarding the Savings Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

Please refer to “Risk Factors” beginning on page          of the prospectus.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit

Insurance Corporation, nor any other state or federal agency or any state securities commission, has

approved or disapproved these securities. Any representation to the contrary is a criminal offense.

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit

Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by SI Financial Group, Inc. of interests or shares of common stock under the Savings Plan to employees of Savings Institute. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the Savings Plan.

You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither SI Financial Group, Inc., SI Bancorp, MHC, Savings Institute nor the Savings Plan have authorized anyone to provide you with information that is different.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Savings Institute or the Savings Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this Prospectus Supplement is             , 2004.

TABLE OF CONTENTS

THE OFFERING	3
Securities Offered	3
Election to Purchase SI Financial Group, Inc. Common Stock in the Reorganization and Stock Offering	3
Value of Participation Interests	3
Method of Directing Transfer	4
Time for Directing Transfer	4
Irrevocability of Transfer Direction	4
Purchase Price of SI Financial Group, Inc. Common Stock	4
Nature of a Participant’s Interest in SI Financial Group, Inc. Common Stock	4
Voting and Tender Rights of SI Financial Group, Inc. Common Stock	5
DESCRIPTION OF THE SAVINGS PLAN	5
Introduction	5
Eligibility and Participation	5
Contributions Under the Savings Plan	6
Limitations on Contributions	6
Savings Plan Investments	7
Benefits Under the Savings Plan	10
Withdrawals and Distributions From the Savings Plan	10
ADMINISTRATION OF THE SAVINGS PLAN	12
Trustee	12
Reports to Savings Plan Participants	12
Plan Administrator	12
Amendment and Termination	12
Merger, Consolidation or Transfer	12
Federal Income Tax Consequences	13
Restrictions on Resale	14
SEC Reporting and Short-Swing Profit Liability	14
LEGAL OPINION	15

THE OFFERING

Securities Offered

The securities offered in connection with this prospectus supplement are participation interests in the Savings Plan. Assuming a purchase price of $10.00 per share, the trustee may acquire up to 512,857 shares of SI Financial Group, Inc. common stock for the SI Financial Group, Inc. Stock Fund. The interests offered under this prospectus supplement are conditioned on the completion of the Reorganization and Stock Offering of Savings Institute. Certain subscription rights and purchase limitations also govern your investment in the SI Financial Group, Inc. Stock Fund in connection with the Reorganization and Stock Offering. See: Persons Who Can Order Stock in the Offering” and “Purchase Limitations” in the prospectus attached to this prospectus supplement for further discussion of these subscription rights and purchase limitations.

This prospectus supplement contains information regarding the Savings Plan. The attached prospectus contains information regarding the Reorganization and Stock Offering and the financial condition, results of operations and business of Savings Institute. The address of the principal executive office of Savings Institute is 803 Main Street, Willimantic, Connecticut 06226. The telephone number of Savings Institute is 860-423-4581.

Election to Purchase SI Financial Group, Inc. Common Stock in the Reorganization and Stock Offering

In connection with the Reorganization and Stock Offering of Savings Institute, you may direct the trustee of the Savings Plan to transfer all or part of the funds that represent your current beneficial interest in the assets of the Savings Plan to the SI Financial Group, Inc. Stock Fund. The Savings Plan trustee will subscribe for SI Financial Group, Inc. common stock offered for sale in connection with the Reorganization and Stock Offering in accordance with each participant’s direction. If there is not enough common stock in the Reorganization and Stock Offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Savings Plan may not be able to purchase all of the common stock you requested. In such a case, if you elect, the trustee will purchase shares in the open market on your behalf, after the Reorganization and Stock Offering, to fulfill your initial request. The trustee may make such purchases at prices higher than the initial public offering price.

All plan participants are eligible to direct a transfer of funds to the SI Financial Group, Inc. Stock Fund. However, transfer directions are subject to subscription rights and purchase priorities. Your order for shares in the Stock Offering will be filled based on your subscription rights. SI Financial Group, Inc. has granted rights to subscribe for shares of SI Financial Group, Inc. common stock to the following persons in the following order of priority: (1) persons with $50 or more on deposit at Savings Institute as of November 30, 2002; (2) Savings Institute Bank and Trust Company Employee Stock Ownership Plan; (3) persons with $50 or more on deposit at Savings Institute as of             , 2004; and (4) Savings Institute’s members who are not eligible to subscribe for shares under categories 1 and 3. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of common stock in the offering and you may use funds in the Savings Plan account to pay for your purchase of shares of SI Financial Group, Inc. common stock.

Value of Participation Interests

As of June 1, 2004, the market value of the assets of the Savings Plan equaled approximately $5,128,575. The plan administrator has informed each participant of the value of his or her beneficial interest in the Savings Plan. The value of Savings Plan assets represents past contributions made to the

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Savings Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans.

Method of Directing Transfer

The last two pages of this prospectus supplement contain a form for you to direct a transfer to the SI Financial Group, Inc. Stock Fund (the “Investment Form”). If you wish to transfer all, or part, in multiples of not less than 1%, of your beneficial interest in the assets of the Savings Plan to the SI Financial Group, Inc. Stock Fund, you should complete the Investment Form. If you do not wish to make such an election at this time, you do not need to take any action. The minimum investment in the SI Financial Group, Inc. Stock Fund during the initial public offering is $250.00.

Time for Directing Transfer

You must submit your direction to transfer amounts to the SI Financial Group, Inc. Stock Fund in connection with the Reorganization and Stock Offering by the deadline of 5:00 p.m. on             , 2004. You should return the Investment Form to Laurie Gervais in the Human Resources Department.

Irrevocability of Transfer Direction

You cannot change your direction to transfer amounts credited to your account in the Savings Plan to the SI Financial Group, Inc. Stock Fund prior to the completion of the Reorganization and Stock Offering. Following the closing of the Reorganization and Stock offering and the initial purchase of shares in the SI Financial Group, Inc. Stock Fund, you may change your investment directions, in accordance with the terms of the Savings Plan.

Purchase Price of SI Financial Group, Inc. Common Stock

The trustee will use the funds transferred to the SI Financial Group, Inc. Stock Fund to purchase shares of SI Financial Group, Inc. common stock in the Reorganization and Stock Offering. The trustee will pay the same price for shares of SI Financial Group, Inc. common stock as all other persons who purchase shares of SI Financial Group, Inc. common stock in the offering. If there is not enough common stock in the offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Savings Plan may not be able to purchase all of the common stock you requested. If you elect, the trustee will purchase shares on your behalf after the Reorganization and Stock Offering in the open market, to fulfill your initial request. The trustee may make such purchases at prices higher or lower than the $10.00 offering price.

Nature of a Participant’s Interest in SI Financial Group, Inc. Common Stock

The trustee will hold SI Financial Group, Inc. common stock in the name of the Savings Plan. The trustee will credit shares of common stock acquired at your direction to your account under the Savings Plan. Therefore, the investment designations of other Savings Plan participants should not affect earnings on your Savings Plan account.

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Voting and Tender Rights of SI Financial Group, Inc. Common Stock

The trustee generally will exercise voting and tender rights attributable to all SI Financial Group, Inc. common stock held by the SI Financial Group, Inc. Stock Fund, as directed by participants with interests in the SI Financial Group, Inc. Stock Fund. With respect to each matter as to which holders of SI Financial Group, Inc. common stock have a right to vote, you will have voting instruction rights that reflect your proportionate interest in the SI Financial Group, Inc. Stock Fund. The number of shares of SI Financial Group, Inc. common stock held in the SI Financial Group, Inc. Stock Fund voted for and against each matter will be proportionate to the number of voting instruction rights exercised. If there is a tender offer for SI Financial Group, Inc. common stock, the Savings Plan allots each participant a number of tender instruction rights reflecting the participant’s proportionate interest in the SI Financial Group, Inc. Stock Fund. The percentage of shares of SI Financial Group, Inc. common stock held in the SI Financial Group, Inc. Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights exercised in favor of the tender offer. The remaining shares of SI Financial Group, Inc. common stock held in the SI Financial Group, Inc. Stock Fund will not be tendered. The Savings Plan provides that participants will exercise their voting instruction rights and tender instruction rights on a confidential basis.

DESCRIPTION OF THE SAVINGS PLAN

Introduction

Savings Institute originally adopted the Savings Plan effective January 1, 1990. The Savings Plan was subsequently amended and restated, most recently, effective January 1, 2002. Savings Institute intends for the Savings Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, or “ERISA.” Savings Institute may change the Savings Plan from time to time in the future to ensure continued compliance with these laws. Savings Institute may also amend the Savings Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the Savings Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the Savings Plan.

Reference to Full Text of the Plan. The following portions of this prospectus supplement summarize the material provisions of the Savings Plan. Savings Institute qualifies this summary in its entirety by reference to the full text of the Savings Plan. You may obtain copies of the full Savings Plan document including any amendments to the plan and a summary plan description for the Savings Plan, by contacting Laurie Gervais in the Human Resources Department. You should carefully read the Savings Plan documents to understand your rights and obligations under the plan.

Eligibility and Participation

Eligible employees of Savings Institute who have attained age 21 and completed 90 days of employment with Savings Institute may begin to make pre-tax salary deferrals into the Savings Plan as of the first day of the month after they have satisfied the eligibility requirements.

As of December 31, 2003, 127 of the 189 employees of Savings Institute participated in the Savings Plan.

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Contributions Under the Savings Plan

Employee Pre-Tax Salary Deferrals. Subject to certain IRS limitations, the Savings Plan permits each participant to make pre-tax salary deferrals to the Savings Plan each payroll period of up to 100% of the participant’s pay. For purposes of the Savings Plan, a participant’s “pay” is defined as a participant’s base salary, commissions, overtime and bonuses. Participants may change their rate of pre-tax deferrals on a quarterly basis by completing a form and submitting it to the Human Resources Department.

Savings Institute Matching Contributions. The Savings Plan provides that Savings Institute will make matching contributions on behalf of each participant equal to 50% of the participant’s pay, up to a maximum of 6% of pay. Savings Institute makes matching contributions only for those participants who make pre-tax salary deferrals to the Savings Plan. If a participant stops making pre-tax salary deferrals to the Savings Plan, Savings Institute will cease its matching contributions on the participant’s behalf.

Savings Institute Discretionary Contributions. Savings Institute, in its sole discretion, may also make additional discretionary contributions, in amounts specified by the Board of Directors of Savings Institute. These discretionary contributions are allocated to each participant in the Savings Plan who is actively employed by Savings Institute on the last business day of the Plan Year and has completed 1,000 hours of service for Savings Institute during the Plan Year.

Rollover Contributions. Savings Institute allows employees who receive a distribution from a previous employer’s tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the Savings Plan, provided the rollover contribution satisfies IRS requirements.

Limitations on Contributions

Limitation on Employee Salary Deferrals. Although the Savings Plan permits you to defer up to 100% of your pay, by law your total deferrals under the Savings Plan, together with similar plans, may not exceed $13,000 for 2004. Employees who are age 50 and over may also make additional, “catch-up” contributions to the plan, up to a maximum of $3,000 for 2004. The Internal Revenue Service periodically increases these limitations. A participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the Savings Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.

Limitation on Annual Additions and Benefits. As required by the Internal Revenue Code, the Savings Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Savings Institute (including the Savings Plan and the proposed Savings Institute Bank and Trust Company Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participant’s annual compensation or $41,000 for 2004.

Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of pre-tax and matching contributions that may be made to the Savings Plan in any year on behalf of highly compensated employees, in relation to the amount of pre-tax and matching contributions made by or on behalf of all other employees eligible to participate in the

6

Savings Plan. If pre-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.

In general, a highly compensated employee includes any employee who (1) was a five percent owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $90,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The preceding dollar amount applies for 2004, and may be adjusted periodically by the IRS.

Top-Heavy Plan Requirements. If the Savings Plan is a Top-Heavy Plan for any calendar year, Savings Institute may be required to make certain minimum contributions to the Savings Plan on behalf of non-key employees. In general, the Savings Plan will be treated as a “Top-Heavy Plan” for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of Key Employees exceeds 60% of the aggregate balance of the accounts of all employees under the plan. A Key Employee is generally any employee who, at any time during the calendar year or any of the four preceding years, is:

(1) an officer of Savings Institute whose annual compensation exceeds $130,000;

(2) a 5% owner of the employer, meaning an employee who owns more than 5% of the outstanding stock of SI Financial Group, Inc., or who owns stock that possesses more than 5% of the total combined voting power of all stock of SI Financial Group, Inc.; or

(3) a 1% owner of the employer, meaning an employee who owns more than 1% of the outstanding stock of SI Financial Group, Inc., or who owns stock that possesses more than 1% of the total combined voting power of all stock of SI Financial Group, Inc., and whose annual compensation exceeds $150,000.

The foregoing dollar amounts are for 2004.

Savings Plan Investments

Assets in the Savings Plan Trust are currently invested in the funds specified below. The annual percentage return on these funds (net of fees) for the prior three years was:

Equity Funds	2003		2002		2001
Alliance Technology Fund	41.70	%	-43.00	%	-25.90	%
Federated Moderate Allocation Portfolio	20.50	%	-10.00	%	-6.60	%
Federated Growth Allocation Portfolio	25.90	%	-17.10	%	-10.30	%
Janus Enterprise	35.80	%	-28.30	%	-39.90	%
Janus Twenty Fund	25.30	%	-24.00	%	-29.20	%
Lord Abbett Mid Cap Value Fund	24.90	%	-9.80	%	8.00	%
MFS Investors Growth Stock Trust	22.60	%	-28.40	%	-24.80	%
MFS New Discovery Fund	34.30	%	-33.50	%	-5.10	%
MFS Value Fund	24.70	%	-13.70	%	-7.80	%
T Rowe Price Mid Cap Growth Advisor Fund	37.90	%	-21.50	%	-1.10	%
Willshire 5000 Index Portfolio	29.60	%	-21.30	%	-11.50	%
Bond Funds
Federated Total Return Gov’t Bond Fund	2.80	%	12.30	%	7.40	%
International Funds
Federated International Equity Fund	34.00	%	-23.60	%	-28.90	%
Janus Worldwide	24.20	%	-26.00	%	-22.90	%
MM/Cap, Preserve Funds
Federated Auto Cash Mgmt. Trust	0.69	%	1.36	%	3.83	%
Federated Capital Preservation Fund	4.02	%	4.99	%	5.55	%

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Alliance Technology Fund. This fund seeks maximum capital appreciation by investing primarily in equity securities of companies that the fund advisor believes will benefit from the advancements in science and technology.

Federated Moderate Allocation Portfolio. This fund seeks capital appreciation by investing in both bonds and stocks.

Federated Growth Allocation Portfolio. This fund seeks capital appreciation by primarily investing in both equities and bonds.

Janus Enterprise. This fund seeks long-term growth of capital by investing primarily in common stocks, with an emphasis on securities issued by medium-sized companies.

Janus Twenty Fund. This fund seeks long term growth of capital by investing primarily in common stocks of companies that offer rapid growth potential. This fund concentrates its investments in a core position of 20-30 common stocks.

Lord Abbett Mid Cap Value Fund. This fund seeks capital appreciation by investing in the stocks of mid-sized companies that are believed to be undervalued in the marketplace.

MFS Investors Growth Stock Trust. This fund seeks to provide long term capital growth and future income by keeping its assets invested, except for working cash balances, in the common stock or convertible securities of companies believed to have better-than-average prospects for long term growth.

MFS New Discovery Fund. This fund seeks capital appreciation by investing at least 65% of its assets in equity securities of companies of any size believed to offer superior prospects for growth. It emphasizes emerging growth companies and may invest up to 35% in other securities offering capital appreciation.

MFS Value Fund. This fund seeks reasonable income by investing mainly in income producing securities. The secondary objective is capital appreciation. It invests, under normal market conditions, about 65% of its total assets in income producing equity securities, and may invest 35% in fixed income securities.

T Rowe Price Mid Cap Growth Advisor Fund. This fund seeks to provide long-term capital appreciation by investing in mid-cap stocks with potential for above-average earnings growth.

Willshire 5000 Index Portfolio. This fund seeks to replicate as closely as possible the performance of the index before the deduction of fund expenses.

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Federated Total Return Government Bond Fund. This fund seeks total return consistent with current income. The fund normally invests exclusively in U.S. government securities. It maintains a dollar-weighted average maturity between five and 10 years. Investments may include Treasury obligations, government agency securities, and repurchase agreements.

Federated International Equity Fund. This fund seeks to obtain a total return on its assets from a combination of long-term capital growth and income through a diversified portfolio primarily invested in equity securities of non-U.S. issuers.

Janus Worldwide. This fund seeks long term growth of capital in a manner consistent with the preservation of capital by investing in a diversified portfolio of common stocks of foreign and domestic issues of all sizes.

Federated Auto Cash Management Trust. This fund invests in short-term money market instruments with an average maturity of 45 -55 days.

Federated Capital Preservation Fund. This fund seeks to offer investors stable principal and high current income. To pursue its objectives, the fund invests in stable value products, including guaranteed investment contracts and money market funds.

The Savings Plan now offers the SI Financial Group, Inc. Stock Fund as an additional choice to the investment alternatives described above. The SI Financial Group, Inc. Stock Fund invests primarily in the common stock of SI Financial Group, Inc. Participants in the Savings Plan may direct the trustee to invest all or a portion of their Savings Plan account balances in the SI Financial Group, Inc. Stock Fund.

The SI Financial Group, Inc. Stock Fund consists of investments in the common stock of SI Financial Group, Inc. made on the effective date of the Reorganization and Stock Offering. Each Participant’s proportionate undivided beneficial interest in the SI Financial Group, Inc. Stock Fund is measured by units. The daily unit value is calculated by determining the market value of the common stock held and adding to that any cash held by the trustee. This total will be divided by the number of units outstanding to determine the unit value of the SI Financial Group, Inc. Stock Fund.

Upon payment of a cash dividend, the trustee will determine the unit value prior to distributing the dividend. The trustee may use the dividend to purchase shares of SI Financial Group, Inc. Common Stock. The Trustee will, to the extent practicable, use amounts held in the SI Financial Group, Inc. Stock Fund to purchase shares of the common stock. Pending investment in the common stock, assets held in the SI Financial Group, Inc. Stock Fund will be placed in bank deposits and other short-term investments.

As of the date of this prospectus supplement, no shares of SI Financial Group, Inc. common stock have been issued or are outstanding, and there is no established market for SI Financial Group, Inc. common stock. Accordingly, there is no record of the historical performance of the SI Financial Group, Inc. Stock Fund. Performance of the SI Financial Group, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of Savings Institute and general stock market conditions.

Once you have submitted your Investment Form, you may not change your investment directions until after the completion of the Reorganization and Stock Offering. After the Reorganization and Stock Offering, you may change your investment directions in accordance with the terms of the Savings Plan.

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Benefits Under the Savings Plan

Vesting. All participants are 100% vested in their pre-tax salary deferral and matching contribution account balances in the Savings Plan. This means that participants have a non-forfeitable right to these funds and any earnings on the funds at all times. Plan participants vest in their discretionary (profit sharing) contributions (if any) at a rate of 25% after the first two years of employment and 25% each additional year thereafter.

Withdrawals and Distributions From the Savings Plan

Withdrawals Before Termination of Employment. You may receive in-service distributions from the Savings Plan under limited circumstances in the form hardship withdrawals and participant loans.

In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balances.

Participant loans are approved by the Savings Plan Administrator. If you qualify for a participant loan, the trustee will make a distribution proportionately from the investment funds in which you have invested your account balances. You may obtain information on the participant loan program from the Human Resources Department at Savings Institute.

Distribution Upon Retirement or Disability. The standard form of benefit upon retirement or disability is a lump sum payment. However, if the value of a participant’s accounts under the Savings Plan exceeds $5,000, the participant may elect to defer the lump sum payment until after retirement. However, the IRS requires that participants receive at least a portion of their plan accounts by the April 1^st of the calendar year following the calendar year in which they retire (or terminate service due to a disability) or the calendar year in which they reach age 70 ½. Participants may also choose to roll over all or a portion of their plan accounts to an Individual Retirement Account (IRA), or to another employer’s qualified plan, if the other employer’s plan permits rollover contributions.

Distribution Upon Death. A participant’s designated beneficiary will receive the full value of a participant’s accounts under the Savings Plan upon the participant’s death. If the participant did not make a valid election regarding the form of payment prior to death, the beneficiary will receive a lump sum payment as soon as administratively possible. If the participant made a valid payment election, or was otherwise scheduled to receive a deferred lump sum payment, the beneficiary will generally receive a lump sum payment on the date elected by the participant. Under certain circumstances, however, payment may be made on an earlier date.

Distribution Upon Termination for Any Other Reason. If your Savings Plan accounts total $5,000 or less, you will receive a lump sum payment as soon as administratively possible after your termination of employment. If the value of your Savings Plan accounts exceeds $5,000, you will receive a lump sum payment on your normal retirement date. However, you may elect to receive the value of your vested Savings Plan accounts in a lump sum payment prior to your normal retirement date. You may also request that the trustee transfer the value of your accounts to an Individual Retirement Account (IRA) or to another employer’s qualified plan, if the other employer’s plan permits rollover contributions.

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Nonalienation of Benefits. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the Savings Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the Savings Plan will be void.

Applicable federal tax law requires the Savings Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Savings Institute. Federal law may also impose an excise tax on withdrawals from the Savings Plan before you attain 59½ years of age, regardless of whether the withdrawal occurs during your employment with Savings Institute or after termination of employment.

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ADMINISTRATION OF THE SAVINGS PLAN

Trustee

The trustee of the Savings Plan is the named fiduciary of the Savings Plan for purposes of ERISA. The board of directors of Savings Institute appoints the trustee to serve at its pleasure. The board of directors has appointed First Bankers Trust Company, N.A. as the trustee for the SI Financial Group, Inc. Stock Fund. The Trust Department at Savings Institute is the trustee for all other assets in the Savings Plan.

The trustee receives, holds and invests the contributions to the Savings Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the Savings Plan and the directions of the plan administrator. The trustee is responsible for the investment of the trust assets, as directed by the participants.

Reports to Savings Plan Participants

The plan administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.

Plan Administrator

Savings Institute currently acts as plan administrator for the Savings Plan. The plan administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.

Amendment and Termination

Savings Institute expects to continue the Savings Plan indefinitely. Nevertheless, Savings Institute may terminate the Savings Plan at any time. If Savings Institute terminates the Savings Plan in whole or in part, all affected participants become fully vested in their accounts, regardless of other provisions of the Savings Plan. Savings Institute reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Savings Institute may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.

Merger, Consolidation or Transfer

If the Savings Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the Savings Plan or the other plan is subsequently terminated, the Savings Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the Savings Plan had terminated at that time.

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Federal Income Tax Consequences

The following summarizes only briefly the material federal income tax aspects of the Savings Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the Savings Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. Savings Plan Participants should consult a tax advisor with respect to any transaction involving the Savings Plan, including any distribution from the Savings Plan.

As a “tax-qualified retirement plan,” the Internal Revenue Code affords the Savings Plan certain tax advantages, including the following:

(1) The sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

(3) earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

Savings Institute administers the Savings Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Savings Institute should receive an adverse determination letter from the IRS regarding the Savings Plan’s tax exempt status, all participants would generally recognize income equal to their vested interests in the Savings Plan, the participants would not be permitted to transfer amounts distributed from the Savings Plan to an Individual Retirement Account or to another qualified retirement plan, and Savings Institute would be denied certain tax deductions taken in connection with the Savings Plan.

Lump Sum Distribution. A distribution from the Savings Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59½; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Savings Institute. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Savings Institute, if the distribution includes those amounts.

SI Financial Group, Inc. Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes SI Financial Group, Inc. common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on SI Financial Group, Inc. common stock; that is, the excess of the value of SI Financial Group, Inc. common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of SI Financial Group, Inc. common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of SI Financial Group, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of SI Financial Group, Inc. common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the SI Financial Group, Inc. common stock, or the “holding period.” Any gain on a subsequent sale or other taxable disposition of SI Financial Group, Inc. common stock that exceeds the amount of net unrealized

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appreciation upon distribution is considered long-term capital gain, regardless of the holding period. Any gain on a subsequent sale or other taxable disposition of SI Financial Group, Inc. common stock that exceeds the amount of net unrealized appreciation at the time of distribution is considered either short-term or long-term capital gain, depending upon the length of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.

We have provided you with a brief description of the material federal income tax aspects of the Savings Plan that are generally applicable under the Internal Revenue Code. We do not intend this description to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the Savings Plan. Accordingly, you should consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the Savings Plan.

Restrictions on Resale

Any “affiliate” of SI Financial Group, Inc. under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the Savings Plan, may re-offer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An “affiliate” of Savings Institute is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, Savings Institute. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an “affiliate” of that corporation.

Any person who may be an “affiliate” of Savings Institute may wish to consult with counsel before transferring any common stock they own. In addition, participants should consult with counsel regarding the applicability to them of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of SI Financial Group, Inc. common stock acquired under the Savings Plan or other sales of SI Financial Group, Inc. common stock.

Persons who are not deemed to be “affiliates” of Savings Institute at the time of resale may resell freely any shares of SI Financial Group, Inc. common stock distributed to them under the Savings Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an “affiliate” of Savings Institute at the time of a proposed resale may publicly resell common stock only under a “re-offer” prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of one percent of SI Financial Group, Inc. common stock then outstanding or the average weekly trading volume reported on the Nasdaq Stock Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when SI Financial Group, Inc. is current in filing all required reports under the Securities Exchange Act of 1934, as amended.

SEC Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than ten percent of public companies such as SI Financial Group, Inc. Section 16(a) of the Securities Exchange Act of 1934, as

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amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with the Securities and Exchange Commission. Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their Savings Plan accounts, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company’s fiscal year.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by SI Financial Group, Inc. of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than ten percent of the common stock.

The SEC has adopted rules that exempt many transactions involving the Savings Plan from the “short-swing” profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than ten percent of the common stock.

Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the Savings Plan for six months after the distribution date.

LEGAL OPINION

The validity of the issuance of the common stock of SI Financial Group, Inc. will be passed upon by Muldoon Murphy Faucette & Aguggia LLP, Washington, D.C. Muldoon Murphy Faucette & Aguggia LLP acted as special counsel for Savings Institute in connection with the Stock Offering.

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SAVINGS INSTITUTE BANK AND TRUST COMPANY

PROFIT SHARING AND 401(K) SAVINGS PLAN

INVESTMENT FORM

Name of Plan Participant:                                                                                                                                                                

Social Security Number:                                                      

1. Instructions. In connection with the offering to the public of the common stock of SI Financial Group, Inc. Savings Institute Bank and Trust Company Profit Sharing and 401(k) Savings Plan (the “Plan”) now permits participants to direct their current Saving Plan account balances into a new fund: the SI Financial Group, Inc. Stock Fund (“Employer Stock Fund”). The percentage of a participant’s account transferred at the direction of the participant into the Employer Stock Fund will be used to purchase shares of common stock of SI Financial Group, Inc. (the “Common Stock”).

To direct a transfer of all or a part of the funds credited to your accounts to the Employer Stock Fund, you should complete and file this form with the Human Resources Department no later than 10 days prior to the expiration date of the stock offering. A representative for the Plan Administrator will retain a copy of this form and return a copy to you. If you need any assistance in completing this form, please contact Laurie Gervais at 860-456-6569. If you do not complete and return this form to the Human Resources Department by 5:00 p.m. on             , 2004, the funds credited to your accounts under the Plan will continue to be invested in accordance with your prior investment directions, or in accordance with the terms of the Plan if no investment directions have been provided.

2. Investment Directions. I hereby authorize the Plan Administrator to direct the Trustees to invest the following percentages (in multiples of not less than 5%) of my Savings Plan account balance in the Employer Stock Fund:

Equity Funds		%
Alliance Technology Fund	____	%
Federated Moderate Allocation Portfolio	____	%
Federated Growth Allocation Portfolio	____	%
Janus Enterprise	____	%
Janus Twenty Fund	____	%
Lord Abbett Mid Cap Value Fund	____	%
MFS Investors Growth Stock Trust	____	%
MFS New Discovery Fund	____	%
MFS Value Fund	____	%
T Rowe Price Mid Cap Growth Advisor Fund	____	%
Willshire 5000 Index Portfolio	____	%
Bond Funds
Federated Total Return Gov’t Bond Fund	____	%
International Funds
Federated International Equity Fund	____	%
Janus Worldwide	____	%
MM/Cap, Preserve Funds
Federated Auto Cash Mgmt. Trust	____	%
Federated Capital Preservation Fund	____	%

Note: The total percentage of directed investments, above, may not exceed 100%

If there is not enough Common Stock in the stock offering to fill my subscription pursuant to the investment directions above, I hereby instruct the Plan Trustee to purchase shares of Common Stock in the open market after the Reorganization and Stock Offering to the extent necessary to fulfill my investment directions indicated on this form. I understand that if I do not direct the Trustee by checking the box below, the excess funds will be invested in the same manner as new deposits have been directed.

¨ Yes, I direct the Trustee to purchase stock in the open market, if necessary.

3. Purchaser Information. The ability of participants in the Plan to purchase Common Stock and to direct their current account balances into the Employer Stock Fund is based upon the participant’s subscription rights. Please indicate your status.

¨ Check here if you had $50.00 or more on deposit with Savings Institute as of November 30, 2002.

¨ Check here if you had $50.00 or more on deposit with Savings Institute as of             , 2004.

¨ Check here if you are not eligible for either category noted above.

4. Acknowledgment of Participant. I understand that this Investment Form shall be subject to all of the terms and conditions of the Plan. I acknowledge that I have received a copy of the Prospectus and the Prospectus Supplement.

Signature of Participant Date

_________________________________________________________

Acknowledgment of Receipt by Administrator. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.

By:
	Date

THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY SI FINANCIAL GROUP, INC., SI BANCORP, MHC, OR SAVINGS INSTITUTE. THE COMMON STOCK IS SUBJECT TO AN INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.

Minimum Stock Purchase is $250.00

Maximum Stock Purchase is $ ————

PLEASE COMPLETE AND RETURN TO LAURIE GERVAIS IN THE HUMAN RESOURCES DEPARTMENT

AT SAVINGS INSTITUTE BANK AND TRUST COMPANY

BY 5:00 P.M. ON             , 2004.

PROSPECTUS

[LOGO]

SI Financial Group, Inc.

(Holding Company for Savings Institute Bank and Trust Company)

Up to 3,910,000 Shares of Common Stock

SI Financial Group, Inc. is offering common stock for sale. The shares we are offering represent 40% of the outstanding common stock of SI Financial Group. SI Bancorp, MHC, the federally chartered mutual holding company parent of Savings Institute Bank and Trust Company, will own 58% of the outstanding common stock of SI Financial Group. The remaining shares of common stock of SI Financial Group will be issued to SI Financial Group Foundation, Inc., a charitable foundation to be formed in connection with the stock offering. We have applied to have our common stock listed for trading on the Nasdaq National Market under the symbol “SIFI.” We cannot assure you that our common stock will be approved for listing.

If you are or were a depositor of Savings Institute:

• You may have priority rights to purchase shares of common stock.

If you are a participant in the Savings Institute 401(k) Savings Plan:

• You may direct that all or part of your current account balances in this plan be invested in shares of common stock.

• You will be receiving separately a supplement to this prospectus that describes your rights under this plan.

If you fit none of the categories above, but are interested in purchasing shares of our common stock:

• You may have an opportunity to purchase shares of common stock after priority orders are filled.

We are offering up to 3,910,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 2,890,000 shares to complete the offering. We may sell up to 4,496,500 shares without resoliciting subscribers because of regulatory considerations, demand for the shares or changes in market conditions. The offering is expected to terminate at 12:00 noon, Eastern time, on [DATE 1]. We may extend this termination date without notice to you until [DATE 2], unless the Office of Thrift Supervision approves a later date, which will not be beyond [DATE 3].

Sandler O’Neill & Partners, L.P. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [DATE 2]. If the offering is extended beyond [DATE 2], subscribers will have the right to modify or rescind their purchase orders. Funds received before completion of the offering will be held in an escrow account at Savings Institute and will earn interest at our passbook rate, which is currently 0.4% per annum. If we terminate the offering, or if we extend the offering beyond [DATE 2] and you rescind your order, we will promptly return your funds with interest at our current passbook rate.

We expect our directors and executive officers, together with their associates, to subscribe for 120,300 shares, which equals 3.54% of the shares offered to persons other than SI Bancorp, MHC and SI Financial Group Foundation at the midpoint of the offering range.

OFFERING SUMMARY

Price Per Share: $10.00

	Minimum		Maximum		Maximum As Adjusted
Number of shares		2,890,000		3,910,000		4,496,500
Gross offering proceeds	$	28,900,000	$	39,100,000	$	44,965,000
Estimated offering expenses		1,029,000		1,166,000		1,226,000
Estimated net proceeds		27,871,000		37,934,000		43,739,000
Estimated net proceeds per share		9.64		9.70		9.73

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page     .

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

SANDLER O’NEILL & PARTNERS, L.P.

For assistance, please contact the stock information center at                     .

The date of this prospectus is [DATE], 2004

[map of Connecticut showing office locations of Savings Institute appears here]

Table of Contents

Summary	1
Risk Factors	15
A Warning About Forward-Looking Statements	19
Selected Consolidated Financial and Other Data	20
Use of Proceeds	22
Our Dividend Policy	23
Market for the Common Stock	24
Capitalization	25
Regulatory Capital Compliance	26
Pro Forma Data	27
Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation	34
Management’s Discussion and Analysis of Results of Operations and Financial Condition	35
Our Business	67
Our Management	78
Subscriptions by Executive Officers and Directors	88
Regulation and Supervision	89
Federal and State Taxation	97
The Stock Offering	98
Restrictions on Acquisition of SI Financial Group and Savings Institute	117
Description of SI Financial Group Capital Stock	119
Transfer Agent and Registrar	120
Registration Requirements	120
Legal and Tax Opinions	120
Experts	120
Where You Can Find More Information	121
Index to Financial Statements of SI Bancorp, MHC	122

Summary

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully. In certain instances where appropriate, the terms “we,” “us” and “our” refer collectively to SI Bancorp, MHC, SI Financial Group, Inc. and Savings Institute Bank and Trust Company. For assistance, please contact our stock information center at (            )             -            .

The Companies

SI Bancorp, MHC 803 Main Street Willimantic, Connecticut 06226 (860) 423-4581	SI Bancorp, MHC is our federally chartered mutual holding company parent and will own 58% of SI Financial Group’s common stock. So long as SI Bancorp, MHC exists, it will own a majority of the voting stock of SI Financial Group. Following the offering, SI Bancorp, MHC will not engage in any business activity other than owning a majority of the common stock of SI Financial Group. SI Bancorp, MHC converted from a Connecticut-chartered mutual holding company to a federally chartered mutual holding company in ___________, 2004. At March 31, 2004, we had total assets of $537.4 million, deposits of $425.6 million and total capital of $35.1 million on a consolidated basis.
SI Financial Group, Inc. 803 Main Street Willimantic, Connecticut 06226 (860) 423-4581	This offering is made by SI Financial Group, our federally chartered mid-tier stock holding company that was formed in ___________, 2004. Currently, SI Financial Group owns all of Savings Institute’s capital stock and directs, plans and coordinates Savings Institute’s business activities. In the future, SI Financial Group might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.
Savings Institute Bank and Trust Company 803 Main Street Willimantic, Connecticut 06226 (860) 423-4581	Savings Institute is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within our market area. We engage primarily in the business of attracting deposits from the general public and using such funds to originate loans. We emphasize the origination of loans secured by first mortgages on owner-occupied, residential real estate. To a lesser extent, we originate other types of real estate loans, commercial loans and consumer loans. We currently operate from our main office in Willimantic, Connecticut and 14 branch offices in Hartford, New London, Tolland and Windham Counties. Savings Institute converted from a Connecticut-chartered savings bank to a federally-chartered savings bank in ____________, 2004.

1

Corporate Structure The following diagram depicts our corporate structure after the offering:

Our Business Strategy (page __)

Our mission is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of: •        offering a full range of financial services to retail customers and businesses in our market area; •        expanding our branch network into new market areas; •        pursuing opportunities to increase commercial lending in our primary market area; •        continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio; •        managing our net interest margin and net interest spread by seeking to increase lending levels and by originating higher-yielding loans; •        managing our investment and borrowings portfolios to manage interest rate risk; and •        seeking opportunities to increase deposits by continuing to offer exceptional customer service and emphasizing our commercial deposit offerings.

The Offering

Purchase Price The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.

2

Number of Shares to be Sold	We are offering for sale between 2,890,000 and 3,910,000 shares of SI Financial Group common stock in this offering to persons other than SI Bancorp, MHC. With regulatory approval, we may increase the number of shares to be sold to 4,496,500 shares without giving you further notice or the opportunity to change or cancel your order. The Office of Thrift Supervision will consider the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions in connection with a request to increase the offering size.
How We Determined the Offering Range (page          )	The offering range is based on an independent appraisal of us by Keller & Company, Inc., an appraisal firm experienced in appraisals of savings institutions. Keller & Company’s estimate of our market value was based in part upon our financial condition and results of operations and the effect of the capital raised in this offering. Keller & Company’s appraisal, dated as of May 21, 2004, estimated the pro forma market value of SI Financial Group on a fully converted basis to be between $72.2 million and $97.8 million, with a midpoint of $85.0 million. Subject to regulatory approval, we may increase the pro forma market value of SI Financial Group common stock on a fully converted basis to $112.4 million. Keller & Company estimated the pro forma market value of the common stock of SI Financial Group being offered to persons other than SI Bancorp, MHC and SI Financial Group Foundation to be between $28.9 million and $39.1 million, with a midpoint of $34.0 million. Subject to regulatory approval, we may increase the pro forma market value of SI Financial Group common stock being offered to persons other than SI Bancorp, MHC to $45.0 million. Keller & Company will receive fees totaling $23,000 for its appraisal services, plus reasonable out-of-pocket expenses incurred in connection with the appraisal. Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “book value” and the ratio of the offering price to the issuer’s annual net income. Keller & Company, in preparing its appraisal, and the board of directors, in approving the appraisal, considered these ratios, among other factors. Book value is the same as total equity and represents the difference between the issuer’s assets and liabilities. Keller & Company’s appraisal also incorporates an analysis of a peer group of publicly traded mutual holding companies that Keller & Company considered to be comparable to us. The independent appraisal does not indicate market value. We cannot guarantee that anyone who purchases shares in the offering will be able to sell their shares at or above the $10.00 purchase price.
Mutual Holding Company Data	The following table summarizes mutual holding company trading multiples as of April 21, 2004 and price to pro forma per share data for SI Financial Group. See “Pro Forma Data” for a description of the assumptions we used in making these calculations.

3

	Price To Earnings Per Share (1)	Price To Book Value Ratio (1)
National mutual holding company trading multiples
Average	32.52x	198.92	%
Median	29.46x	181.22	%
SI Financial Group upon issuance of 40% of its stock for the year ended December 31, 2003
Minimum	22.22x	124.84	%
Maximum	35.71x	157.48	%
SI Financial Group upon issuance of 40% of its stock for the three months ended March 31, 2004
Minimum	20.83x	122.70	%
Maximum	35.71x	155.28	%

(1)      The information for national mutual holding companies may not be meaningful for investors because it presents average and median information for mutual holding companies that issued a different percentage of their stock in their offerings than the 40% that we are offering. In addition, the affect of stock repurchases also affects the ratios to a greater or lesser degree depending upon repurchase activity. Additionally, many factors that historically have affected pricing for mutual holding companies may not impact the trading price for SI Financial Group. See “Summary - After Market Performance Information Provided By Independent Appraiser” and “Risk Factors - We expect that our return on equity will decline after the offering.”

After-Market Performance Information Provided by Independent Appraiser

Keller & Company provided the following information to the Board of Directors and to the Office of Thrift Supervision as part of its appraisal. The table presents for all mutual holding company reorganizations with a minority stock issuance and stock conversions from January 1, 2003 to April 21, 2004, the average and median percentage stock price appreciation from the initial trading date of the reorganization to the dates presented in the table. The Board did not consider this data particularly relevant to Savings Institute’s appraisal given that the information relates to stock price appreciation experienced by other companies that sold stock in different market conditions. In addition, these companies may have no similarities to Savings Institute with regard to the market in which Savings Institute competes, earnings quality and growth potential, among other factors. The proceeds raised as a percentage of pro forma stockholders’ equity may have a negative effect on our stock price performance. See “Risk Factors - We expect that our return on equity will decline after the offering.” This table is not intended to be indicative of how our stock may perform. Stock appreciation is affected by many factors, including, but not limited to, the factors set forth below. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors beginning on page     .

4

		Average						Medium
Year of Initial Trading Date	Number of Trans- actions	Stock Price Appreciation from Initial Trading Date						Stock Price Appreciation from Initial Trading Date
		After One Day		One Week		After One Month		After One Day		One Week		After One Month
2004	10	23.90	%	24.91	%	20.00	%	23.10	%	27.50	%	15.10	%
2003	13	34.69		35.28		36.53		20.00		23.10		25.00

While stock prices of other institutions that have engaged in similar transactions have, on average, increased for the periods presented, we cannot assure you that our stock price will appreciate the same amount, if at all. We also cannot assure you that our stock price will not trade below $10.00 per share, as has been the case for some reorganized and converted thrift institutions. In addition, the transactions underlying the data occurred primarily during a falling interest rate environment, during which market prices for financial institutions typically increase. If interest rates rise, our net interest income and the value of our assets likely would be reduced, which might negatively affect our stock price. See “Risk Factors—Rising interest rates may hurt our profits.”

The increase in any particular company’s stock price is subject to various factors, including the amount of proceeds a company raises (see “Risk Factors—We expect that our return on equity will decline after the offering”), the quality of management and management’s ability to deploy proceeds (such as through investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases). See “Risk Factors—We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.” In addition, stock prices may be affected by general market conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions, the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events not necessarily in the control of management.

In addition, six transactions underlying the data occurred before and seventeen transactions occurred after the Office of Thrift Supervision issued a policy statement on June 24, 2003 indicating that it has concerns and issues with the acquisition of mutual holding companies by mutual institutions in remutualization transactions. See “Risk Factors–Office of Thrift Supervision policy on remutualization transactions could prohibit the acquisition of SI Financial Group, which may adversely affect our stock price.”

5

Finally, you should be aware that historically savings associations could be acquired within a three year period following conversion. Regulatory restrictions now generally prohibit a holding company regulated by the office of thrift supervision, such as si financial group, from being acquired within three years following its initial public offering, which may also have a negative impact on stock price performance. The Board of Directors carefully reviewed the information that Keller & Company provided through the appraisal process, but did not make any determinations regarding whether or not prior mutual holding company reorganizations with minority stock issuances have been undervalued on a price to book basis, nor did the Board draw any conclusions regarding how the historical data reflected above may have an impact on our appraisal. Instead, the Board hired Keller & Company to help it understand the regulatory process and to advise the Board as to how much capital would likely be required to be raised under the Office of Thrift Supervision’s appraisal guidelines. The Board’s ability to control the amount of capital raised in the offering is limited by the regulatory framework established by the Office of Thrift Supervision, which requires that we hire an independent appraiser and permit the independent appraiser to arrive at a value without undue influence from outside parties, including us. The Board fully complied with the Office of Thrift Supervision’s guidelines and permitted Keller & Company to arrive at our appraised value independently, which the Board also understood would be subject to Office of Thrift Supervision review and approval. Keller & Company is an independent appraisal firm expert in the appraisal guidelines of the Office of Thrift Supervision and considered all factors that may appropriately be considered under the Office of Thrift Supervision’s appraisal guidelines when arriving at our appraised value. The Board recognized the duty of care it owes to us and our depositors to proceed with the offering in an informed manner and with our best interests and those of our members paramount in its deliberations and decision making. The Board worked closely with Keller & Company to understand the methodology used by Keller & Company and to consider the appropriateness of the assumptions used by Keller & Company in determining the appraised value with the understanding that assuming the assumptions used were appropriate and the methodology employed was consistent with the Office of Thrift Supervision’s appraisal guidelines, the appraisal, once approved by the Office of Thrift Supervision, would fairly estimate our pro forma market value. The Board has developed a business plan that reflects how we could deploy the net proceeds in a prudent manner consistent with safety and soundness principles.

Possible Change in Offering Range (page     )

Keller & Company’s independent appraisal will be updated before the offering is completed. If the pro forma market value of the common stock being offered to persons other than SI Bancorp, MHC and SI

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	Financial Group Foundation at that time is either below $28.9 million or above $45.0 million, we will notify subscribers, and subscribers will have the opportunity to confirm, modify or cancel their order. In such event, subscribers would be required to affirmatively confirm or modify their order within a specified period of time or else it would be cancelled. If we are unable to sell at least the number of shares at the minimum of the offering range, as the range may be amended, the offering would be terminated and all subscriptions would be cancelled and funds returned promptly with interest.
Conditions to Completing the Offering (page     )	We are conducting the offering under the terms of our plan of reorganization and minority stock issuance. We cannot complete the offering unless: •      we sell at least the minimum number of shares offered; and •      we receive the final approval of the Office of Thrift Supervision to complete the offering.
Reasons for the Offering (page     )	Our primary reasons for the offering are to: •      support future lending and operational growth; •      support future branching activities and/or the acquisition of other financial institutions or financial services companies or their assets; •      permit us, by issuing only 40% of our common stock to the public, to control the amount of capital being raised to enable us to deploy more prudently the proceeds of the offering; and •      enhance our ability to attract and retain qualified directors and management through stock-based compensation plans.
	Although we are interested in finding new possible branch locations, we do not have any specific plans or arrangements for further expansion and we do not have any specific acquisition plans. We also will be able to increase our philanthropic endeavors to the communities we serve through the formation and funding of SI Financial Group Foundation, Inc.
SI Financial Group Foundation, Inc. (page     )	To continue our long-standing commitment to our local communities, we intend to establish a charitable foundation, the SI Financial Group Foundation, Inc., as part of the offering. The foundation will be funded with 170,000 shares of SI Financial Group common stock at the midpoint of the offering range. Based on the purchase price of $10.00 per share, the foundation would be funded with $1.7 million of common stock at the midpoint of the offering range. Our contribution to the foundation would reduce net earnings by $1.1 million, after tax, in the year in which the foundation is established, which is expected to be fiscal 2004. SI Financial Group Foundation will make grants and donations to non-profit and community groups and projects located within our market area. The amount of common

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stock that we would offer for sale would be greater if the stock offering were to be completed without the formation of SI Financial Group Foundation. For a further discussion of the financial impact of the foundation, including its effect on those who purchase shares in the offering and on the shares issued to shareholders of SI Financial Group, see “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.”

Benefits of the Offering to Management (page     )

We intend to adopt the following benefit plans and employment agreements: •      Employee Stock Ownership Plan. Savings Institute intends to establish an employee stock ownership plan that will purchase 3.36% of the shares issued in the offering, including shares issued to SI Bancorp, MHC and our charitable foundation, with the proceeds from a loan from SI Financial Group. As the loan is repaid and shares are released from collateral, the shares will be allocated to the accounts of participants. Allocations will be based on a participant’s compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. •      Stock-Based Incentive Plan. SI Financial Group intends to implement a stock-based incentive plan no earlier than six months after the offering. Approval of this plan by a majority of the total votes eligible to be cast by holders of SI Financial Group common stock, other than by SI Bancorp, MHC, will be required. Under this plan, we may award stock options and shares of restricted stock to key employees and directors. Shares of restricted stock will be awarded at no cost to the recipient. Stock options will be granted at an exercise price equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. We have not yet decided if we intend to expense any stock options that we may grant. However, the Financial Accounting Standards Board has issued an exposure draft of a new accounting standard that would require all stock options to be expensed beginning in fiscal 2005. If this standard is adopted or, if we decide to expense options, it would negatively affect net income. Under the terms of the plan, we may grant stock options and restricted stock awards in an amount up to 25% of the number of shares held by persons other than SI Bancorp, MHC. •      Employment and Change in Control Agreements. SI Financial Group and Savings Institute intend to enter into a three-year employment agreement with Rheo A. Brouillard, President and Chief Executive Officer of Savings Institute, and Brian J. Hull, Executive Vice President, Chief Financial Officer

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and Treasurer of Savings Institute. Savings Institute also intends to enter into two-year change in control agreements with six officers. These agreements will provide for severance benefits if the executives are terminated following a change in control of SI Financial Group or Savings Institute. Based solely on current cash compensation and excluding any benefits that would be payable under any employee benefit plan, if a change in control of SI Financial Group and Savings Institute occurred, and we terminated all officers covered by the employment agreements and the change in control agreements, the total payments due under the employment agreements and the change in control agreements would equal approximately $1.2 million and $1.2 million, respectively.

•      Supplemental Executive Retirement Plan. This plan will provide benefits to eligible employees if their retirement benefits under the employee stock ownership plan and the 401(k) plan are reduced because of federal tax law limitations. The plan will also provide benefits to eligible employees if they retire or are terminated following a change in control but before the complete allocation of shares under the employee stock ownership plan.

•      Employee Severance Compensation Plan. This plan will provide severance benefits to eligible employees if there is a change in control. Based solely on cash compensation, if a change in control of SI Financial Group and Savings Institute occurred, and we terminated all employees covered by the employee severance compensation plan, the total payment due under the employee severance compensation plan would equal approximately $3.2 million.

The following table summarizes at the maximum of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards that are expected to be available under the stock-based incentive plan. The table does not include a value for the options because their exercise price would be equal to the fair market value of the common stock on the day that the options are granted. As a result, financial gains can be realized on an option only if the market price of the common stock increases above the price at which the option is granted.

	Number of Shares to be Granted or Purchased			Total Estimated Value of Grants (1)
	At Maximum of Offering Range	As a % of Common Stock Issued (including to SI Bancorp, MHC)
Employee stock ownership plan	328,440	3.36	%	$	3,284,400
Restricted stock awards	293,250	3.00			2,932,500
Stock options	733,125	7.50			—
Total	1,354,815	13.86	%	$	6,216,900

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	(1)      Assumes the value of SI Financial Group’s common stock is $10.00 per share for purposes of determining the total estimated value of the grants. However, as set forth in “Summary - After Market Performance Information Provided by Independent Appraiser,” the average percentage stock appreciation from initial trading date to after one month in 2004 and 2003 ranged from 20.00% to 36.53%. Consequently, assuming our common stock experienced appreciation in the same range, the estimated value of the allocations under the employee stock ownership plan and restricted stock awards, assuming a trading price of $12.28, for example, would be $4.0 million and $3.6 million, respectively. Ultimately, the value of the grants will depend on the actual trading price of our common stock, which depends on numerous factors. We cannot assure you that our stock price will appreciate in the same manner as other mutual holding companies, if at all. See “Summary - After-Market Performance Information Provided by Independent Appraiser” and “Risk Factors - We expect that our return on equity will decline after the offering” for more information regarding factors that could negatively affect our stock appreciation.
Tax Consequences (page     )	As a general matter, the offering will not be a taxable transaction for purposes of federal or state income taxes to persons who receive or exercise subscription rights. Further, for federal income tax purposes: •      neither SI Financial Group nor SI Bancorp, MHC will recognize any gain or loss in connection with the transfer of 100% of the common stock of Savings Institute from SI Bancorp, MHC to SI Financial Group; •      the depositors of Savings Institute will not realize any income upon the issuance or exercise of the subscription rights; •      it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the offering; and •      the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of the purchase.
Persons Who Can Order Stock in the Offering (page     ) Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.	We have granted rights to subscribe for shares of SI Financial Group common stock in a “subscription offering” to the following persons in the following order of priority: 1.      Persons with $50 or more on deposit at Savings Institute as of November 30, 2002.

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	2.      Our employee stock ownership plan, which provides retirement benefits to our employees. 3.      Persons with $50 or more on deposit at Savings Institute as of                     , 2004. 4.      SI Bancorp, MHC’s members as of                          who were not eligible to subscribe for shares under categories 1 and 3. If we receive subscriptions for more shares than are to be sold in this offering, shares will be allocated in order of the priorities described above under a formula outlined in the plan of reorganization and minority stock issuance. If we increase the number of shares to be sold above 3,910,000, Savings Institute’s employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “The Stock Offering—Subscription Offering and Subscription Rights” for a description of the allocation procedure. We may offer shares not sold in the subscription offering to the general public in a community offering. Borrowers of Savings Institute as of the close of business on the last business day of the month immediately before the month in which the Office of Thrift Supervision approves the Plan of Reorganization and Minority Stock Insurance will have first preference to purchase shares in a community offering. People and trusts for the benefit of people who are residents of Hartford, New London, Tolland and Windham Counties, Connecticut will have a second preference. Other persons to whom we deliver a prospectus will have third preference. The community offering, if held, may begin at any time during the subscription offering or immediately after the end of the subscription offering. If all of the shares are not sold in the subscription and community offerings, the shares may be sold to the public in a syndicated community offering or in a underwritten public offering.
Deadline for Ordering Stock (page     )	The subscription offering will end at 12:00 noon, Eastern time, on [DATE 1]. We expect that the community offering will terminate at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if regulators approve a later date. All extensions, in the aggregate, may not go beyond [DATE 3].
Purchase Limitations (page     )	Our plan of reorganization and minority stock issuance establishes limitations on the purchase of stock in the offering. These limitations include the following: The minimum purchase is 25 shares.

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No individual may purchase more than $200,000 of common stock (which equals 20,000 shares). If any of the following persons purchase stock, their purchases when combined with your purchase cannot exceed $300,000 of the common stock issued in the offering (which equals 30,000 shares): •      Your spouse or relatives of you or your spouse living in your house; •      Companies, trusts or other entities in which you have a controlling interest or hold a position; or •      Other persons who may be acting in concert with you. Subject to the Office of Thrift Supervision’s approval, we may increase or decrease the purchase and ownership limitations at any time.

How to Purchase Common Stock (page     )

If you want to place an order for shares in the offering, you must complete an original stock order form and send it to us together with full payment. You must sign the certification that is on the reverse side of the stock order form. We must receive your stock order form before the end of the subscription offering or the end of the community offering, as appropriate. Once we receive your order, you cannot cancel or change it without our consent. To ensure that we properly identify your subscription rights, you must list all of your deposit accounts as of the eligibility dates on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we may reject an order submitted by a person who we believe is making false representations or who we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of reorganization and minority stock issuance. If your order is rejected in part, you cannot cancel the remainder of your order. You may pay for shares in the subscription offering or the community offering in any of the following ways: •      By check or money order made payable to SI Financial Group. •      By authorizing withdrawal from an account at Savings Institute. To use funds in an Individual Retirement Account at Savings Institute, you must transfer your account to an unaffiliated institution or broker. Please contact the stock information center as soon as possible for assistance. We will pay interest on your subscription funds at the rate we pay on passbook accounts, which is currently 0.4%, from the date we receive your funds until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is

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	completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our passbook rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.
How We Will Use the Proceeds of this Offering (page     )	The following table summarizes how SI Financial Group will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range.

	2,890,000 Shares at $10.00 Per Share		3,910,000 Shares at $10.00 Per Share
	(In thousands)
Offering proceeds	$	28,900	$	39,100
Less: offering expenses		1,029		1,166
Net offering proceeds		27,871		37,934
Less:
Proceeds contributed to Savings Institute		13,936		18,967
Proceeds used for loan to employee     stock ownership plan		2,428		3,284
Proceeds remaining for SI Financial Group	$	11,507	$	15,683

	SI Financial Group may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or buy back shares of common stock, subject to regulatory restrictions. Savings Institute may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. SI Financial Group and Savings Institute may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time.
Purchases by Directors and Executive Officers (page     )	We expect that our directors and executive officers, together with their associates, will subscribe for 120,300 shares, which equals 3.54% of the shares that would be sold to persons other than SI Bancorp, MHC and SI Financial Group Foundation at the midpoint of the offering range. Directors and executive officers will pay the same $10.00 per share price as everyone else who purchases shares in the offering.
Market for SI Financial Group Common Stock (page     )	We have applied to have the common stock of SI Financial Group listed for trading on the Nasdaq National Market under the symbol “SIFI.” We cannot assure you that our common stock will be approved for listing. Sandler O’Neill currently intends to become a market maker in the common stock and, if needed, will assist us in obtaining additional market makers, but it is under no obligation to do so. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for the shares of common stock will develop or if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares.
SI Financial Group’s Dividend Policy (page     )	After the offering, we intend to adopt a policy of paying regular cash dividends, but have not yet decided on the amount or frequency of payments or when the payments may begin. Following the offering, based upon our estimate of offering expenses and other assumptions

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	described in “Pro Forma Data,” we will have between $27.9 million and $37.9 million in net proceeds, at the minimum and the maximum of the offering, respectively, that, subject to annual earnings and expenses, could potentially be used to pay dividends.
Subscription Rights (page     )	You are not allowed to transfer your subscription rights and we will act to ensure that you do not do so. We will not accept any stock orders that we believe involve the transfer of subscription rights.
Possible Conversion of SI Bancorp, MHC to Stock Form	In the future, SI Bancorp, MHC may convert from the mutual to capital stock form, in a transaction commonly known as a “second-step conversion.” In a second-step conversion, members of SI Bancorp, MHC would have subscription rights to purchase common stock of SI Financial Group or its successor, and the public stockholders of SI Financial Group would be entitled to exchange their shares of common stock for an equal percentage of shares of the converted SI Bancorp, MHC. This percentage may be adjusted to reflect any assets owned by SI Bancorp, MHC. SI Financial Group’s public stockholders, therefore, would own approximately the same percentage of the resulting entity as they owned before the second-step conversion. The Board of Directors has no current plan to undertake a second-step conversion transaction.
Stock Information Center	If you have any questions regarding the offering, please call the stock information center at (        )         -        .

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Risk Factors

You should consider carefully the following risk factors before purchasing SI Financial Group common stock.

Rising interest rates may hurt our profits.

Interest rates were recently at historically low levels. The recent increase in interest rates has negatively affected our net interest income. If interest rates continue to rise, our net interest income and the value of our assets likely would be reduced if interest paid on interest-bearing liabilities, such as deposits and borrowings, increased more quickly than interest received on interest-earning assets, such as loans and investments. Due primarily to the current lower interest rate environment as well as the composition of our interest sensitive assets and liabilities, our interest rate spread (the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities) was 3.61% for the three months ended March 31, 2004 compared to 3.87% for the three months ended March 31, 2003. Our net interest margin (net interest income as a percentage of average interest-earning assets) was 3.76% for the three months ended March 31, 2004 compared to 4.06% for the three months ended March 31, 2003. If there is an increasing interest rate environment, our interest rate spread and net interest margin could be compressed, which would have a negative effect on our profitability. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Market Risk Analysis.”

Our increased emphasis on commercial lending may expose us to increased lending risks.

At March 31, 2004, $130.1 million, or 32.8%, of our loan portfolio consisted of commercial real estate and commercial business loans. We intend to continue to emphasize these types of lending. These types of loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Additional expenses following the offering may reduce our profitability and stockholders’ equity.

Following the offering, our noninterest expense is likely to increase as a result of the financial accounting, legal and various other additional expenses usually associated with operating as a public company. We also will recognize additional annual employee compensation and benefit expenses stemming from the shares purchased or granted to employees and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot predict the actual amount of the new stock-related compensation and benefit expenses because applicable accounting standards require that they be based on the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material. We would recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and would recognize expenses for restricted stock awards over the vesting period of awards made to recipients. These expenses in the first year following the offering have been estimated to be approximately $1.2 million at the maximum of the offering as set forth in the pro forma financial information under “Pro Forma Data” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. In addition, proposed changes in accounting guidelines may require us to recognize expenses relating to stock option grants. For further discussion of these plans, see “Our Management—Benefit Plans.”

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Our inability to achieve profitability on new branches may negatively impact our earnings.

We consider our primary market area to consist of Hartford, New London, Tolland and Windham counties. However, the majority of our facilities are located in and a substantial portion of our business is derived from Windham county, which has a lower median household income and a higher unemployment rate than other counties in our market area and in the rest of Connecticut. To address this, in recent years, we have expanded our presence throughout our market area and we intend to pursue further expansion through the establishment of additional branches in Hartford, New London, Tolland and Middlesex counties, each of which has more favorable economic conditions than Windham County. The profitability of our expansion policy will depend on whether the income that we generate from the additional branches we establish will offset the increased expenses resulting from operating new branches. We expect that it may take a period of time before new branches can become profitable, especially in areas in which we do not have an established presence. During this period, operating these new branches may negatively impact our net income.

We expect that our return on equity initially will decline after the offering.

Return on equity, which equals net income divided by average equity, is a ratio used by many investors to compare the performance of a particular company with other companies. For the three months ended March 31, 2004, our annualized return on equity was 9.32% while our annualized pro forma return on equity for the same period is estimated to be 4.72%, assuming the sale of shares at the midpoint of the offering range. Our peers used in the valuation of SI Financial Group had an average return on equity of 8.44% for the twelve months ended March 31, 2004, while all publicly held subsidiaries of mutual holding companies had an average return on equity of 10.36% for the same period. Over time, we intend to deploy the net proceeds from this offering, which we will initially invest into investment securities, into higher-yielding assets with the goal of increasing earnings per share and book value per share, without assuming undue risk, and achieving a return on equity that is competitive with other publicly held subsidiaries of mutual holding companies. This goal could take a number of years to achieve, and we cannot assure you that it will be attained. Consequently, you should not expect a competitive return on equity in the near future. Failure to achieve a competitive return on equity might make an investment in our common stock unattractive to some investors and might cause our common stock to trade at lower prices than comparable companies with higher returns on equity. See “Pro Forma Data” for an illustration of the financial impact of this offering.

Strong competition within our market area could hurt our profits and slow growth.

We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. As of June 30, 2003, we held 1.54% of the deposits in Hartford, New London, Tolland and Windham Counties, Connecticut, which was the 12^th share of deposits out of 41 financial institutions in these counties. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. For more information about our market area and the competition we face, see “Our Business—Market Area” and “Our Business—Competition.”

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

We intend to contribute approximately 50% of the net proceeds of the offering to Savings Institute. We may use the remaining net proceeds to repurchase common stock, purchase investment securities, finance the acquisition of other financial institutions or other businesses that are related to banking or for other general corporate purposes. We expect to use a portion of the net proceeds to fund the purchase by our employee stock

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ownership plan of shares in the offering. Savings Institute may use the proceeds it receives to fund new loans, purchase investment securities, establish or acquire new branches, acquire financial institutions or other businesses that are related to banking or for general corporate purposes. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

Issuance of shares for benefit programs may dilute your ownership interest.

We intend to adopt a stock-based incentive plan following the offering. If shareholders approve the new stock-based incentive plan, we intend to issue shares to our officers and directors through this plan. If the restricted stock awards under the stock-based incentive plan are funded from authorized but unissued stock, your ownership interest in the shares issued to persons other than SI Bancorp, MHC could be diluted by up to approximately 6.67%, assuming awards of common stock equal to 3.00% of the shares issued in the offering, including shares issued to SI Bancorp, MHC, are awarded under the plan. If the shares issued upon the exercise of stock options under the stock-based incentive plan are issued from authorized but unissued stock, your ownership interest in the shares issued to persons other than SI Bancorp, MHC could be diluted by up to approximately 15.15%, assuming stock option grants equal to 7.50% of the shares issued in the offering, including shares issued to SI Bancorp, MHC, are granted under the plan. See “Pro Forma Data” and “Our Management—Benefit Plans.”

SI Bancorp, MHC will own a majority of our common stock and will be able to exercise voting control over most matters put to a vote of shareholders, including preventing a sale, a merger or a second-step conversion transaction you may like.

SI Bancorp, MHC will own a majority of SI Financial Group’s common stock after the offering and, through its board of directors, will be able to exercise voting control over most matters put to a vote of shareholders. The same directors and officers who manage SI Financial Group and Savings Institute also manage SI Bancorp, MHC. As a federally chartered mutual holding company, the Board of Directors of SI Bancorp, MHC must ensure that the interests of depositors of Savings Institute are represented and considered in matters put to a vote of shareholders of SI Financial Group. Therefore, the votes cast by SI Bancorp, MHC may not be in your personal best interests as a shareholder. For example, SI Bancorp, MHC may exercise its voting control to prevent a sale or merger transaction in which shareholders could receive a premium for their shares or to defeat a shareholder nominee for election to the Board of Directors of SI Financial Group. In addition, SI Bancorp, MHC may exercise its voting control to prevent a second-step conversion transaction. Preventing a second-step conversion transaction may result in a lower value of our stock price than otherwise could be achieved as, historically, fully converted institutions trade at higher multiples than mutual holding companies. The matters as to which shareholders other than SI Bancorp, MHC will be able to exercise voting control are limited and include any proposal to implement a stock-based incentive plan.

The contribution to SI Financial Group Foundation means that a shareholder’s total ownership interest will be up to 4.8% less after the contribution.

Purchasers of shares will have their ownership and voting interests in SI Financial Group diluted by up to 4.8% at the close of the stock offering when SI Financial Group issues an additional 170,000 shares at the midpoint of the offering range and contributes those shares to SI Financial Group Foundation. For a further discussion regarding the effect of the contribution to the charitable foundation, see “Pro Forma Data” and “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.”

Our contribution to SI Financial Group Foundation may not be tax deductible, which could hurt our profits.

We believe that our contribution to SI Financial Group Foundation, valued at $1.7 million at the midpoint of the offering range, pre-tax, will be deductible for federal income tax purposes. However, we do not have any

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assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully.

Establishment of SI Financial Group Foundation will hurt our profits for fiscal year 2004.

SI Financial Group intends to contribute 170,000 shares of its common stock to SI Financial Group Foundation at the midpoint of the offering range. This contribution will be an additional operating expense and will reduce net income during the fiscal year in which the foundation is established, which is expected to be the year ending December 31, 2004. Based on the pro forma assumptions, the contribution to SI Financial Group Foundation would reduce net earnings by $1.1 million, after tax, in fiscal year 2004.

Our stock price may decline when trading commences.

We cannot guarantee that if you purchase shares in the offering that you will be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, have recently experienced substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

Office of Thrift Supervision policy on remutualization transactions could prohibit acquisition of SI Financial Group, which may adversely affect our stock price.

Current Office of Thrift Supervision regulations permit a mutual holding company to be acquired by a mutual institution in a remutualization transaction. The possibility of a remutualization transaction has recently resulted in a degree of takeover speculation for mutual holding companies that is reflected in the per share price of mutual holding companies’ common stock. However, the Office of Thrift Supervision has issued a policy statement indicating that it views remutualization transactions as raising significant issues concerning disparate treatment of minority stockholders and mutual members of the target entity and raising issues concerning the effect on the mutual members of the acquiring entity. Under certain circumstances, the Office of Thrift Supervision intends to give these issues special scrutiny and reject applications providing for the remutualization of a mutual holding company unless the applicant can clearly demonstrate that the Office of Thrift Supervision’s concerns are not warranted in the particular case. Should the Office of Thrift Supervision prohibit or otherwise restrict these transactions in the future, our per share stock price may be adversely affected.

There may be a limited market for our common stock, which may adversely affect our stock price.

Although we have applied to have our shares of common stock traded on the Nasdaq National Market, there is no guarantee that the shares will be regularly traded. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for our common stock. When there is a wide spread between the bid and asked price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of our deposits. SI Bancorp, MHC, SI Financial Group and Savings Institute are all subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

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A Warning About Forward-Looking Statements

This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include:

(1) statements of our goals, intentions and expectations;

(2) statements regarding our business plans, prospects, growth and operating strategies;

(3) statements regarding the quality of our loan and investment portfolios; and

(4) estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

(1) general economic conditions, either nationally or in our market area, that are worse than expected;

(2) changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

(3) increased competitive pressures among financial services companies;

(4) changes in consumer spending, borrowing and savings habits;

(5) legislative or regulatory changes that adversely affect our business;

(6) adverse changes in the securities markets;

(7) changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board; and

(8) our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth opportunities.

Any of the forward-looking statements that we make in this prospectus and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

19

Selected Consolidated Financial and Other Data

The summary financial information presented below is derived in part from the consolidated financial statements of SI Bancorp, MHC. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2003 and 2002 and for the three years ended December 31, 2003, 2002 and 2001 is derived in part from the audited consolidated financial statements of SI Bancorp, MHC that appear in this prospectus. The information at December 31, 2001, 2000 and 1999 and for the years ended December 31, 2000 and 1999 is derived in part from audited consolidated financial statements that do not appear in this prospectus. The operating data for the three months ended March 31, 2004 and 2003 were not audited, but in the opinion of management, reflect all adjustments necessary for a fair presentation. All of these adjustments are normal and recurring. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results of operations that may be expected for the entire year.

	At March 31, 2004		At December 31,
			2003		2002		2001		2000		1999
	(Dollars in thousands)
Financial Condition Data:
Total assets	$	537,410	$	518,141	$	484,944	$	427,522	$	373,815	$	341,650
Securities held-to-maturity		1,688		1,728		9,463		13,197		9,366		10,304
Securities available-for-sale		81,396		77,693		87,914		78,697		67,053		68,234
Loans receivable, net		394,697		386,924		334,598		293,111		264,553		227,882
Cash and cash equivalents		36,772		29,577		37,517		30,077		19,418		21,240
Deposits (1)		425,599		417,311		398,315		363,029		321,822		292,014
FHLB advances		64,997		57,168		43,918		35,183		25,731		25,731
Subordinated debt		7,217		7,217		7,217		—		—		—
Other borrowings		—		—		1,951		—		—		—
Total capital		35,079		34,099		31,408		27,816		25,273		22,430

	For the Three Months Ended March 31,				At December 31,
	2004		2003		2003		2002		2001		2000		1999
	(Dollars in thousands)
Operating Data:
Interest and dividend income	$	6,783	$	6,995	$	27,930	$	28,330	$	27,607	$	25,330	$	23,009
Interest expense		2,250		2,454		9,346		11,014		13,154		12,127		10,269
Net interest income		4,533		4,541		18,584		17,316		14,453		13,203		12,740
Provision for loan losses		150		175		1,602		537		440		290		300
Net interest income after provision for loan losses		4,383		4,366		16,982		16,779		14,013		12,913		12,440
Noninterest income		1,235		1,216		4,722		3,284		3,362		3,139		2,792
Noninterest expense		4,433		4,106		16,606		15,394		14,470		13,062		12,928
Income before income taxes		1,185		1,476		5,098		4,669		2,905		2,990		2,304
Provision for income taxes		381		526		1,713		1,587		989		1,053		840
Net income	$	804	$	950	$	3,385	$	3,082	$	1,916	$	1,937	$	1,464

20

	At or For the Three Months Ended March 31,				At or For the Year Ended December 31,
	2004		2003		2003		2002		2001		2000		1999
Performance Ratios (2):
Return on average assets	0.62	%	0.79	%	0.67	%	0.68	%	0.48	%	0.55	%	0.44	%
Return on average equity	9.32		12.07		10.34		10.46		7.19		8.26		6.49
Interest rate spread (3)	3.61		3.87		3.86		3.83		3.49		3.49		3.65
Net interest margin (4)	3.76		4.06		4.01		4.07		3.86		3.87		3.97
Noninterest expense to average assets	3.40		3.43		3.30		3.39		3.64		3.68		3.86
Efficiency ratio (5)	79.39		72.02		71.62		73.80		81.91		80.29		83.90
Average interest-earning assets to average interest-bearing liabilities	108.19		108.95		107.77		109.25		110.61		110.43		110.00
Average equity to average assets	6.62		6.58		6.51		6.49		6.71		6.60		6.73
Capital Ratios:
Total capital to risk-weighted assets	14.31		11.93		14.23		14.48		11.51		13.18		13.42
Tier 1 capital to risk-weighted assets	13.33		10.88		13.29		13.37		10.38		11.93		12.16
Tier 1 capital to average assets	7.82		6.59		7.77		7.75		6.29		6.69		6.57
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans	0.71		0.87		0.69		0.91		0.97		0.97		0.99
Allowance for loan losses as a percent of nonperforming loans	207.39		218.51		207.57		166.50		130.64		170.15		200.18
Net charge-offs (recoveries) to average outstanding loans during the period	0.01		0.07		0.55		0.11		0.07		(0.01	)	0.21

⁽¹⁾ Includes mortgagors’ escrow accounts.

⁽²⁾ Performance ratios for the three months ended March 31, 2004 and 2003 are annualized.

⁽³⁾ Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

⁽⁴⁾ Represents net interest income as a percent of average interest-earning assets.

⁽⁵⁾ Represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains or losses on the sale of securities.

21

Use of Proceeds

The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Savings Institute will reduce Savings Institute’s deposits and will not result in the receipt of new funds for investment. See “Pro Forma Data” for the assumptions used to arrive at these amounts.

	2,890,000 Shares at $10.00 Per Share		3,400,000 Shares at $10.00 Per Share		3,910,000 Shares at $10.00 Per Share		4,496,500 Shares at $10.00 Per Share
	(In thousands)
Offering proceeds	$	28,900	$	34,000	$	39,100	$	44,965
Less: estimated underwriting commissions and other offering expenses		1,029		1,076		1,166		1,226
Net offering proceeds		27,871		32,924		37,934		43,739
Less:
Proceeds contributed to Savings Institute		13,936		16,462		18,967		21,870
Proceeds used for loan to employee stock ownership plan		2,428		2,856		3,284		3,777
Proceeds remaining for SI Financial Group	$	11,507	$	13,606	$	15,683	$	18,092

We may use the proceeds we retain from the offering:

• to invest in securities;

• to finance the possible acquisition of financial institutions or other businesses that are related to banking;

• to repurchase shares of our common stock, subject to regulatory restrictions;

• to pay dividends to shareholders; and

• for general corporate purposes.

Under current Office of Thrift Supervision regulations, we may not repurchase shares of our common stock during the first year following the offering, except to fund stock-based benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.

Savings Institute may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Savings Institute:

• to fund new loans;

• to invest in securities;

• to finance the possible expansion of its business activities, including developing new branch locations; and

• for general corporate purposes.

We may need regulatory approvals to engage in some of the activities listed above. We currently have no specific plans or agreements regarding any expansion activities or acquisitions.

22

Except as described above, neither SI Financial Group nor Savings Institute has any specific plans for the investment of the proceeds of this offering. For a discussion of our business reasons for undertaking the offering, see “The Stock Offering—Reasons for the Stock Offering.”

Our Dividend Policy

Following the offering, SI Financial Group Board of Directors intends to adopt a policy of paying regular cash dividends, but has not decided the amount that may be paid or when the payments may begin. In addition, the Board of Directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the Board of Directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. The regulatory restrictions that affect the payment of dividends by Savings Institute to us discussed below will also be considered. We cannot guarantee that SI Financial Group will pay dividends or that, if paid, SI Financial Group will not reduce or eliminate dividends in the future. At March 31, 2004, Savings Institute had the capacity to dividend $8.3 million to SI Financial Group without regulatory approval. Following the offering, based upon our estimate of offering expenses and other assumptions described in “Pro Forma Data,” SI Financial Group will have between $11.5 million and $15.7 million in net proceeds, at the minimum and the maximum of the offering, respectively, that, subject to annual earnings and expenses, we potentially could use to pay dividends.

If SI Financial Group pays dividends to its shareholders, SI Financial Group also will be required to pay dividends to SI Bancorp, MHC, unless SI Bancorp, MHC elects to waive the receipt of dividends. SI Financial Group anticipates that SI Bancorp, MHC will waive any dividends that it may pay. Any decision to waive dividends will be subject to regulatory approval. Under Office of Thrift Supervision regulations, public shareholders would not be diluted for any dividends waived by SI Bancorp, MHC if SI Bancorp, MHC converts to stock form. See “Regulation and Supervision—Holding Company Regulation.”

We will not be subject to Office of Thrift Supervision regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Savings Institute because we initially will have no source of income other than dividends from Savings Institute and earnings from the investment of the net proceeds from the offering that we retain. Office of Thrift Supervision regulations limit dividends and other distributions from Savings Institute to us. In addition, Savings Institute may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Regulation and Supervision—Regulation of Federal Savings Associations—Limitation on Capital Distributions.”

Any payment of dividends by Savings Institute to us that would be deemed to be drawn out of Savings Institute’s bad debt reserves would require Savings Institute to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See “Federal and State Taxation—Federal Income Taxation” and note 10 of the notes to financial statements included in this prospectus. We do not contemplate any distribution by Savings Institute that would result in this type of tax liability.

23

Market for the Common Stock

We have not previously issued common stock and there is currently no established market for the common stock. Upon completion of the offering, we expect that our shares of common stock will trade on the Nasdaq National Market under the symbol “SIFI.” We cannot assure you that our common stock will be approved for listing. Sandler O’Neill has advised us that it intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. Sandler O’Neill also will assist us, if needed, in obtaining other market makers after the offering. We will try to obtain at least three market makers for our stock, but we cannot assure you that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.

The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should have a long-term investment intent and should recognize that there may be a limited trading market in the common stock.

24

Capitalization

The following table presents the historical capitalization of SI Bancorp, MHC at March 31, 2004 and the capitalization of SI Financial Group reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “Pro Forma Data,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares under the proposed stock-based incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 2,890,000 shares to complete the offering.

			SI Financial Group Pro Forma Capitalization Based Upon the Sale of
	SI Bancorp, MHC Capitalization as of March 31, 2004		2,890,000 Shares at $10.00 Per Share		3,400,000 Shares at $10.00 Per Share		3,910,000 Shares at $10.00 Per Share		4,496,500 Shares at $10.00 Per Share
	(In thousands)
Deposits (1)	$	424,607	$	424,607	$	424,607	$	424,607	$	424,607
Borrowings		72,214		72,214		72,214		72,214		72,214
Total deposits and borrowings	$	496,821	$	496,821	$	496,821	$	496,821	$	496,821
Subordinated debt (2)	$	7,217	$	7,217	$	7,217	$	7,217	$	7,217
Stockholders’ equity:
Preferred stock:
1,000,000 shares, $.01 par value per share, authorized; none issued or outstanding	$	—	$	—	$	—	$	—	$	—
Common stock:
75,000,000, $.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding		—		30		36		41		47
Additional paid-in capital		—		27,841		32,888		37,893		43,692
Retained earnings (3)		34,386		34,386		34,386		34,386		34,386
Net unrealized gain (loss) on available-for-sale securities, net		693		693		693		693		693
Plus: shares issued to the foundation		—		1,445		1,700		1,955		2,248
Less:
Foundation contribution expense, net (4)		—		954		1,122		1,290		1,484
Common stock acquired by employee stock ownership plan (5)		—		2,428		2,856		3,284		3,777
Common stock to be acquired by stock-based incentive plan (6)		—		2,168		2,550		2,933		3,372
Total stockholders’ equity	$	35,079	$	58,845	$	63,175	$	67,461	$	72,433

⁽¹⁾ Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits by the amounts of the withdrawals.

⁽²⁾ Represents subordinated debt associated with issuance of trust preferred securities. See “Our Business—Deposit Activities and Other Sources of Funds—Subordinated Debt.”

⁽³⁾ Retained earnings are restricted by applicable regulatory capital requirements.

⁽⁴⁾ Represents the expense, net of tax, of the contribution of common stock to SI Financial Group Foundation based on an estimated tax rate of 34%. The realization of the tax benefit is limited annually to 10% of our annual taxable income. However, for federal and state tax purposes, we can carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

⁽⁵⁾ Assumes that 3.36% of the common stock issued in the offering, including shares issued to SI Bancorp, MHC and the foundation, will be acquired by the employee stock ownership plan in the offering with funds borrowed from SI Financial Group. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital. As shares are released to plan participants’ accounts, a corresponding reduction in the charge against capital will occur. Since the funds are borrowed from SI Financial Group, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the consolidated financial statements of SI Financial Group. See “Our Management—Benefit Plans—Employee Stock Ownership Plan.”

⁽⁶⁾ Assumes the purchase in the open market at $10.00 per share, under the proposed stock-based incentive plan, of a number of shares equal to 3.00% of the shares of common stock issued in the offering, including shares issued to SI Bancorp, MHC and the foundation. The shares are reflected as a reduction of stockholders’ equity. The stock-based incentive plan will be submitted to shareholders for approval at a meeting following the offering. See “Risk Factors—Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management—Benefit Plans—Future Stock-Based Incentive Plan.”

25

Regulatory Capital Compliance

At March 31, 2004, Savings Institute exceeded all regulatory capital requirements. The following table presents Savings Institute’s capital position relative to its regulatory capital requirements at March 31, 2004, on a historical and a pro forma basis. The table reflects receipt by Savings Institute of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan and the cost of the shares expected to be awarded under the stock-based incentive plan as restricted stock (3.00% of the shares of common stock issued in the offering, including shares issued to SI Bancorp, MHC and the foundation) are deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. For a discussion of the capital standards applicable to Savings Institute, see “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements.”

					Pro Forma at March 31, 2004
	Historical at March 31, 2004				Minimum of Offering Range				Midpoint of Offering Range				Maximum of Offering Range				15% Above Maximum of Offering Range
					2,890,000 Shares at $10.00 Per Share				3,400,000 Shares at $10.00 Per Share				3,910,000 Shares at $10.00 Per Share				4,496,500 Shares at $10.00 Per Share
	Amount		Percent of Assets (1)		Amount		Percent of Assets		Amount		Percent of Assets		Amount		Percent of Assets		Amount		Percent of Assets
	(Dollars in thousands)
Generally accepted accounting principles capital	$	35,079	6.5	%	$	44,745	8.2	%	$	46,518	8.5	%	$	48,269	8.8	%	$	50,305	9.1	%
Tangible Capital:
Capital level (2)	$	34,009	6.3	%	$	43,675	8.0	%	$	45,448	8.3	%	$	47,199	8.6	%	$	49,235	8.9	%
Requirement		8,056	1.5			8,201	1.5			8,227	1.5			8,254	1.5			8,284	1.5
Excess	$	25,953	4.8	%	$	35,474	6.5	%	$	37,221	6.8	%	$	38,945	7.1	%	$	40,951	7.4	%
Core Capital:
Capital level (2)	$	34,009	6.3	%	$	43,675	8.0	%	$	45,448	8.3	%	$	47,199	8.6	%	$	49,235	8.9	%
Requirement		21,482	4.0			21,868	4.0			21,939	4.0			22,009	4.0			22,091	4.0
Excess	$	12,527	2.3	%	$	21,807	4.0	%	$	23,509	4.3	%	$	25,190	4.6	%	$	27,144	4.9	%
Total Risk-Based Capital:
Total risk-based capital (3)	$	36,871	12.0	%	$	46,537	15.1	%	$	48,310	15.6	%	$	50,061	16.2	%	$	52,097	16.8	%
Requirement		24,520	8.0			24,675	8.0			24,703	8.0			24,731	8.0			24,764	8.0
Excess	$	12,351	4.0	%	$	21,862	7.1	%	$	23,607	7.6	%	$	25,330	8.2	%	$	27,333	8.8	%

⁽¹⁾ Tangible capital and core capital levels are shown as a percentage of adjusted total assets of $537.0 million. Risk-based capital levels are shown as a percentage of risk-weighted assets of $306.5 million.

⁽²⁾ A portion of the net unrealized gains on available-for-sale securities accounts for the difference between capital calculated under generally accepted accounting principles and each of tangible capital and core capital. See note 15 to the notes to financial statements for additional information.

⁽³⁾ Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting.

26

Pro Forma Data

The following tables show information about our net income and stockholders’ equity reflecting the offering. The information provided illustrates our pro forma net income and stockholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and 15% above the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

• All shares of stock will be sold in the subscription and community offerings;

• Our employee stock ownership plan will purchase a number of shares equal to 3.36% of the shares issued in the offering, including shares issued to SI Bancorp, MHC and the foundation, with a loan from SI Financial Group that will be repaid in equal installments over fifteen years;

• Total expenses of the offering, including fees and expenses paid to Sandler O’Neill, will be $1.2 million at the maximum of the offering range; and

• We will make a charitable contribution of 195,500 shares of SI Financial Group common stock at the maximum of the offering range, with an assumed value of $10.00 per share.

Actual expenses may vary from this estimate, and the fees paid will depend upon whether a syndicate of broker-dealers or other means is necessary to sell the shares, and other factors.

Pro forma net income for the three months ended March 31, 2004 and the year ended December 31, 2003 has been calculated as if the offering was completed at the beginning of each period, and the net proceeds had been invested at 1.25% for the three months ended March 31, 2004 and for the year ended December 31, 2003, which represents the three-year treasury rate.

A pro forma after-tax return of 0.83% is used for both SI Financial Group and Savings Institute for the year ended December 31, 2003, after giving effect to a combined federal and state income tax rate of 34%. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.

When reviewing the following tables you should consider the following:

• The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if Keller & Company increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “The Stock Offering—How We Determined the Offering Range and the $10.00 Purchase Price.”

• Since funds on deposit at Savings Institute may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.

• Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma stockholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed stock-based incentive plan.

27

• Pro forma stockholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities. Book value amounts do not represent fair market values or amounts available for distribution to shareholders in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Savings Institute’s special bad debt reserves for income tax purposes, which would be required in the unlikely event of liquidation. See “Federal and State Taxation.”

• The amounts shown as pro forma stockholders’ equity per share do not represent possible future price appreciation of our common stock.

• The amounts shown do not account for the shares to be reserved for issuance upon the exercise of stock options that may be granted under our proposed stock-based incentive plan, which requires shareholder approval at a meeting following the offering. Under the stock-based incentive plan, an amount equal to 7.50% of the common stock issued in the offering, including shares issued to SI Bancorp, MHC and shares contributed to the foundation, will be reserved for future issuance upon the exercise of options to be granted under the plan.

The following pro forma data, which are based on SI Bancorp, MHC’s equity at March 31, 2004 and December 31, 2003, and net income for the three months ended March 31, 2004 and the year ended December 31, 2003, may not represent the actual financial effects of the offering or our operating results after the offering. The pro forma data rely exclusively on the assumptions outlined above and in the notes to the pro forma tables. The pro forma data do not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to shareholders if we are liquidated after the offering.

We are offering our common stock on a best efforts basis. We must sell a minimum of 2,890,000 shares to complete the offering.

28

	At or For the Three Months Ended March 31, 2004
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			15% Above Maximum of Offering Range
	2,890,000 Shares at $10.00 Per Share			3,400,000 Shares at $10.00 Per Share			3,910,000 Shares at $10.00 Per Share			4,496,500 Shares at $10.00 Per Share
	(Dollars in thousands, except per share amounts)
Gross proceeds	$	28,900		$	34,000		$	39,100		$	44,965
Less: estimated expenses		(1,029	)		(1,076	)		(1,166	)		(1,226	)
Estimated net proceeds		27,871			32,924			37,934			43,739
Less: common stock acquired by employee stock ownership plan (1)(4)		(2,428	)		(2,856	)		(3,284	)		(3,777	)
Less: common stock to be acquired by stock-based incentive plan (3)(4)		(2,168	)		(2,550	)		(2,933	)		(3,372	)
Net investable proceeds	$	23,275		$	27,518		$	31,717		$	36,590
Pro Forma Net Income:
Pro forma net income (2):
Historical	$	804		$	804		$	804		$	804
Pro forma income on net investable proceeds		48			57			65			75
Less: pro forma employee stock ownership plan adjustments (1)(4)		(27	)		(31	)		(36	)		(42	)
Less: pro forma stock-based incentive plan adjustments (3)(4)		(72	)		(84	)		(97	)		(111	)
Pro forma net income	$	753		$	746		$	736		$	726
Pro forma net income per share (2):
Historical	$	0.12		$	0.10		$	0.09		$	0.07
Pro forma income on net investable proceeds		0.01			0.01			0.01			0.01
Less: pro forma employee stock ownership plan adjustments (1)		0.00			0.00			0.00			0.00
Less: pro forma stock-based incentive plan adjustments (3)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Pro forma net income per share (6)	$	0.12		$	0.10		$	0.09		$	0.07
Offering price as a multiple of pro forma net income per share		20.83	x		25.00	x		27.78	x		35.71	x
Number of shares used to calculate pro forma net income per share (5)		6,986,286			8,219,160			9,452,034			10,869,839
Pro Forma Stockholders’ Equity:
Pro forma stockholders’ equity (book value):
Historical	$	35,079		$	35,079		$	35,079		$	35,079
Estimated net proceeds		27,871			32,924			37,934			43,739
Plus: shares issued to the foundation		1,445			1,700			1,955			2,248
Less: after-tax cost of foundation		(954	)		(1,122	)		(1,290	)		(1,484	)
Less: common stock acquired by employee stock ownership plan (1)		(2,428	)		(2,856	)		(3,284	)		(3,777	)
Less: common stock to be acquired by stock-based incentive plan (5)		(2,168	)		(2,550	)		(2,933	)		(3,372	)
Pro forma stockholders’ equity (6)	$	58,845		$	63,175		$	67,461		$	72,433
Pro forma stockholders’ equity per share:
Historical	$	4.86		$	4.13		$	3.59		$	3.12
Estimated net proceeds		3.86			3.87			3.88			3.89
Plus: shares issued to the foundation		0.20			0.20			0.20			0.20
Less: after-tax cost of foundation		(0.13	)		(0.13	)		(0.13	)		(0.13	)
Less: common stock acquired by employee stock ownership plan (1)		(0.34	)		(0.34	)		(0.34	)		(0.34	)
Less: common stock to be acquired by stock-based incentive plan (5)		(0.30	)		(0.30	)		(0.30	)		(0.30	)
Pro forma stockholders’ equity per share	$	8.15		$	7.43		$	6.90		$	6.44
Offering price as a percentage of pro forma stockholders’ equity per share		122.70	%		134.59	%		144.93	%		155.28	%
Number of shares used to calculate pro forma stockholders’ equity per share		7,225,000			8,500,000			9,775,000			11,241,250

(footnotes on page             )

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	At or For the Year Ended December 31, 2003
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			15% Above Maximum of Offering Range
	2,890,000 Shares at $10.00 Per Share			3,400,000 Shares at $10.00 Per Share			3,910,000 Shares at $10.00 Per Share			4,496,500 Shares at $10.00 Per Share
	(Dollars in thousands, except per share amounts)
Gross proceeds	$	28,900		$	34,000		$	39,100		$	44,965
Less: estimated expenses		(1,029	)		(1,076	)		(1,166	)		(1,226	)
Estimated net proceeds		27,871			32,924			37,934			43,739
Less: common stock acquired by employee stock ownership plan (1)(4)		(2,428	)		(2,856	)		(3,284	)		(3,777	)
Less: common stock to be acquired by stock-based incentive plan (3)(4)		(2,168	)		(2,550	)		(2,933	)		(3,372	)
Net investable proceeds	$	23,275		$	27,518		$	31,717		$	36,590
Pro Forma Net Income:
Pro forma net income (2):
Historical	$	3,385		$	3,385		$	3,385		$	3,385
Pro forma income on net investable proceeds		192			227			292			302
Less: pro forma employee stock ownership plan adjustments (1)(4)		(107	)		(126	)		(145	)		(166	)
Less: pro forma stock-based incentive plan adjustments (3)(4)		(286	)		(337	)		(387	)		(445	)
Pro forma net income	$	3,184		$	3,149		$	3,115		$	3,076
Pro forma net income per share (2):
Historical	$	0.48		$	0.41		$	0.36		$	0.31
Pro forma income on net investable proceeds		0.03			0.03			0.03			0.03
Less: pro forma employee stock ownership plan adjustments (1)		(0.02	)		(0.02	)		(0.02	)		(0.02	)
Less: pro forma stock-based incentive plan adjustments (3)		(0.04	)		(0.04	)		(0.04	)		(0.04	)
Pro forma net income per share (6)	$	0.45		$	0.38		$	0.33		$	0.28
Offering price as a multiple of pro forma net income per share		22.22	x		26.32	x		30.30	x		35.71	x
Number of shares used to calculate pro forma net income per share (5)		6,998,424			8,233,440			9,468,456			10,888,724
Pro Forma Stockholders’ Equity:
Pro forma stockholders’ equity (book value):
Historical	$	34,099		$	34,099		$	34,099		$	34,099
Estimated net proceeds		27,871			32,924			37,934			43,739
Plus: shares issued to the foundation		1,445			1,700			1,955			2,248
Less: after-tax cost of foundation		(954	)		(1,122	)		(1,290	)		(1,484	)
Less: common stock acquired by employee stock ownership plan (1)		(2,428	)		(2,856	)		(3,284	)		(3,777	)
Less: common stock to be acquired by stock-based incentive plan (5)		(2,168	)		(2,550	)		(2,933	)		(3,372	)
Pro forma stockholders’ equity (6)	$	57,865		$	62,195		$	66,481		$	71,453
Pro forma stockholders’ equity per share:
Historical	$	4.72		$	4.01		$	3.49		$	3.03
Estimated net proceeds		3.86			3.87			3.88			3.89
Plus: shares issued to the foundation		0.20			0.20			0.20			0.20
Less: after-tax cost of foundation		(0.13	)		(0.13	)		(0.13	)		(0.13	)
Less: common stock acquired by employee stock ownership plan (1)		(0.34	)		(0.34	)		(0.34	)		(0.34	)
Less: common stock to be acquired by stock-based incentive plan (5)		(0.30	)		(0.30	)		(0.30	)		(0.30	)
Pro forma stockholders’ equity per share	$	8.01		$	7.31		$	6.80		$	6.35
Offering price as a percentage of pro forma stockholders’ equity per share		124.84	%		136.80	%		147.06	%		157.48	%
Number of shares used to calculate pro forma stockholders’ equity per share		7,225,000			8,500,000			9,775,000			11,241,250

(footnotes on following page)

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⁽¹⁾ Assumes that the employee stock ownership plan will acquire an amount of stock equal to 3.36% of the shares of common stock issued in the offering, including shares issued to SI Bancorp, MHC and our charitable foundation. The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds that SI Financial Group will retain. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 4%. Savings Institute intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. As the debt is paid down, stockholders’ equity will be increased. Savings Institute’s payment of the employee stock ownership plan debt is based upon equal installments of principal over a 15-year period, assuming a combined federal and state income tax rate of 34%. Interest income that SI Financial Group will earn on the loan will offset the interest paid on the loan by Savings Institute. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon shares committed to be released and that unallocated shares be excluded from earnings per share computations. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. See “Our Management—Benefit Plans—Employee Stock Ownership Plan.”

⁽²⁾ Does not give effect to the non-recurring expense that will be recognized in 2004 as a result of the contribution of common stock to SI Financial Group Foundation. The following table shows the estimated after-tax expense associated with the contribution to the foundation, as well as pro forma net income and pro forma net income per share assuming the contribution to the foundation was expensed during the periods presented. The pro forma data assume that we will realize 100% of the income tax benefit as a result of the contribution to the foundation based on a 34% tax rate. The realization of the tax benefit is limited annually to 10% of our annual taxable income. However, for federal and state tax purposes, we can carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			15% Above Maximum of Offering Range
	(Dollars in thousands, except per share amounts)
After-tax expense of contribution to foundation:
Three months ended March 31, 2004	$	954		$	1,122		$	1,290		$	1,484
Year ended December 31, 2003		954			1,122			1,290			1,484
Pro forma net income:
Three months ended March 31, 2004	$	(201	)	$	(376	)	$	(554	)	$	(758	)
Year ended December 31, 2003		2,230			2,195			2,161			2,122
Pro forma net income per share:
Three months ended March 31, 2004	$	(0.02	)	$	(0.05	)	$	(0.06	)	$	(0.07	)
Year ended December 31, 2003		0.32			0.27			0.23			0.20

⁽³⁾ In calculating the pro forma effect of the restricted stock awards, it is assumed that the required shareholder approval has been received, that we acquired the shares used to fund the awards (3.00% of the shares issued in the offering, including shares issued to SI Bancorp, MHC) at the beginning of the respective period in open market purchases at the $10.00 per share purchase price, that 20% of the value of the shares awarded was an amortized expense during the period, and that the combined federal and state income tax rate is 34%. We may fund the stock-based incentive plan through the purchase of common stock in the open market by a trust established in connection with the plan or from authorized, but unissued, shares of common stock. The issuance of authorized but unissued shares of the common stock instead of open market purchases would dilute the ownership interests of existing shareholders, other than SI Bancorp, MHC, by approximately 6.67%.

For purposes of the pro forma tables, shares of restricted stock issued under the stock-based incentive plan vest 20% per year and compensation expense is recognized on a straight-line basis over each vesting period. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the stock-based incentive plan, total stock-based incentive plan expense would be greater. The total estimated expense was multiplied by 20%, which is the total percent of shares for which expense is recognized in the first year.

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The following table shows the estimated pro forma net income and stockholders’ equity per share if restricted shares awarded under the stock-based incentive plan were authorized but unissued shares instead of repurchased shares. The table also shows the estimated pre-tax stock-based incentive plan expense. The number of shares used to calculate pro forma net income per share in the following table is the total number of shares issued at the indicated point in the offering range, minus the number of shares sold to the employee stock ownership plan assumed not to be committed to be released within one year following the offering and plus the number of shares that may be awarded as restricted stock under the planned stock-based incentive plan. The number of shares used to calculate pro forma stockholders’ equity per share in the following table is the total number of shares issued at the indicated point in the offering range, plus the number of shares that may be awarded as restricted stock under the planned stock-based incentive plan.

	Minimum of Offering Range		Midpoint of Offering Range		Maximum of Offering Range		15% Above Maximum of Offering Range
	(Dollars in thousands, except per share data)
Pro forma net income per share:
Three months ended March 31, 2004	$	0.11	$	0.09	$	0.08	$	0.07
Year ended December 31, 2003		0.44		0.37		0.32		0.28
Number of shares used to calculate pro forma net income per share:
At March 31, 2004		7,203,036		8,474,160		9,745,284		11,207,075
At December 31, 2003		7,215,174		8,488,440		9,761,706		11,225,961
Pro forma stockholders’ equity per share:
At March 31, 2004	$	8.20	$	7.51	$	6.99	$	6.55
At December 31, 2003		8.07		7.40		6.89		6.46
Number of shares used to calculate pro forma stockholders’ equity per share:
At March 31, 2004		7,441,750		8,755,000		10,068,250		11,578,488
At December 31, 2003		7,441,750		8,755,000		10,068,250		11,578,488
Pre-tax stock-based incentive plan expense:
Three months ended March 31, 2004	$	108,375	$	127,500	$	146,625	$	168,619
Year ended December 31, 2003		433,500		510,000		586,500		674,475

⁽⁴⁾ Assumes the value of our common stock is $10.00 per share for purposes of determining the total estimated value of the grants. However, as set forth in “Summary - After Market Performance Information Provided by Independent Appraiser,” the average percentage stock appreciation from initial trading date to after one month in 2004 and 2003 ranged from 20.00% to 36.53%. Consequently, assuming our common stock experienced appreciation in the same range, the estimated value of the grants under the employee stock ownership plan and restricted stock awards, assuming a trading price of $12.28, for example, would be $4.0 million and $3.6 million, respectively. Ultimately, the value of the grants will depend on the actual trading price of our common stock, which depends on numerous factors. We cannot assure you that our stock price will appreciate in the same manner as other mutual holding companies, if at all. See “Summary - After-Market Performance Information Provided by Independent Appraiser” and “Risk Factors - As a result of the capital we are raising, we expect our return on equity and our stock price performance to be negatively affected” for more information regarding factors that could negatively affect our stock price appreciation.

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⁽⁵⁾ The following table shows how we derived the number of shares used to calculate pro forma net income per share.

	Minimum of Offering Range	Midpoint of Offering Range	Maximum of Offering Range	15% Above Maximum of Offering Range
Three Months Ended March 31, 2004:
Shares issued in the offering	7,225,000	8,500,000	9,775,000	11,241,250
Less: shares purchased by the employee stock ownership plan	242,760	285,600	328,440	377,706
Plus: shares committed to be released by the employee stock ownership plan	4,046	4,760	5,474	6,295
Number of shares used to calculate pro forma net income per share	6,986,286	8,219,160	9,452,034	10,869,839
Year Ended December 31, 2003:
Plus: shares committed to be released by the employee stock ownership plan	16,184	19,040	21,896	25,180
Number of shares used to calculate pro forma net income per share	6,998,424	8,233,440	9,468,456	10,888,724

⁽⁶⁾ In calculating the pro forma effect of the stock-based incentive plan, no effect has been given to any shares that may be reserved for issuance upon the exercise of stock options that may be granted under the stock-based incentive plan. The number of options available under the stock-based incentive plan will be equal to 7.50% of the number of shares issued in the offering, including shares issued to SI Bancorp, MHC. The issuance of authorized but unissued shares of common stock instead of shares repurchased in the open market would dilute the ownership interests of existing stockholders, other than SI Bancorp, MHC, by approximately 15.15%.

The following table shows the estimated pro forma net income and stockholders’ equity per share if shares for stock issued as a result of the exercise of stock options were authorized but unissued shares instead of repurchased shares.

	Minimum of Offering Range		Midpoint of Offering Range		Maximum of Offering Range		15% Above Maximum of Offering Range
Pro forma net income per share:
Three months ended March 31, 2004	$	0.10	$	0.08	$	0.07	$	0.06
Year ended December 31, 2003		0.42		0.35		0.31		0.26
Number of shares used to calculate pro forma net income per share:
Three months ended March 31, 2004		7,528,161		8,856,660		10,185,159		11,712,985
Year ended December 31, 2003		7,540,299		8,870,940		10,102,581		11,731,871
Pro forma stockholders’ equity per share:
At March 31, 2004	$	7.58	$	6.91	$	6.42	$	5.99
At December 31, 2003		7.45		6.81		6.33		5.91
Number of shares used to calculate pro forma stockholders’ equity per share:
Three months ended March 31, 2004		7,766,875		9,137,500		10,508,125		12,084,398
Year ended at December 31, 2003		7,766,875		9,137,500		10,508,125		12,084,398

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Comparison of Independent Valuation and Pro Forma Financial

Information With and Without the Foundation

As set forth in the following table, if we do not establish and fund SI Financial Group Foundation as part of the offering, Keller & Company estimates that our pro forma valuation would be greater, which would have resulted in an increase in the amount of common stock offered for sale in the offering. If the foundation were not established, there is no assurance that the updated appraisal that Keller & Company will prepare at the closing of the offering would conclude that our pro forma market value would be the same as the estimate set forth in the table below. The updated appraisal will be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.

The information presented in the following table is for comparative purposes only. It assumes that the offering was completed at March 31, 2004, based on the assumptions set forth under “Pro Forma Data.”

	At the Minimum of Estimated Valuation Range						At the Midpoint of Estimated Valuation Range						At the Maximum of Estimated Valuation Range						At the Maximum, as Adjusted, of Estimated Valuation Range
	With Foundation			No Foundation			With Foundation			No Foundation			With Foundation			No Foundation			With Foundation			No Foundation
	(Dollars in thousands, except per share amounts)
Estimated offering amount (1)	$	28,900		$	31,416		$	34,000		$	36,960		$	39,100		$	42,504		$	44,965		$	48,880
Estimated pro forma valuation		72,250			74,800			85,000			88,000			97,750			101,200			112,413			116,380
Pro forma total assets		560,685			563,009			564,928			567,668			569,127			572,282			574,000			577,632
Pro forma total liabilities		201,840			502,330			501,753			205,331			501,666			502,331			501,567			502,330
Pro forma stockholders’ equity		58,845			60,679			63,175			65,337			67,461			69,951			72,433			75,302
Pro forma net income		753			755			746			746			736			739			726			729
Pro forma stockholders’ equity per share		8.15			8.11			7.43			7.42			6.90			6.91			6.44			6.46
Pro forma net income per share		0.12			0.11			0.10			0.09			0.09			0.08			0.07			0.07
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma stockholders’ equity		122.70	%		123.30	%		134.59	%		134.77	%		144.93	%		144.72	%		155.28	%		154.80	%
Offering price as a multiple of pro forma net income per share (annualized)		20.83			22.73			25.00			27.78			27.78			31.25			35.71			35.71
Offering price to assets		12.89			13.29			13.87			14.22			17.18			17.68			19.58			20.15
Pro Forma Financial Ratios:
Return on assets (annualized)		0.54			0.54			0.53			0.53			0.52			0.52			0.51			0.50
Return on stockholders’ equity (annualized)		5.12			4.98			4.72			4.57			4.36			4.23			4.01			3.87
Stockholders’ equity to total assets		10.50			10.78			11.18			11.51			11.85			12.22			12.62			13.04

⁽¹⁾ Based on independent valuation prepared by Keller & Company, Inc. as of May 21, 2004.

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Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the financial statements and notes to the financial statements that appear at the end of this prospectus.

Overview

Income. We have two primary sources of pre-tax income. The first is net interest income. Net interest income is the difference between interest income, the income that we earn on our loans and investments, and interest expense, the interest that we pay on our deposits, borrowings and subordinated debt.

To a lesser extent, we also recognize fee and service charge income from the products and services we offer. Most of our fee and service charge income comes from service charges on deposit accounts and from mortgage and electronic banking. We also generate revenue from our wealth management services, which includes our insurance, investment and trust operations. We also earn fee and service charge income from ATM charges and other fees and charges and from the sale of loans and securities.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Expenses. The expenses we incur in operating our business consist of salary and employee benefits expenses, occupancy expenses, furniture and equipment, computer services, professional services, advertising expenses, federal insurance premiums and other miscellaneous expenses.

Salary and employee benefits consist primarily of the salaries and wages paid to our employees, payroll taxes and expenses for retirement and other employee benefits.

Occupancy expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance and costs of utilities.

Equipment expense includes expenses and depreciation charges related to office and banking equipment. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets, which range from three to 40 years. Leasehold improvements are amortized over the shorter of the useful life of the asset or term of the lease.

Computer services includes fees to our third-party processing service.

Professional services includes fees paid to our independent auditors, to the firm that conducts our internal audit, fees paid to attorneys, primarily in connection with actions related to problem assets, and fees paid to consultants.

Federal insurance premiums are payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts.

Other expenses include franchise taxes and expenses for foreclosed real estate, insurance, office supplies, postage and other miscellaneous operating expenses.

35

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the allowance for loan losses to be a critical accounting policy.

Allowance for Loan Losses. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a monthly basis and establishes the provision for loan losses based on the size and composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the Office of Thrift Supervision, as an integral part of its examination process, will periodically review our allowance for loan losses. The Office of Thrift Supervision became Savings Institute’s primary regulator upon its conversion to a federal savings bank in             , 2004 and has not yet examined Savings Institute. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. See note 1 of the notes to financial statements included in this prospectus.

Operating Strategy

Our mission is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

• offering a full range of financial services;

• expanding our branch network into new market areas;

• pursuing opportunities to increase commercial lending in our market area;

• continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio;

• managing our net interest margin and net interest spread by seeking to increase lending levels;

• managing our investment and borrowings portfolios to provide liquidity, enhance income and manage interest rate risk; and

• seeking opportunities to increase deposits by continuing to offer exceptional customer service and emphasizing our commercial deposit offerings.

Offering a full range of financial services

We have a long tradition of focusing on the needs of consumers and small and medium sized businesses in our community and being an active corporate citizen. We deliver personalized service and respond with flexibility to customer needs. We believe our community orientation is attractive to our customers and distinguishes us from the large regional banks that operate in our market area, and we intend to maintain this focus as we grow. In this context, we are striving to become a true financial services company offering our customers one-stop-shopping for all of their financial needs through our banking, investments, insurance and trust products and services. While we have no current plans or agreements, we may use a portion of the proceeds from the offering for strategic acquisitions to broaden our products and services. We hope that our broad array of product offerings will deepen our relationships with our current customers and entice new customers to begin banking with us, ultimately increasing our fee income and our profitability.

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Expand our branch network into new market areas

Since 2000, we have opened a new branch office in each of North Windam, Lisbon and Mansfield Center, Connecticut. We intend to continue to pursue expansion in Hartford, New London, Tolland and Windham Counties in future years, whether through de novo branching or acquisition, and we also may consider exploring expansion opportunities in Middlesex County.

Pursue opportunities to increase commercial lending

Commercial real estate and commercial business loans increased $5.9 million and $36.0 million for the three months ended March 31, 2004 and the year ended December 31, 2003, respectively, and at March 31, 2004 comprised approximately 32.8% of total loans. There are many commercial properties and businesses located in our market area and with the additional capital raised in the offering, we may pursue the larger lending relationships associated with these commercial opportunities, while continuing to originate any such loans in accordance with what we believe are our conservative underwriting guidelines. Additionally, we intend to hire additional seasoned commercial lenders and add new products to accelerate this initiative.

Continue conservative underwriting practices and maintain high quality loan portfolio

We believe that high asset quality is a key to long-term financial success. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards which we believe are conservative. At March 31, 2004, our nonperforming loans (loans which are 90 or more days delinquent) were only 0.34% of our total loan portfolio and 0.25% of our total assets. Although we intend to increase our multi-family and commercial real estate and commercial business lending after the offering, we intend to continue our philosophy of managing large loan exposures through our conservative approach to lending.

Manage net interest margin and net interest spread

We intend to continue to manage our net interest margin and net interest spread by seeking to increase lending levels. Loans secured by multi-family and commercial real estate are generally larger and involve a greater degree of risk than one-to four-family residential mortgage loans. Consequently, multi-family and commercial real estate loans typically have higher yields, which increase our net interest margin and net interest spread.

Manage investment and borrowings portfolios

Our liquidity, income and interest rate risk are affected by the management of our investment and borrowings portfolios. After the offering, we may leverage the additional capital we raise by borrowing funds from the Federal Home Loan Bank and investing the funds in loans and investment securities in a manner consistent with our current portfolio. This leverage strategy, if implemented and assuming favorable market conditions, will provide us with additional liquidity, enhance earnings and help to manage our interest rate risk.

Increase deposits

Our primary source of funds is retail deposit accounts. Since December 31, 2001, deposits have increased by 17.2%, primarily due to competitive interest rates and the movement of customer funds out of riskier investments, including the stock market. We intend to continue to increase our deposits by continuing to offer exceptional customer service and by focusing on increasing our commercial deposits from small- and medium-sized businesses through additional business banking products.

37

Balance Sheet

Loans. Our primary lending activity is the origination of loans secured by real estate primarily located in our market area. We originate real estate loans secured by one- to four-family residential homes, and to a much lesser extent, multi-family and commercial real estate and construction loans. At March 31, 2004, real estate loans totaled $323.8 million, or 81.5% of total loans compared to $321.0 million, or 82.5% of total loans at December 31, 2003 and $296.1 million, or 87.7% of total loans at December 31, 2002. Loans increased in the three months ended March 31, 2004 and the year ended December 31, 2003 due to the low interest rate environment and significant growth in both residential and commercial real estate development because of the availability of lower cost land and expansion of commuting patterns in Northeast Connecticut.

The largest segment of our real estate loans is one- to four-family residential loans. At March 31, 2004, these loans totaled $228.6 million and represented 70.6% of real estate loans and 57.6% of total loans compared to $226.9 million, which represented 70.7% of real estate loans and 58.3% of total loans, at December 31, 2003. One- to four-family residential loans increased $1.7 million, or 0.8%, for the three months ended March 31, 2004 and $13.0 million, or 6.1%, in the year ended December 31, 2003 as rates have remained at historic low levels. New housing developments within our market areas and strong relationships with local realtors have allowed us to expand the residential mortgage portfolio in spite of significant refinancings and prepayments.

Multi-family and commercial real estate loans is the second largest segment of our real estate loan portfolio. This portfolio was $75.6 million and represented 23.4% of real estate loans and 19.1% of total loans at March 31, 2004 compared to $73.4 million, which represented 22.9% of real estate loans and 18.9% of total loans, at December 31, 2003. Multi-family and commercial real estate loans increased $2.2 million, or 3.0%, for the three months ended March 31, 2004 and $12.2 million, or 20.0%, in the year ended December 31, 2003 due to significant new development within our market area, the hiring of additional commercial lenders and an experienced credit administration area, which has allowed us to expedite loan processing.

We also originate construction loans secured by real estate. This portfolio was $19.5 million and represented 6.0% of real estate loans and 4.9% of total loans at March 31, 2004 compared to $20.7 million, which represented 6.4% of real estate loans and 5.3% of total loans at December 31, 2003. Construction loans decreased $1.2 million, or 5.5%, for the three months ended March 31, 2004 and $452,000, or 2.1%, in the year ended December 31, 2003 primarily due to the completion of projects originated in prior years.

We originate commercial business loans secured by business assets other than real estate, such as business equipment, inventory and accounts receivable and letters of credit. Commercial loans also include loans purchased in the secondary market that are fully guaranteed by U.S. government agencies. Commercial business loans totaled $54.5 million, and represented 13.7% of total loans at March 31, 2004 compared to $50.7 million, which represented 13.0% of total loans at December 31, 2003. The $3.8 million, or 7.3%, increase for the three months ended March 31, 2004 and the $23.7 million, or 87.9%, increase for the 2003 fiscal year was primarily attributable to purchases in the secondary market of commercial loans guaranteed by U.S. government agencies. These loans were purchased as a substitute to investment securities as they offered higher rates of return than investment securities and improved our interest rate risk profile.

We also originate a variety of consumer loans, including second mortgage loans, loans secured by passbook or certificate accounts and home equity lines of credit. Consumer loans totaled $18.8 million and represented 4.7% of total loans at March 31, 2004 compared to $17.5 million, which represented 4.5% of total loans at December 31, 2003. The $1.3 million, or 7.5%, increase for the three months ended March 31, 2004 and the $2.8 million, or 19.0%, increase for the 2003 fiscal year was due to aggressive marketing activities and competitive pricing on our home equity products.

38

The following table sets forth the composition of our loan portfolio at the dates indicated.

	At March 31, 2004					At December 31,
						2003					2002					2001					2000					1999
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential	$	228,625		57.57	%	$	226,881		58.29	%	$	213,831		63.29	%	$	193,672		65.36	%	$	174,186		65.14	%	$	150,964		65.50	%
Commercial		75,650		19.05			73,428		18.87			61,214		18.12			56,376		19.02			47,016		17.58			38,360		16.64
Construction		19,518		4.92			20,652		5.30			21,104		6.25			10,155		3.43			11,815		4.42			8,462		3.67
Total real estate loans		323,793		81.54			320,961		82.46			296,149		87.66			260,203		87.81			233,017		87.14			197,786		85.81
Commercial business loans		54,466		13.72			50,746		13.04			27,003		7.99			21,192		7.15			21,442		8.02			22,115		9.59
Consumer Loans:
Home equity		15,836		3.99			14,411		3.70			10,786		3.19			7,752		2.62			6,888		2.58			6,516		2.83
Other		2,998		0.75			3,107		0.80			3,936		1.16			7,174		2.42			6,039		2.26			4,072		1.77
Total loans		397,093		100.00	%		389,225		100.00	%		337,874		100.00	%		296,321		100.00	%		267,386		100.00	%		230,489		100.00	%
Net deferred loan fees		439					387					(209	)				(349	)				(228	)				(323	)
Allowance for loan losses		(2,835	)				(2,688	)				(3,067	)				(2,861	)				(2,605	)				(2,284	)
Loans, net	$	394,697				$	386,924				$	334,598				$	293,111				$	264,553				$	227,882

39

The following table sets forth certain information at March 31, 2004 regarding the dollar amount of loan maturities becoming due during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

	Real Estate Loans		Commercial Business Loans		Consumer Loans		Total Loans
	(In thousands)
Amounts due in:
One year or less	$	7,439	$	7,535	$	1,043	$	16,017
More than one to five years		9,766		6,554		16,060		32,380
More than five years		306,588		40,377		1,731		348,696
Total	$	323,793	$	54,466	$	18,834	$	397,093

The following table sets forth the dollar amount of all loans at March 31, 2004 that are due after March 31, 2005 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude applicable loans in process, unearned interest on consumer loans and deferred loan fees, net, and includes $1.4 million of nonperforming loans.

	Fixed Rates		Floating or Adjustable Rates		Total
	(In thousands)
Real estate loans:
Residential	$	192,885	$	34,535	$	227,420
Commercial		12,588		63,949		76,537
Construction		11,259		1,138		12,397
Commercial business loans		23,897		23,034		46,931
Consumer Loans		7,634		10,157		17,791
Total	$	248,263	$	132,813	$	381,076

The following table shows loan origination, purchase and sale activity during the periods indicated.

	Three Months Ended March 31,				Year Ended December 31,
	2004		2003		2003		2002		2001		2000		1999
	(In thousands)
Total loans at beginning of period	$	389,225	$	337,874	$	337,874	$	296,321	$	267,386	$	230,489	$	213,878
Loans originated:
Real estate	$	21,138	$	36,025	$	180,962	$	133,150	$	95,297	$	63,641	$	56,153
Commercial business		3,244		1,617		10,034		4,025		8,437		7,525		3,485
Consumer		3,459		3,071		16,682		11,837		15,297		7,514		9,091
Total loans originated		27,841		40,713		207,678		149,012		119,031		78,680		68,729
Loans purchased		3,554		2,364		26,448		3,538		1,281		1,944		8,007
Deduct:
Real estate loan principal repayments		13,860		23,896		133,155		84,388		55,460		25,528		45,582
Loan sales		4,446		5,957		22,996		12,795		12,690		2,703		2,527
Other repayments		5,221		6,532		26,624		13,814		23,227		15,496		12,016
Net loan activity		7,868		6,692		51,351		41,553		28,935		36,897		16,611
Total loans at end of period	$	397,093	$	344,566	$	389,225	$	337,874	$	296,321	$	267,386	$	230,489

40

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of four key elements: (1) specific allowances for identified problem loans; (2) a general valuation allowance on certain identified problem loans; (3) a general valuation allowance on the remainder of the loan portfolio; and (4) a specific allowance required for certain impaired or collateral-dependent loans. Additionally, the allowance consists of an unallocated component, which reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Specific Allowance on Identified Problem Loans. The loan portfolio is segregated first between loans that are on our “watch list” and loans that are not. Our watch list includes loans:

• 60 or more days delinquent;

• with anticipated losses;

• loans referred to attorneys for collection or in the process of foreclosure;

• non-accrual loans;

• loans classified as substandard, doubtful or loss by either our internal classification system or by regulators during the course of their examination of us; and

• troubled debt restructurings and other non-performing loans.

The watched asset committee, consisting of six of our officers, will review each loan on the watch list and establish an individual reserve allocation on certain loans based on such factors as: (1) the strength of the customer’s personal or business cash flow; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency.

General Valuation Allowance on Certain Identified Problem Loans. We also establish a general reserve for watch list loans that do not have an individual reserve. We segregate these loans by loan category and assign allowance percentages to each category based on inherent losses associated with each type of lending and consideration that these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish another general reserve for loans that are not on the watch list to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and projected future losses. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated annually to ensure their relevance in the current real estate environment.

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Specific Allowance Required for Certain Impaired or Collateral-Dependent Loans. We also establish a reserve for certain impaired loans for the amounts by which the discounted cash flows (or collateral value or observable market price) are lower than the carrying value of the loan. Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. At March 31, 2004 and December 31, 2003, loans that were considered impaired amounted to $1.5 million and $1.8 million, respectively.

The Office of Thrift Supervision, as an integral part of its examination process, will periodically review our allowance for loan losses. The Office of Thrift Supervision may require us to make additional provisions for loan losses based on judgments different from ours.

At March 31, 2004, our allowance for loan losses represented 0.71% of total gross loans and 207.39% of nonperforming loans. The allowance for loan losses increased from $2.7 million at December 31, 2003 to $2.8 million at March 31, 2004.

At December 31, 2003, our allowance for loan losses represented 0.69% of total gross loans and 207.57% of nonperforming loans. The allowance for loan losses decreased from $3.1 million at December 31, 2002 to $2.7 million at December 31, 2003, due to charge-offs of $2.1 million, offset by the provision for loan losses of $1.6 million. The higher provision for loan losses in 2003 reflected the increase in charge-offs in 2003, an increase in the size of the loan portfolio and the increased origination of commercial business loans, which carry a higher risk of default.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

42

Summary of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss allowances have been established, any difference between the loss allowance and the amount of loss realized has been charged or credited to current income.

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001			2000			1999
	(Dollars in thousands)
Allowance at beginning of period	$	2,688		$	3,067		$	3,067		$	2,861		$	2,605		$	2,284		$	2,472
Provision for loan losses	$	150		$	175		$	1,602		$	537		$	440		$	290		$	300
Charge offs:
Real estate loans		—			(177	)		(1,523	)		(77	)		(40	)		(86	)		(530	)
Commercial business loans		—			(44	)		(374	)		(111	)		(218	)		(18	)		(68	)
Consumer Loans		(6	)		(62	)		(216	)		(218	)		(146	)		(5	)		(27	)
Total charge-offs		(6	)		(283	)		(2,113	)		(406	)		(404	)		(109	)		(625	)
Recoveries:
Real estate loans		1			50			89			35			40			60			111
Commercial business loans		1			—			24			32			161			70			21
Consumer Loans		1			2			19			8			19			10			5
Total recoveries		3			52			132			75			220			140			137
Net charge-offs		(3	)		(231	)		(1,981	)		(331	)		(184	)		31			(488	)
Allowance at end of period	$	2,835		$	3,011		$	2,688		$	3,067		$	2,861		$	2,605		$	2,284
Allowance to nonperforming loans		207.39	%		218.51	%		207.57	%		166.50	%		130.64	%		170.15	%		200.18	%
Allowance to total loans outstanding at the end of the period		0.71	%		0.87	%		0.69	%		0.91	%		0.97	%		0.97	%		0.99	%
Net charge-offs (recoveries) to average loans outstanding during the period		0.01	%		0.07	%		0.55	%		0.11	%		0.07	%		(0.01	)%		0.21	%

43

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.

	At March 31, 2004						At December 31,
							2003						2002
	Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate	$	2,161	76.23	%	81.54	%	$	2,093	77.86	%	82.46	%	$	2,237	72.94	%	87.66	%
Commercial business		524	18.48		13.72			461	17.15		13.04			488	15.91		7.99
Consumer		106	3.74		4.74			80	2.98		4.50			318	10.37		4.35
Unallocated		44	1.55		—			54	2.01		—			24	0.78		—
Total allowance for loan losses	$	2,835	100.00	%	100.00	%	$	2,688	100.00	%	100.00	%	$	3,067	100.00	%	100.00	%

	At December 31,
	2001						2000						1999
	Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate	$	1,866	65.22	%	87.81	%	$	1,759	67.52	%	87.14	%	$	1,351	59.15	%	85.81	%
Commercial business		647	22.62		7.15			537	20.61		8.02			547	23.95		9.59
Consumer		277	9.68		5.04			139	5.34		4.84			181	7.92		4.60
Unallocated		71	2.48		—			170	6.53		—			205	8.98		—
Total allowance for loan losses	$	2,861	100.00	%	100.00	%	$	2,605	100.00	%	100.00	%	$	2,284	100.00	%	100.00	%

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Nonperforming and Classified Assets. When a loan becomes 90 days delinquent, the loan is placed on nonaccrual status at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against operations. Typically, payments received on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan.

We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair value at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property result in charges against income.

Nonperforming assets totaled $1.7 million, or 0.3% of total assets, at March 31, 2004, which was an increase of $71,000, or 6.3%, from December 31, 2003. Nonaccrual loans accounted for nearly 81% of the total nonperforming assets at March 31, 2004. At March 31, 2004, nonaccrual loans were comprised of $1.3 million in real estate loans, $63,000 in commercial business loans, and $39,000 in consumer loans. At March 31, 2004, no amount of the allowance for loan losses was related to nonaccrual real estate loans.

Nonperforming assets totaled $1.6 million, or 0.3% of total assets, at December 31, 2003, which was a decrease of $261,000, or 13.8%, from $1.9 million, or 0.4% of total assets, at December 31, 2002. Nonaccrual loans accounted for almost 80% of the total nonperforming assets at December 31, 2003 and almost all of nonperforming assets at December 31, 2002. At December 31, 2003, nonaccrual loans consisted of $1.2 million in real estate loans and $65,000 in commercial business loans. At December 31, 2002, nonaccrual loans consisted of $1.3 million in real estate loans, $418,000 in commercial business loans and $72,000 in consumer loans. At December 31, 2003, no amount of the allowance for loan losses was related to nonaccrual real estate loans. At December 31, 2002, $166,000 of the allowance for loan losses was related to nonaccrual real estate loans.

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The following table provides information with respect to our nonperforming assets at the dates indicated.

	At March 31, 2004			At December 31,
				2003			2002			2001			2000			1999
	(Dollars in thousands)
Nonaccrual loans:
Real estate	$	1,265		$	1,230		$	1,347		$	1,597		$	1,028		$	1,043
Commercial business		63			65			418			517			86			25
Consumer		39			—			72			29			23			—
Total		1,367			1,295			1,837			2,143			1,137			1,068
Accruing loans past due 90 days or more:
Real estate		—			—			5			46			394			73
Commercial business		—			—			—			1			—			—
Consumer		—			—			—			—			—			—
Total		—			—			5			47			394			73
Total of nonaccrual and 90 days or more past due loans		1,367			1,295			1,842			2,190			1,531			1,141
Real estate owned		328			328			43			101			106			206
Other nonperforming assets		—			—			—			—			—			—
Total nonperforming assets		1,695			1,623			1,885			2,291			1,637			1,347
Troubled debt restructurings		77			77			78			78			79			80
Troubled debt restructurings and total nonperforming assets	$	1,772		$	1,700		$	1,963		$	2,369		$	1,716		$	1,427
Total nonperforming loans to total loans		0.34	%		0.33	%		0.55	%		0.74	%		0.57	%		0.50	%
Total nonperforming loans to total assets		0.25	%		0.25	%		0.38	%		0.51	%		0.41	%		0.34	%
Total nonperforming assets and troubled debt restructurings to total assets		0.33	%		0.33	%		0.40	%		0.55	%		0.46	%		0.42	%

Other than disclosed in the above table, there are no other loans at March 31, 2004 that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Interest income that would have been recorded for the three months ended March 31, 2004 and for the year ended December 31, 2003 had nonaccruing loans and troubled debt restructurings been current according to their original terms amounted to $31,000 and $67,000, respectively. The amount of interest related to nonaccrual loans and troubled debt restructurings included in interest income was $1,000 and $0 for the three months ended March 31, 2004 and for the year ended December 31, 2003, respectively.

Federal regulations require us to review and classify our assets on a regular basis. In addition, the Office of Thrift Supervision has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset as loss, we must either establish specific allowances for loan losses in an amount equal to 100% of the portion of the asset classified loss or charge off such amount.

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The following table shows the aggregate amounts of our classified assets at the dates indicated.

	At March 31, 2004		At December 31,
			2003		2002
	(In thousands)
Special mention assets	$	3,493	$	3,794	$	6,258
Substandard assets		2,473		1,972		4,059
Doubtful assets		142		—		22
Loss assets		10		—		25
Total classified assets	$	6,118	$	5,766	$	10,364

Of the $2.5 million substandard assets at March 31, 2004, $1.4 million are considered nonperforming loans. The substandard assets of $2.0 million at December 31, 2003, and $4.1 million at December 31, 2002 include $1.3 million and $1.8 million, respectively, in nonperforming loans. At March 31, 2004, all loans included in the $3.5 million special mention assets were current.

Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.

	At March 31, 2004				At December 31,
					2003				2002				2001
	30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due		30-59 Days Past Due		60-89 Days Past Due
	(In thousands)
Real estate loans	$	378	$	—	$	168	$	656	$	366	$	—	$	345	$	64
Commercial business loans		2		—		3		—		475		—		72		17
Consumer loans		7		—		34		—		29		15		27		17
Total	$	387	$	—	$	205	$	656	$	870	$	15	$	444	$	98

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Securities. Our securities portfolio consists primarily of U.S. Government and agency securities with maturities of 25 years or less and mortgage-backed and corporate debt securities with stated final maturities of 23 years or less. Securities increased $3.7 million, or 4.6%, in the three months ended March 31, 2004 as a result of the investment of excess liquidity into investment securities.

The following table sets forth the carrying values and fair values of our securities portfolio at the dates indicated.

	At March 31, 2004				At December 31,
					2003				2002				2001
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available for sale:
U.S. Government and agency securities	$	47,337	$	47,949	$	38,583	$	38,999	$	27,931	$	28,821	$	18,507	$	18,811
Mortgage-backed securities		17,400		16,880		19,050		18,364		32,569		32,770		36,260		36,665
Corporate debt securities		11,873		12,678		15,540		16,451		21,054		21,779		19,438		19,860
Obligations of state and political subdivisions		3,129		3,223		3,129		3,217		3,199		3,309		1,644		1,705
Other debt securities		75		75		75		75		75		75		75		75
Total debt securities		79,814		80,805		76,377		77,106		84,828		86,754		75,924		77,116
Marketable equity securities		531		591		531		587		1,251		1,160		1,711		1,581
Securities held to maturity:
Mortgage-backed securities		1,688		1,497		1,728		1,344		9,463		8,985		13,197		13,179
Total	$	82,033	$	82,893	$	78,636	$	79,037	$	95,542	$	96,899	$	90,832	$	91,876

At March 31, 2004, we had an investment in mortgage-backed securities issued by Nomura Asset Capital Corp. with an amortized cost of $4.8 million and a fair value of $4.6 million and an investment in manufactured housing loan-backed securities issued by Bombadier Capital Mortgage with an amortized cost of $3.5 million and a fair value of $3.0 million. We had no other investments that had an aggregate book value in excess of 10% of our equity at March 31, 2004.

48

The following table sets forth the stated maturities and weighted average yields of securities at March 31, 2004. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. At March 31, 2004, mortgage-backed securities with adjustable rates totaled $5.0 million.

	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
U.S. Government and agency securities	$	5,004	5.03	%	$	37,658	4.27	%	$	2,102	2.66	%	$	2,573	3.09	%	$	47,337	4.22	%
Mortgage-backed securities		—	—			4,912	6.64			—	—			12,488	5.03			17,400	5.49
Corporate debt securities		—	—			9,007	6.58			—	—			2,866	1.71			11,873	5.40
Obligations of state and political subdivisions		1,070	2.59			1,279	6.14			280	3.88			500	5.67			3,129	4.66
Other debt securities		—	—			25	5.50			50	5.63			—	—			75	5.58
Total debt securities		6,074	4.60			52,881	4.93			2,432	2.86			18,427	4.26			79,814	5.12
Marketable equity securities		—	—			—	—			—	—			531	5.23			531	5.23
Securities held to maturity:
Mortgage-backed securities		—	—			—	—			—	—			1,688	8.29			1,688	8.29
Total	$	6,074	4.60	%	$	52,881	4.93	%	$	2,432	2.86	%	$	20,646	4.60	%	$	82,033	4.77	%

49

Other Assets. Other assets increased approximately $258,000 for the three months ended March 31, 2004. The increase in other assets was primarily due to increases in prepaid expenses.

Premises and equipment. Land and buildings decreased approximately $70,000 for the three months ended March 31, 2004. Furniture and equipment decreased approximately $54,000 for the three months ended March 31, 2004. Leasehold improvements decreased approximately $32,000 for the three months ended March 31, 2004. All of the decreases were due to depreciation and amortization.

Deposits. Our primary source of funds are retail deposit accounts held primarily by individuals and businesses within our market area. The deposit base is comprised of demand deposits, NOW checking, savings, money market and time deposits. Included in deposits at March 31, 2004 was $5.0 million in brokered deposits with a yield of 3.40%, which has a maturity date of December 24, 2007. Deposits increased $8.3 million, or 2.0%, for the three months ended March 31, 2004. The increase in deposits consisted primarily of an increase in NOW and money market accounts and certificates of deposit. The increase was attributable primarily to competitive interest rates and the movement of customer funds out of riskier investments, including the stock market.

The following table sets forth the balances of our deposit products, including mortgagors’ escrow accounts, at the dates indicated.

	At March 31, 2004		At December 31,
			2003		2002		2001
	(In thousands)
Noninterest-bearing demand deposits	$	38,812	$	40,371	$	37,624	$	35,256
NOW and money market accounts		106,018		101,852		90,516		82,067
Savings accounts		89,342		89,846		84,201		72,558
Certificates of deposit		191,427		185,242		185,974		173,148
Total	$	425,599	$	417,311	$	398,315	$	363,029

The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of March 31, 2004. Jumbo certificates of deposit require minimum deposits of $100,000.

Maturity Period	Certificates of Deposits
	(In thousands)
Three months or less	$	7,199
Over three through six months		7,644
Over six through twelve months		5,539
Over twelve months		20,539
Total	$	40,921

50

The following table sets forth time deposits classified by rates at the dates indicated.

	At March 31, 2004		At December 31,
			2003		2002		2001
	(In thousands)
0.00 - 1.00%	$	7,305	$	15,811	$	—	$	—
1.01 - 2.00%		71,243		63,785		33,087		54
2.01 - 3.00%		34,379		29,056		62,792		17,840
3.01 - 4.00%		42,135		39,875		31,492		30,008
4.01 - 5.00%		22,972		22,778		29,247		56,344
5.01 - 6.00%		11,433		11,944		27,256		38,348
6.01 - 7.23%		1,960		1,993		2,100		30,554
Total	$	191,427	$	185,242	$	185,974	$	173,148

The following table sets forth the amount and maturities of time deposits at March 31, 2004.

	Amount Due										Total		Percent of Total Certificate Accounts
	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years to Four Years		More Than Four Years
	(Dollars in thousands)
0.00 - 1.00%	$	7,305	$	—	$	—	$	—	$	—	$	7,305	3.8	%
1.01 - 2.00%		63,727		7,130		386		—		—		71,243	37.2
2.01 - 3.00%		6,764		10,072		17,500		43		—		34,379	18.0
3.01 - 4.00%		20,220		3,265		4,808		8,300		5,542		42,135	22.0
4.01 - 5.00%		4,687		9,726		3,237		5,101		221		22,972	12.0
5.01 - 6.00%		1,154		584		4,101		5,270		324		11,433	6.0
6.01 - 7.02%		61		1,812		7		80		—		1,960	1.0
Total	$	103,918	$	32,589	$	30,039	$	18,794	$	6,087	$	191,427	100.00	%

The following table sets forth deposit activity for the periods indicated, including mortgagors’ escrow accounts.

	Three Months Ended March 31,				Year Ended December 31,
	2004		2003		2003		2002		2001
	(In thousands)
Beginning balance	$	417,311	$	398,315	$	398,315	$	363,029	$	321,822
Increase before interest credited		6,835		4,751		12,389		26,781		29,763
Interest credited		1,453		1,802		6,607		8,505		11,444
Net increase in deposits		8,288		6,553		18,996		35,286		41,207
Ending balance	$	425,599	$	404,868	$	417,311	$	398,315	$	363,029

51

Borrowings. We utilize advances from the Federal Home Loan Bank of Boston to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Additionally, to a much lesser extent, we utilize the proceeds raised from our issuance of trust preferred securities in 2002. See “Our Business — Deposit Activities — Subordinated Debt” for further discussion of the subordinated debt and the trust preferred securities. Also, we occasionally utilize collateralized borrowings, which represent loans sold that do not meet the criteria for derecognition, due primarily to recourse and other provisions that could not be measured at the date of transfer. Such borrowings are derecognized when all recourse and other provisions that could not be measured at the time of transfer either expire or become measurable. We had no collateralized borrowings at March 31, 2004.

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(In thousands)
Maximum amount of advances outstanding at any month end during the period:
FHLB advances	$	64,997		$	46,665		$	57,168		$	47,718		$	36,335
Subordinated debt		7,217			7,217			7,217			7,217			—
Other borrowings		—			1,951			1,951			1,955			—
Average advances outstanding during the period:
FHLB advances	$	62,650		$	45,163		$	49,693		$	40,618		$	31,870
Subordinated debt		7,217			7,217			7,217			4,718			—
Other borrowings		—			1,649			1,223			1,378			—
Weighted average interest rate during the period:
FHLB advances		4.29	%		4.95	%		4.66	%		5.28	%		5.65	%
Subordinated debt		4.85			5.23			4.99			6.38			—
Other borrowings		—			4.67			6.00			6.31			—
Balance outstanding at end of period:
FHLB advances	$	64,997		$	46,665		$	57,168		$	43,918		$	35,183
Subordinated debt		7,217			7,217			7,217			7,217			—
Other borrowings		—			1,101			—			1,951			—
Weighted average interest rate at end of period:
FHLB advances		4.14	%		4.78	%		4.29	%		4.94	%		5.49	%
Subordinated debt		4.92			5.32			4.85			5.32			—
Other borrowings		—			6.68			—			6.68			—

Results of Operations for the Three Months Ended March 31, 2004 and 2003

Overview.

	2004			2003			%Change
	(Dollars in thousands)
Net income	$	804		$	950		(15.4	)%
Return on average assets (annualized)		0.62	%		0.79	%	(21.5	)%
Return on average equity (annualized)		9.32	%		12.07	%	(22.8	)%
Average equity to average assets		6.62	%		6.58	%	0.6	%

52

Net income decreased primarily as a result of an increase in noninterest expense. Net interest income remained relatively stable as increased interest-earning assets and a lower cost of funds was offset by a lower yield on interest-earning assets.

Net Interest Income. Net interest income decreased $8,000, or 0.2%, to $4.5 million for the three months ended March 31, 2004, primarily resulting from a decrease in the yield on interest-earning assets, which was offset by an increase in the average balance of loans and a decrease in the cost of funds.

Total interest and dividend income decreased $212,000, or 3.0%, to $6.8 million for the three months ended March 31, 2004, resulting from a decrease in the average yield, which more than offset an increase in the volume of interest-earning assets. For the three months ended March 31, 2004, the average yield on loans decreased 91 basis points to 6.05% and the average yield on investment securities decreased 29 basis points to 4.07%. The decreases in yield were primarily due to the lower interest rate environment. This decreased yield was partially offset by an increase in average interest-earning assets as average loans increased $50.6 million, or 14.8%, to $392.8 million, offset by a decrease in the average balance of investment securities of $16.2 million, or 16.3%, to $83.5 million.

Total interest expense decreased $204,000, or 8.3%, to $2.3 million for the three months ended March 31, 2004 due primarily to a decrease in the average rate paid, which more than offset an increase in the average balance. The average interest rate paid on deposits decreased 42 basis points as a result of the prevailing low interest rate environment. The rate paid on deposits decreased at a slower rate than the yield on interest-earning assets as many of the deposits have already hit predetermined floors. Additionally, the cost of funds decreased at a slower rate than the yield on interest-earning assets as we increased our reliance on borrowed funds, which carry higher rates of interest. The average balance of FHLB advances increased $17.5 million, or 38.7%, to $62.7 million for the three months ended March 31, 2004. The advances have longer durations and were obtained to better match the durations of the longer-term mortgage loans in our portfolio.

53

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average daily balances, and nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are insignificant. Interest income on loans and investment securities has not been calculated on a tax equivalent basis because the impact would be insignificant.

			Three Months Ended March 31,
	At March 31, 2004		2004							2003
	Weighted Average Rate		Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	6.02	%	$	392,776		$	5,910	6.05	%	$	342,223		$	5,877	6.96	%
Investment securities	3.94			83,490			845	4.07			99,711			1,072	4.36
Other interest-earning assets	1.21			8,526			28	1.32			11,274			46	1.65
Total interest-earning assets	5.55			484,792			6,783	5.63			453,208			6,995	6.26
Noninterest-earning assets				39,121							31,932
Total assets			$	523,913						$	485,140
Liabilities and equity:
Interest-bearing liabilities:
NOW and Money Market accounts	0.34		$	101,865			87	0.34		$	91,683			125	0.55
Savings accounts (1)	0.59			88,004			131	0.60			84,086			193	0.93
Certificates of deposit	2.74			188,363			1,276	2.72			186,184			1,473	3.21
Total interest-bearing deposits	1.59			378,232			1,494	1.59			361,953			1,791	2.01
FHLB advances	4.20			62,650			669	4.29			45,163			551	4.95
Subordinated debt	4.92			7,217			87	4.85			7,217			93	5.23
Other borrowings	—			—			—	—			1,649			19	4.67
Total interest-bearing liabilities	2.02			448,099			2,250	2.02			415,982			2,454	2.39
Noninterest-bearing liabilities				41,109							37,232
Total liabilities				489,208							453,214
Capital				34,705							31,926
Total liabilities and capital			$	523,913						$	485,140
Net interest income						$	4,533						$	4,541
Interest rate spread	3.53	%						3.61	%						3.87	%
Net interest margin	3.69	%						3.76	%						4.06	%
Average interest-earning assets to average interest-bearing liabilities	—			108.19	%						108.95	%

⁽¹⁾ Includes mortgagors’ escrow accounts.

54

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest and dividend income:
Loans receivable	$	838		$	(805	)	$	33
Investment securities		(163	)		(64	)		(227	)
Daily interest-bearing deposits and other interest-earning assets		(10	)		(8	)		(18	)
Total interest-earning assets		665			(877	)		(212	)
Interest expense:
Deposits (1)		38			(335	)		(297	)
FHLB advances		203			(85	)		118
Subordinated debt		—			(6	)		(6	)
Other borrowings		(10	)		(9	)		(19	)
Total interest-bearing liabilities		231			(435	)		(204	)
Net change in interest income	$	434		$	(442	)	$	(8	)

⁽¹⁾ Includes mortgagors’ escrow accounts.

Provision for Loan Losses. Provisions for loan losses decreased $25,000, or 14.3%, from $175,000 for the three months ended March 31, 2003 to $150,000 for the three months ended March 31, 2004. The lower provision reflected lower charged-off loans and decreased non-performing assets.

An analysis of the changes in the allowance for loan losses is presented under “–Allowance for Loan Losses and Asset Quality.”

Noninterest Income. The following table shows the components of noninterest income for the three months ended March 31, 2004 and 2003.

	Three Months Ended March 31,
	2004			2003		% Change
	(Dollars in thousands)
Service charges	$	803		$	735	9.3	%
Wealth management fees		250			197	26.9
Net gain on sale of securities		184			56	228.6
Net (loss) gain on sale of loans		(25	)		85	(129.4	)
Other		23			143	(83.9	)
Total	$	1,235		$	1,216	1.6

55

Service charges increased due to increased fees from electronic banking and deposit services. Wealth management fees increased due to an increase in assets under management by the trust department and due to increased sales of insurance products. Net gain on the sale of securities increased as we sold more securities in the three months ended March 31, 2004 to shorten the duration of the investment portfolio and improve our overall credit quality by taking advantage of the low interest rate environment. Net gain on the sale of loans decreased due to decreased loan origination activity. The decrease in other income was due to nonrecurring credits associated with discontinued employee benefit plans recognized in 2003.

Noninterest Expense. The following table shows the components of noninterest expense and the percentage changes for the three months ended March 31, 2004 and 2003.

	Three Months Ended March 31,
	2004		2003		% Change
	(Dollars in thousands)
Salaries and employee benefits	$	2,282	$	2,164	5.5	%
Occupancy		583		551	5.8
Furniture and equipment		260		250	4.0
Computer services		256		230	11.3
Professional services		142		66	115.2
Marketing		120		102	17.6
Supplies		82		92	(10.9	)
FDIC deposit insurance and state assessment		24		19	26.3
Impairment charge - other assets		51		—	N/A
Other real estate operations		7		11	(36.4	)
Other		626		621	0.8
Total	$	4,433	$	4,106	8.0

Salary and employee benefits increased due to additional compensation related to an increase in employees in connection with our growth, especially the hiring of additional staff in the commercial lending and credit control areas. Computer services increased due to a higher number of transaction accounts and the increased costs of computer security. Professional services increased due to the conversion to a federal charter. Impairment charges increased due to a charge to reduce the carrying value of our investment in a small business investment company limited partnership. At March 31, 2004, the carrying value of this investment was $495,000.

Income Taxes. Income taxes decreased as a result of a decrease in earnings and the addition of certain tax exempt investments and increases in the cash value of Bank-Owned Life Insurance. The effective tax rate for the three months ended March 31, 2004 was 32.2% compared with 35.6% for the same period in 2003.

56

Results of Operations for the Years Ended December 31, 2003, 2002 and 2001

Overview.

	2003			2002			2001			% Change 2003/2002		% Change 2002/2001
	(Dollars in thousands)
Net income	$	3,385		$	3,082		$	1,916		9.8	%	60.9	%
Return on average assets		0.67	%		0.68	%		0.48	%	(1.5	)%	41.7	%
Return on average equity		10.34	%		10.46	%		7.19	%	(1.1	)%	45.5	%
Average equity to average assets		6.51	%		6.49	%		6.71	%	0.3	%	(3.3	)%

2003 vs. 2002. Net income increased due primarily to an increase in net interest income and noninterest income, offset by an increase in noninterest expense and the provision for loan losses. Net interest income increased primarily as a result of a higher volume of interest-earning assets and a decrease in the cost of funds.

2002 vs. 2001. Net income increased due primarily to higher net interest income, offset by an increase in noninterest expense, a slight decrease in noninterest income and a modest increase in the provision for loan losses. Net interest income increased primarily as a result of an increase in interest-earning assets and a lower cost of funds, offset by a decrease in the yield on interest-earning assets.

Net Interest Income.

2003 vs. 2002. Net interest income increased $1.3 million, or 7.3%, to $18.6 million for 2003. The increase in net interest income for 2003 was primarily attributable to a higher volume of interest-earning assets and a decrease in the cost of funds.

Total interest income decreased $400,000, or 1.4%, to $27.9 million for 2003, resulting from a decrease in the average yield, which more than offset an increase in the volume of interest-earning assets. During 2003, average interest-earning assets increased by $37.9 million, or 8.9%, to $463.2 million, while the average yield decreased 63 basis points to 6.03%. The composition of interest-earning assets generally consists of loans and securities. The increase in average interest-earning assets was primarily due to an increase in the average balance of loans, which were partially offset by a decrease in investment securities. Interest on investment securities decreased 21.7% due to the decrease in yields. Interest on loans receivable increased $807,000, or 3.5%, to $23.8 million for 2003 due to an increase in the volume of loans, offset by a decrease in yield. During 2003, we originated loans at lower interest rates due to the prevailing low interest rate environment.

Total interest expense decreased $1.7 million, or 15.1%, to $9.3 million for 2003 due primarily to a decrease in the average rate paid on deposits, which more than offset an increase in the average balance. The average interest rate paid on deposits decreased 70 basis points as a result of the prevailing low interest rate environment. During 2003, we emphasized low cost transaction accounts and our customers preferred to invest in lower rate, shorter-term certificates of deposit.

2002 vs. 2001. Net interest income increased $2.9 million, or 19.8%, to $17.3 million for 2002 due primarily to a higher volume of loans and mortgage-backed securities and a decrease in the rate paid on deposits, offset by a lower yield on interest-earning assets and increased deposits. Average interest-earning assets increased $51.0 million, or 13.6%, to $425.2 million for 2002 while the cost of funds decreased 106 basis points. The average yield on interest-earning assets decreased 72 basis points. Average deposits increased $36.0 million, or 11.8%, to $342.5 million for 2002.

57

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average daily balances and nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are insignificant. Interest income on loans and investment securities has not been calculated on a tax equivalent basis because the impact would be insignificant.

	Year Ended December 31,
	2003							2002							2001
	Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	360,655		$	23,840	6.61	%	$	313,803		$	23,033	7.34	%	$	282,290		$	22,253	7.88	%
Investment securities		92,353			3,935	4.26			99,416			5,023	5.05			80,642			4,926	6.11
Other interest-earning assets		10,142			155	1.53			11,989			274	2.29			11,274			428	3.80
Total interest-earning assets		463,150			27,930	6.03			425,208			28,330	6.66			374,206			27,607	7.38
Noninterest-earning assets		39,950							28,916							22,924
Total assets	$	503,100						$	454,124						$	397,130
Liabilities and equity:
Interest-bearing liabilities:
NOW and Money Market accounts	$	98,543			424	0.43		$	86,293			685	0.79		$	74,189			1,089	1.47
Savings accounts (1)		87,904			666	0.76			77,817			1,071	1.38			69,513			1,578	2.27
Certificates of deposit		185,181			5,507	2.97			178,379			6,724	3.77			162,742			8,686	5.34
Total interest-bearing deposits		371,628			6,597	1.78			342,489			8,480	2.48			306,444			11,353	3.70
FHLB advances		49,693			2,315	4.66			40,618			2,146	5.28			31,870			1,801	5.65
Subordinated debt		7,217			360	4.99			4,718			301	6.38			—			—	—
Other borrowings		1,233			74	6.00			1,378			87	6.31			—			—	—
Total interest-bearing liabilities		429,771			9,346	2.17			389,203			11,014	2.83			338,314			13,154	3.89
Noninterest-bearing liabilities		40,601							35,461							32,177
Total liabilities		470,372							424,664							370,491
Capital		32,728							29,460							26,639
Total liabilities and capital	$	503,100						$	454,124						$	397,130
Net interest income				$	18,584						$	17,316						$	14,453
Interest rate spread						3.86	%						3.83	%						3.49	%
Net interest margin						4.01	%						4.07	%						3.86	%
Average interest-earning assets to average interest - bearing liabilities		107.77	%						109.25	%						110.61	%

⁽¹⁾ Includes mortgagors’ escrow accounts.

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Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	2003 Compared to 2002									2002 Compared to 2001
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume		Rate			Net
	(In thousands)
Interest and dividend income:
Loans receivable	$	3,268		$	(2,461	)	$	807		$	2,399	$	(1,619	)	$	780
Investment securities		(329	)		(759	)		(1,088	)		1,048		(951	)		97
Daily interest-bearing deposits and other interest-earning assets		(35	)		(84	)		(119	)		22		(176	)		(154	)
Total interest-earning assets		2,904			(3,304	)		(400	)		3,469		(2,746	)		723
Interest expense:
Deposits (1)		413			(2,296	)		(1,883	)		977		(3,850	)		(2,873	)
FHLB advances		451			(282	)		169			478		(133	)		345
Other borrowings		(9	)		(4	)		(13	)		87		—			87
Subordinated debt		142			(83	)		59			301		—			301
Total interest-bearing liabilities		997			(2,665	)		(1,668	)		1,843		(3,983	)		(2,140	)
Net change in interest income	$	1,907		$	(639	)	$	1,268		$	1,626	$	1,237		$	2,863

⁽¹⁾ Includes mortgagors’ escrow accounts.

Provision for Loan Losses.

2003 vs. 2002. Provisions for loan losses increased $1.1 million, or 198.3%, from $537,000 for 2002 to $1.6 million for 2003. The higher provision reflected significantly higher charge-offs, primarily due to the charge-off in 2003 of a $1.6 million commercial real estate loan, and a larger loan portfolio, including increased commercial business loans, which carry a higher risk of default.

2002 vs. 2001. Provisions for loan losses increased $97,000, or 22.0%, from $440,000 for 2001 to $537,000 for 2002. The higher provision reflected higher net charge-offs and a larger loan portfolio.

An analysis of the changes in the allowance for loan losses is presented under “–Allowance for Loan Losses and Asset Quality.”

Noninterest Income. The following table shows the components of noninterest income and the percentage changes from 2003 to 2002 and from 2002 to 2001.

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	2003		2002			2001		% Change 2003/2002		% Change 2002/2001
	(Dollars in thousands)
Service charges	$	3,116	$	2,579		$	2,332	20.8	%	10.6	%
Wealth management fees		849		766			765	10.8		0.1
Net (loss) gain on sale of securities		121		(258	)		150	146.9		(272.0	)
Net gain on sale of loans		393		107			23	267.3		365.2
Other		243		90			92	170.0		(2.2	)
Total	$	4,722	$	3,284		$	3,362	43.8		(2.3	)

2003 vs. 2002. Service charges increased due to fees from increased electronic banking and deposit services. Wealth management fees increased due to an increase in assets under management by the trust department and due to increased sales of insurance products. The increase in the gain on the sale of securities for 2003 was due to normal repositioning activity in the securities portfolio in 2003 and due to a loss related to the write-down of interest-only strips in 2002. Net gain on the sale of loans increased due to additional sales of mortgage loans in the secondary market due to increased originations in the lower interest rate environment. The increase in other income in 2003 was due to nonrecurring credits associated with discontinued employee benefit plans recognized in 2003.

2002 vs. 2001. Service charges increased due to fees from electronic banking and deposit services. The loss on the sale of securities for 2002 primarily related to the write-down of interest-only strips. Net gain on the sale of loans increased due to additional sales of mortgage loans in the secondary market due to increased originations in the lower interest rate environment.

Noninterest Expense. The following table shows the components of noninterest expense and the percentage changes from 2003 to 2002 and from 2002 to 2001.

	2003		2002		2001			% Change 2003/2002		% Change 2002/2001
	(Dollars in thousands)
Salaries and employee benefits	$	9,090	$	8,278	$	7,602		9.8	%	8.9	%
Occupancy		2,059		1,982		1,882		3.9		5.3
Furniture and equipment		914		1,000		1,105		(8.6	)	(9.5	)
Computer services		857		844		804		1.5		5.0
Professional services		310		290		336		6.9		(13.7	)
Marketing		387		385		463		0.5		(16.8	)
Supplies		266		292		290		(8.9	)	0.7
FDIC deposit insurance and state assessment		75		76		64		(1.3	)	18.8
Impairment charge - other assets		36		111		—		(67.6	)	N/A
Other real estate operations		15		23		(69	)	(34.8	)	133.3
Other		2,598		2,113		1,993		22.9		6.0
Total	$	16,606	$	15,394	$	14,470		7.9		6.4

2003 vs. 2002. Salary and employee benefits increased due to salary increases and additional compensation related to an increase in employees, higher commissions due to higher sales volumes and higher pension, insurance and payroll taxes. The impairment charges for 2003 and 2002 were recorded against our interest in a small business investment company limited partnership, which invests in the debt and equity securities of developing companies for which conventional financing is not available. The increase in other expenses was primarily due to increased costs associated with the increased customer use of electronic banking and additional filing and recording fees in connection with increased mortgage originations.

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2002 vs. 2001. Salary and employee benefits increased due to salary increases and additional compensation related to an increase in employees, higher commissions due to higher sales volumes and higher pension, insurance and payroll taxes. The impairment charge for 2002 was recorded against our interest in a small business investment company limited partnership, which invests in the debt and equity securities of developing companies for which conventional financing is not available. The increase in other expenses was primarily due to increased costs associated with the increased customer use of electronic banking, the expansion of our ATM network and internet banking products and the outsourcing of our internal audit function.

Income Taxes.

2003 vs. 2002. Income taxes increased due to a higher level of taxable income. The effective tax rate for 2003 and 2002 was 34%.

2002 vs. 2001. Income taxes increased due to a higher level of taxable income. The effective tax rate for 2002 and 2001 was 34%.

Market Risk Analysis

Qualitative Aspects of Market Risk. Our most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, we originate adjustable-rate mortgage loans for retention in our loan portfolio. However, the ability to originate adjustable-rate loans depends to a great extent on market interest rates and borrowers’ preferences. As an alternative to adjustable-rate mortgage loans, we offer fixed-rate mortgage loans with maturities of fifteen years. This product enables us to compete in the fixed-rate mortgage market while maintaining a shorter maturity. Fixed-rate mortgage loans typically have an adverse effect on interest rate sensitivity compared to adjustable-rate loans. Accordingly, we have sold more longer-term fixed-rate mortgage loans in the secondary market in recent periods to manage interest rate risk. In recent years, we also have used investment securities with terms of three years or less, longer-term borrowings from the Federal Home Loan Bank and a 4-year $5.0 million brokered deposit to help manage interest rate risk. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

We have an Asset/Liability Committee to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Quantitative Aspects of Market Risk. We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to the Asset/Liability Committee. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. The numerous assumptions used in the simulation process are reviewed by the Asset/Liability Committee on a quarterly basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The

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simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The table below sets forth an approximation of our exposure as a percentage of estimated net interest income for the next twelve and twenty-four month periods using interest income simulation. The simulation uses projected repricing of assets and liabilities at March 31, 2004 and at December 31, 2003 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rates can have a significant impact on interest income simulation. Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn effect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security, collateralized mortgage obligation and loan repayment activity.

	At March 31, 2004
	Percentage Change in Estimated Net Interest Income Over
	12 Months		24 Months
300 basis point increase in rates	(10.30	%)	(10.19	%)
200 basis point increase in rates	(3.79	%)	(2.57	%)
100 basis point increase in rates	0.42	%	2.74	%
100 basis point decrease in rates	(0.83	%)	(2.48	%)
	At December 31, 2003
	Percentage Change in Estimated Net Interest Income Over
	12 Months		24 Months
300 basis point increase in rates	(9.80	%)	(9.29	%)
100 basis point increase in rates	0.84	%	3.13	%
100 basis point decrease in rates	(1.94	%)	(4.69	%)

The Asset/Liability Committee policy states that the Company has established acceptable levels of interest rate risk as follows:

“Projected Net Interest Income over the next twelve months will not be reduced by more than 5% given a change in interest rates for each 100 basis points (+ or -) over a one year horizon. This limit will be re-evaluated on a periodic basis (not less than annually) and may be modified, as appropriate.”

Management believes that under the current rate environment, a change of interest rates downward of 200 basis points is a highly remote interest rate scenario. Therefore, management modified the limit and a 100 basis point decrease in interest rates was used. This limit will be re-evaluated periodically and may be modified as appropriate. Further, management did not include a 200 basis point increase in the simulation model used for

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December 31, 2003. However, as interest rates begin to increase in 2004 the 200 basis point increase was viewed as more meaningful and added to the model for March 31, 2004.

The 300, 200 and 100 basis point change in rates in the above table at March 31, 2004 is assumed to occur evenly over the next twelve months. Based on the scenario above, net interest income would be adversely affected (within our internal guidelines) in both the twelve and twenty-four month periods if rates rose by 200 or 300 basis points or in a declining rate environment. An increase in rates of 100 basis points would slightly increase net interest income in both the twelve and twenty-four month periods. Using data at March 31, 2004, for each percentage point change in net interest income, the effect on net income would be $30,000, assuming a 34% tax rate.

The 300 basis point change in rates in the above table at December 31, 2003 is assumed to occur evenly over the next twelve months. Based on the scenario above, net income would be adversely affected (within our internal guidelines) in both the twelve and twenty-four months periods in a declining rate environment. If rates rose by 300 basis points, net interest income would be adversely affected over the next twelve and twenty four months. An increase in rates of 100 basis points would slightly increase net interest income in both the twelve and twenty-four month periods. Using data at December 31, 2003, for each percentage point change in net interest income, the effect on net income would be $123,000, assuming a 34% tax rate.

The changes in interest rate sensitivity at March 31, 2004 and December 31, 2003 reflects our continued use of longer-term borrowings in the first quarter of 2004.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of Boston. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management, funds management and liquidity policies. Our policy is to maintain liquid assets less short term liabilities within a range of 12.5% to 20% of total assets. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term U.S. Government agency obligations.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2004, cash and cash equivalents totaled $36.8 million, including interest-bearing deposits of $17.8 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $81.4 million at March 31, 2004. In addition, at March 31, 2004, we had arranged overnight lines of credit of $6.2 million from the Federal Home Loan Bank of Boston. On that date, we had no overnight advances outstanding.

At March 31, 2004, we had $61.2 million in loan commitments outstanding, which included $15.1 million in undisbursed construction loans, $16.3 million in unused home equity lines of credit, $6.8 million in commercial lines of credit and $1.0 million in standby letters of credit. Certificates of deposit due within one year of March 31, 2004 totaled $103.9 million, or 24.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and lines of credit. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2005. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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The following table presents certain of our contractual obligations as of March 31, 2004.

			Payments due by period
Contractual Obligations	Total		Less than One Year		One to Three Years		Three to Five Years		More Than 5 Years
	(In thousands)
Long-term debt obligations	$	64,997	$	7,800	$	22,923	$	18,274	$	16,000
Operating lease obligations(1)		2,611		596		955		268		792
Other long-term liabilities reflected on the balance sheet		7,217		—		—		—		7,217
Total	$	74,825	$	8,396	$	23,878	$	18,542	$	24,009

⁽¹⁾ Payments are for lease of real property.

Our primary investing activities are the origination of loans and the purchase of securities. For the three months ended March 31, 2004, we originated $27.8 million of loans and purchased $14.0 million of securities. In fiscal 2003, we originated $207.7 million of loans and purchased $45.1 million of securities. In fiscal 2002, we originated $149.0 million of loans and purchased $64.3 million of securities. In fiscal 2001, we originated $119.0 million of loans and purchased $56.8 million of securities.

Financing activities consist primarily of activity in deposit accounts and in Federal Home Loan Bank advances. We experienced a net increase in total deposits of $8.3 million, $19.0 million, $35.3 million and $41.2 million for the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposit and commercial banking relationships. Occasionally, we offer promotional rates on certain deposit products to attract deposits. We experienced increases in Federal Home Loan Bank advances of $7.8 million, $13.3 million, $8.7 million and $9.5 million for the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively. Additionally, we generated $7.0 million in net proceeds from the issuance of trust preferred securities in 2002.

We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2004, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Regulation of Connecticut Savings Associations—Capital Requirements” and “Regulatory Capital Compliance” and note 15 of the notes to the financial statements.

The capital from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity.

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Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit, and letters of credit.

For the three months ended March 31, 2004 and the year ended December 31, 2003, we engaged in no off-balance-sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Impact of Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which covers guarantees such as standby letters of credit, performance guarantees, and direct or indirect guarantees of the indebtedness of others, but not guarantees of funding. Interpretation No. 45 requires a guarantor to recognize, at the inception of a guarantee a liability in an amount equal to the fair value of the obligation undertaken in issuing the guarantee, and requires disclosure about the maximum potential payments that might be required, as well as the collateral or other recourse obtainable. The recognition and measurement provisions of Interpretation No. 45 were effective on a prospective basis after December 31, 2002, and its adoption on January 1, 2003 has not had a significant effect on our consolidated financial statements.

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which establishes guidance for determining when an entity should consolidate another entity that meets the definition of a variable interest entity. Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company will absorb a majority of expected losses, will receive a majority of expected residual returns, or both. Transfers to qualified special-purpose entities and certain other interests in a qualified-special purpose entity are not subject to the requirements of Interpretation No. 46. On December 17, 2003, the Financial Accounting Standards Board revised Interpretation No. 46 and deferred the effective date of Interpretation No. 46 to no later than the end of the first reporting period that ends after March 15, 2004. For special-purpose entities, however, Interpretation No. 46 would be required to be applied as of December 31, 2003. See page F-28 of our consolidated financial statements contained elsewhere in this prospectus for a description of the impact of the adoption of Interpretation No. 46 on our consolidated financial statements.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. This Statement did not have a material effect on our consolidated financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement provides new rules on the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. Such financial instruments include mandatorily redeemable shares, instruments that require the issuer to buy back some of its shares in exchange for cash or other assets, or obligations that can be settled with shares, the monetary value of which is fixed. Most of the guidance in Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 30, 2003. This Statement had no effect on our consolidated financial statements.

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In December 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 “Employers’ Disclosures about Pensions and Postretirement Benefits.” This Statement requires additional disclosures about the assets, obligations and cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans. This Statement had no effect on our consolidated financial statements.

Effect of Inflation and Changing Prices

The financial statements and related financial data presented in this prospectus have been prepared in accordance with accepted accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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Our Business

General

Savings Institute became the wholly owned subsidiary of SI Financial Group, which was established in              2004, in connection with the conversion of SI Bancorp, MHC and Savings Institute from state-chartered to federally-chartered institutions. SI Financial Group’s business activity is the ownership of the outstanding capital stock of Savings Institute and, after the offering, will include management of the investment of offering proceeds. SI Financial Group does not own or lease any property but instead uses the premises, equipment and other property of Savings Institute with the payment of appropriate rental fees, as required by applicable law and regulations. In the future, SI Financial Group may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Savings Institute was incorporated by an act of the Connecticut legislature in 1842 under the name the Willimantic Savings Institute. It was shortened to Savings Institute in 1991 to reflect Savings Institute’s expanded geographic territory. In 2000, Savings Institute converted to stock form and became the wholly owned subsidiary of SI Bancorp, MHC, a Connecticut-chartered mutual holding company. In              2004, Savings Institute converted to a federal charter and now operates under the name Savings Institute Bank and Trust. At that time, SI Bancorp, MHC converted to a federal charter and transferred all of the common stock of Savings Institute to SI Financial Group.

We operate as a community-oriented financial institution offering a full range of financial services to consumers and businesses in our market area, including insurance, trust and investment services. We attract deposits from the general public and use those funds to originate one- to four-family residential, multi-family and commercial real estate, commercial business and consumer loans, which we hold primarily for investment.

Our website address is www.savingsinstitute.com. Information on our website should not be considered a part of this prospectus.

Market Area

We are headquartered in Willimantic, Connecticut, which is located in eastern Connecticut approximately 30 miles east of Hartford. In addition to our main office located in Windham County, we operate fourteen branch offices in Hartford, New London, Tolland and Windham Counties, which we consider our primary market area. The economy in our market area is primarily oriented to the educational, service, entertainment, manufacturing and retail industries. The major employers in the area include several institutions of higher education, the Mohegan Sun and Foxwoods casinos, General Dynamics Defense Systems and Pfizer, Inc. According to published statistics, Windham County’s population in 2002 was approximately 111,000 and consisted of 41,000 households. The population increased approximately 7.9% from 1990. Median household income in Windham County is $45,000, compared to $54,000 for Connecticut as a whole and $42,000 nationally. Hartford, New London and Tolland Counties have median household incomes of $51,000, $51,000 and $59,000, respectively.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the several financial institutions operating in our market area and, to a lesser extent, from other financial service companies, such as brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds and other corporate and government securities. At June 30, 2003, which is the most recent date for which data is available from the FDIC, we held approximately 17.31% of the deposits in Windham County, which is the largest market share out of ten financial institutions with offices in this county. Also, at June 30, 2003, we held approximately 0.77% of the deposits in Hartford, New London and Tolland Counties, which is the 15^th market share out of 38 financial institutions with offices in these counties. In addition, banks owned by Bank of America Corp., Webster Financial

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Corporation, Banknorth Group, Inc., Sovereign Bancorp, Inc. and Citizens Financial Group, Inc., all of which are large regional bank holding companies, also operate in our market area. These institutions are significantly larger than us and, therefore, have significantly greater resources.

Our competition for loans comes primarily from financial institutions in our market area, and to a lesser extent from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our growth in the future.

Lending Activities

General. Our loan portfolio consists primarily of one- to four-family residential mortgage loans, multi-family and commercial real estate loans and commercial business loans. To a much lesser extent, our loan portfolio includes construction and consumer loans. We historically and currently originate loans primarily for investment purposes. At March 31, 2004, we had no loans that were held for sale.

One- to Four-Family Residential Loans. Our primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes or to construct new residential dwellings in our market area. We offer fixed-rate and adjustable-rate mortgage loans with terms up to 30 years. Borrower demand for adjustable-rate loans versus fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, the difference between the interest rates and loan fees offered for fixed-rate mortgage loans and the initial period interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment and the effect each has on our interest rate risk. The loan fees charged, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.

We offer fixed rate loans with terms of either 15, 20 or 30 years. Our adjustable-rate mortgage loans are based on either a 15, 20 or 30 year amortization schedule. Interest rates and payments on our adjustable-rate mortgage loans adjust annually after either a one, three, five, seven or 10 year initial fixed period. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate typically equal to 2.75% (2.85% for jumbo loans) above the one-year constant maturity Treasury index. The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 6% over the initial interest rate of the loan.

While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

While one- to four-family residential real estate loans are normally originated with up to 30-year terms; such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan

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maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

We generally do not make conventional loans with loan-to-value ratios exceeding 95% and generally make loans with a loan-to-value ratio in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences. Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, or flood insurance for loans on property located in a flood zone, before closing the loan.

In an effort to provide financing for moderate income and first-time buyers, we offer Federal Housing Authority, Veterans Administration and Connecticut Housing Finance Agency loans and a first-time home buyers program. We offer fixed-rate residential mortgage loans through these programs to qualified individuals and originate the loans using modified underwriting guidelines.

Multi-Family and Commercial Real Estate Loans. We offer fixed rate and adjustable-rate mortgage loans secured by multi-family and commercial real estate. Our multi-family and commercial real estate loans are generally secured by condominiums, apartment buildings, single-family subdivisions as well as owner-occupied properties located in our market area and used for businesses. We intend to continue to grow this segment of our loan portfolio.

We originate adjustable-rate multi-family and commercial real estate loans for terms up to 30 years. Interest rates and payments on these loans typically adjust every five years after a five year initial fixed period. Interest rates and payment on our adjustable rate loans generally are adjusted to a rate typically 3-4% above the classic advance rates offered by the Federal Home Loan Bank of Boston. There are no adjustment period or lifetime interest rate caps. Loans are secured by first mortgages that generally do not exceed 75% of the property’s appraised value. At March 31, 2004, the largest outstanding commercial real estate loan commitment was $4.5 million, of which $2.6 million was outstanding. This loan is secured by condominiums and was performing according to its terms at March 31, 2004.

We offer fixed rate loans with terms of 15 years on the owner-occupied multi-family and commercial real estate loans. Interest rates and payment on our fixed rate multi-family and commercial real estate loans generally are indexed to a rate equal to 3-4% above the classic advance rates offered by the Federal Home Loan Bank of Boston. We generally do not make these loans with loan-to-value ratios exceeding 80%.

Loans secured by multi-family and commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family and commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on multi-family and commercial real estate loans. In reaching a decision on whether to make a multi-family or commercial real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. In addition, with respect to commercial real estate rental properties, we will also consider the term of the lease and the quality of the tenants. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.25x. Environmental surveys are generally required for commercial real estate loans over $250,000.

Construction Loans. We originate loans to individuals, and to a lesser extent, builders, to finance the construction of residential dwellings. We also make construction loans for commercial development projects, including condominiums, apartment buildings, single-family subdivisions as well as owner-occupied properties used for businesses. Our construction loans generally provide for the payment of interest only during the

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construction phase, which is usually twelve months. At the end of the construction phase, the loan generally converts to a permanent mortgage loan. Loans generally can be made with a maximum loan to value ratio of 85% on residential construction and 75% on commercial construction of the appraised value or cost of the project, whichever is less. At March 31, 2004, the largest outstanding residential construction loan commitment was for $800,000, $365,000 of which was outstanding. At March 31, 2004, the largest outstanding commercial construction loan commitment was $2.4 million, of which $851,000 was outstanding. These loans were performing according to their terms at March 31, 2004. Before making a commitment to fund a residential construction loan, we require an appraisal of the property by an independent licensed appraiser. We also will require an inspection of the property before disbursement of funds during the term of the construction loan.

We also originate land loans to individuals and local contractors and developers only for the purpose of making improvements on approved building lots, subdivisions and condominium projects within two years of the date of the loan. Such loans generally are written with a maximum loan-to-value ratio based upon the appraised value or purchase price of the land, whichever is less, of 75% for a ten-year loan and 60% for a 15-year loan. We offer fixed rate land loans and variable-rate land loans that adjust annually. Interest rates and payments on our adjustable-rate land loans generally are adjusted to a rate typically equal to 2.75% above the one-year constant maturity Treasury index. The maximum amount by which the interest rate may be increased or decreased is generally 2% annually and the lifetime interest rate cap is generally 6% over the initial rate adjustment limits. If applicable, we require title insurance and a hazardous waste survey reporting that the land is free of hazardous or toxic waste.

Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment. As a result of the foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If we are forced to foreclose on a project before or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.

Commercial Loans. We make commercial business loans to a variety of professionals, sole proprietorships and small businesses primarily in our market area. We offer a variety of commercial lending products, the maximum amount of which is limited by our in-house loans-to-one-borrower limit. Our largest commercial loan relationship was a $950,000 loan secured by accounts receivable, of which $335,000 was outstanding. This loan was performing according to its original terms at March 31, 2004.

We maintain a Business Manager Program under which accounts receivable financing is offered to small-and medium-sized businesses in our market area. Under that program, we purchase accounts receivables on a full-recourse basis. Our income from the program arises primarily from: (1) service charges, which range from two to five percent, which are discounted from each receivable purchased, and (2) the interest, if any, charged to account debtors on unpaid balances. To mitigate the risk associated with such lending, a flexible cash reserve is established for each participant. Any excess reserves are returned to the small business once a month. Additionally, we obtain accounts receivable fraud insurance to protect our exposure on these loans. At March 31, 2004, the outstanding balances under the Business Manager Program totaled $1.7 million.

We also offer loans secured by business assets other than real estate, such as business equipment and inventory. These loans are originated with maximum loan-to-value ratios of 75% of the value of the personal property. We originate lines of credit to finance the working capital needs of businesses to be repaid by seasonal cash flows or to provide a period of time during which the business can borrow funds for planned equipment purchases. These loans convert to a term loan at the expiration of a draw period, which is not to exceed twelve

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months and will be paid over a pre-defined amortization period. We also offer time notes, letters of credit and Small Business Administration guaranteed loans. Time notes are short-term loans and will only be granted on the basis of a defined source of repayment of principal and interest from a specific foreseeable event.

When making commercial business loans, we consider the financial statements of the borrower, the borrower’s payment history of both corporate and personal debt, the debt service capabilities of the borrower, the projected cash flows of the business, and viability of the industry in which the customer operates and the value of the collateral.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

Consumer Loans. To a much lesser extent, we offer a variety of consumer loans, primarily home equity lines of credit, and, to a lesser extent, loans secured by marketable securities or passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, and unsecured loans. Unsecured loans generally have a maximum borrowing limit of $15,000 and a maximum term of five years.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loans. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount. Home equity lines of credit have adjustable rates of interest that are indexed to the prime rate as reported in The Wall Street Journal. We will offer home equity loans with maximum combined loan-to-value ratios of 100%, provided that loans in excess of 80% will be charged a higher rate of interest and require a guarantee. A home equity line of credit may be drawn down by the borrower for an initial period of five years from the date of the loan agreement. During this period, the borrower has the option of paying, on a monthly basis, either principal and interest or only interest. If not renewed, the borrower has to pay back the amount outstanding under the line of credit over a term not to exceed ten years, beginning at the end of the five year period.

Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Loan Originations, Purchases and Sales. Loan originations come from a number of sources. The primary source of loan originations are our in-house loan originators, and to a lesser extent, local mortgage brokers, advertising and referrals from customers.

From time to time, we will purchase whole participations in loans fully guaranteed by the United States Department of Agriculture and the Small Business Administration. The loans are primarily for commercial and agricultural properties located throughout the United States. We purchased $3.6 million and $26.4 million of these loans in the three months ended March 31, 2004 and in fiscal 2003, respectively.

We generally originate loans for portfolio but from time to time will sell loans, primarily fixed rate one- to four- family residential mortgage loans with servicing retained, in the secondary market based on prevailing

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market interest rate conditions, an analysis of the composition and risk of the loan portfolio, liquidity needs and interest rate risk management. Generally, loans are sold without recourse. We sold $4.5 million, $21.1 million, $12.8 million and $12.7 million of loans in the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our Board of Directors and management. All loans that exceed $1.5 million require the approval of the Board of Directors and all loans in excess of $500,000 require the approval of the loan committee. For residential mortgage loans that conform to Fannie Mae and Freddie Mac standards, the President and Senior Credit Officer may approve loans up to $500,000 and various other bank personnel may approve loans up to $333,700. The President and Senior Credit Officer may approve non-confirming residential mortgage loans up to $333,700. For commercial and consumer loans, the President and Senior Credit Officer may approve loans up to $250,000 individually or $500,000 jointly. The Senior Commercial Officer may approve commercial and consumer loans of up to $200,000 and $500,000 with the additional approval of the President or Senior Credit Officer. Various bank personnel have been delegated authority to approve consumer loans.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At March 31, 2004, our regulatory limit on loans to one borrower was $5.8 million. At that date, our largest lending relationship was $4.5 million, of which $2.6 was outstanding, and included four commercial real estate loans, all of which were performing according to the original repayment terms at March 31, 2004.

Loan Commitments. We issue commitments for fixed-rate and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers and generally expire in 45 days or less.

Delinquencies. When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. We make initial contact with the borrower when the loan becomes 15 days past due. If payment is not then received by the 30^th day of delinquency, additional letters and phone calls generally are made. When the loan becomes 90 days past due, we send a letter notifying the borrower that we will commence foreclosure proceedings if the loan is not brought current within 30 days. When the loan becomes 120 days past due, we will commence foreclosure proceedings against any real property that secures the loan or attempt to repossess any personal property that secures a consumer loan. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. We may consider loan workout arrangements with certain borrowers under certain circumstances.

Management informs the Board of Directors monthly of the amount of loans delinquent more than 30 days, all loans in foreclosure and all foreclosed and repossessed property that we own.

Investment Activities

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate securities and mutual funds. We also are required to maintain an investment in Federal Home Loan Bank of Boston stock. While we have the authority under applicable law and our investment policies to invest in derivative securities, we had no such investments at March 31, 2004.

At March 31, 2004, our investment portfolio consisted primarily of U.S. government and agency securities with maturities of 25 years or less, mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with stated final maturities of 23 years or less, corporate debt securities and securities of state and municipal governments.

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Savings Institute held marketable equity securities with a fair market value of $591,000 at March 31, 2004. While Savings Institute was authorized to make all of these investments under its Connecticut charter, certain of these investments, with a fair market value of $496,000 at March 31, 2004, cannot be held by a federally chartered thrift. Accordingly, Savings Institute will either sell these impermissible investments to SI Financial Group at fair market value or divest such holdings within the next two years.

Our investment objectives are to provide and maintain liquidity, to maintain a balance of high quality, diversified investments to minimize risk, to provide collateral for pledging requirements, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak, to generate a favorable return and to assist in the financing needs of various local public entities, subject to credit quality review and liquidity concerns. Our Board of Directors has the overall responsibility for the investment portfolio, including approval of the investment policy and appointment of the Investment Committee. The Investment Committee is responsible for approval of investment strategies and monitoring our investment performance. The Chief Financial Officer, in conjunction with the Chief Executive Officer, is primarily responsible for implementation of the investment policies. The Board of Directors provides designated individuals with authority to make investment decisions. Currently, the President and Chief Executive Officer and the Chief Financial Officer are authorized to enter into fixed income transactions up to $2.5 million and equity transactions of up to $250,000. Two Senior Vice Presidents may enter into fixed income transactions up to $1.0 million and equity transactions up to $100,000. Transactions exceeding these limitations require the approval of two of these officers, one of whom must be either the President and Chief Executive Officer or the Chief Financial Officer. Individual investment transactions will be reviewed and approved by the Board of Directors on a monthly basis, while portfolio composition and performance will be reviewed at least quarterly by the Investment Committee.

Deposit Activities and Other Sources of Funds

General. Deposits and loan repayments are the major sources of our funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Substantially all of our depositors are residents of the State of Connecticut. Deposits are attracted from within our market area through the offering of a broad selection of deposit instruments, including NOW, money market accounts, regular savings accounts and certificates of deposit. We also utilize brokered certificates of deposits, which at March 31, 2004 amounted to $5.0 million, as an alternate source of funds. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our current strategy is to offer competitive rates, and even higher rates on long-term deposits, but not be the market leader in every type and maturity.

We also offer a variety of deposit accounts designed for the businesses operating in our market area. Our business banking deposit products include a commercial checking account that provides an earnings credit to offset monthly service charges and a checking account specifically designed for small business and nonprofit organizations. Additionally, we offer sweep accounts and money market accounts for businesses. We have sought to increase our commercial deposits through the offering of these products, particularly to our commercial borrowers and to local municipalities.

Borrowings. We utilize advances from the Federal Home Loan Bank of Boston to supplement our supply of lendable funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the

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program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. Under its current credit policies, the Federal Home Loan Bank generally limits advances to 25% of a member’s assets, and short-term borrowings of less than one year may not exceed 10% of the institution’s assets. The Federal Home Loan Bank determines specific lines of credit for each member institution.

Subordinated Debt. In 2002, SI Capital Trust I, a business trust formed by SI Bancorp, MHC, issued $7.0 million of preferred securities in a private placement and issued approximately $217,000 of common securities to SI Bancorp, MHC. SI Capital Trust I used the proceeds of these issuances to purchase $7.2 million of SI Bancorp, MHC’s floating rate junior subordinated deferrable interest debentures. The interest rate on the debentures and the trust preferred securities is variable and adjustable quarterly at 3.70% over six-month LIBOR. The interest rate on these securities at March 31, 2004 was 4.92%. A rate cap of 11.00% is effective through April 22, 2007. The debentures are the sole assets of SI Capital Trust I and are subordinate to all of SI Bancorp, MHC’s existing and future obligations for borrowed money, its obligations under letters of credit and certain derivative contracts, and any guarantees by SI Bancorp, MHC of any such obligations. The trust preferred securities generally rank equal to the trust common securities in priority of payment, but rank prior to the trust common securities if and so long as SI Bancorp, MHC fails to make principal or interest payments on the debentures. Concurrently with the issuance of the debentures and the trust preferred and common securities, SI Bancorp, MHC issued a guarantee related to the trust securities for the benefit of the holders. SI Bancorp, MHC’s obligations under the debentures, the related indenture, the trust agreement relating to the trust securities, and the guarantee constitute a full and unconditional guarantee by SI Bancorp, MHC of the obligations of SI Capital Trust I under the trust preferred securities. On                     , 2004, all of the common stock of SI Capital Trust I was contributed to SI Financial Group from SI Bancorp, MHC, thus making SI Capital Trust I a wholly owned subsidiary of SI Financial Group.

The stated maturity of the debentures is April 22, 2032. In addition, the debentures are subject to redemption at par at the option of SI Bancorp, MHC, subject to prior regulatory approval, in whole or in part on any interest payment date after April 22, 2007. The debentures are also subject to redemption prior to April 22, 2007 at a specified price after the occurrence of certain events that would either have a negative tax effect on SI Capital Trust I or SI Bancorp, MHC or would result in SI Capital Trust I being treated as an investment company that is required to be registered under the Investment Company Act of 1940. Upon repayment of the debentures at their stated maturity or following their redemption, SI Capital Trust I will use the proceeds of such repayment to redeem an equivalent amount of outstanding trust preferred securities and trust common securities.

Trust Services

Our trust department primarily provides trust services to individuals, partnerships, corporations and institutions and also acts as a fiduciary of estates and conservatorships as a trustee under various wills, trusts and other plans. Consistent with our operating strategy, we will continue to emphasize the growth of our trust service operations to grow assets and increase fee-based income. We have implemented several policies governing the practices and procedures of the trust department, including policies relating to maintaining confidentiality of trust records, investment of trust property, handling conflicts of interest, and maintaining impartiality. At March 31, 2004, the trust department managed 288 accounts with aggregate assets of $109.8 million, of which the largest relationship totaled $9.3 million, or 8.5% of the trust department’s total assets. For the three months ended March 31, 2004 and the year ended December 31, 2003, trust services revenue was $151,000 and $596,000, respectively.

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Properties

We conduct our business through our main office and branch offices. The following table sets forth certain information relating to these facilities as of March 31, 2004.

Location	Year Opened	Square Footage	Date of Lease Expiration		Owned/ Leased	Net Book Value as of March 31, 2004
						(Dollars in thousands)
Main Office:
803 Main Street Willimantic, CT 06226	1870	26,210	—		Owned	$	2,252
Branches:
807 Main Street Hebron, CT 06248	1974	2,400	—		Owned		68
554 Exeter Road, Route 207 Lebanon, CT 06249	1978	2,128	—		Owned		120
530 Stonington Road, Route 1 Stonington, CT 06378	1987	1,960	2006	(1)	Leased		19
9 Proulx Street Brooklyn, CT 06234	1990	1,538	2010		Leased		210
85 Freshwater Boulevard Enfield, CT 06082	1992	4,365	2007	(1)	Leased		33
Bell Park Plaza 563 Hartford Pike Dayville, CT 06241	1996	2,460	2006	(1)	Leased		10
971 Poquonnock Road Groton, CT 06340	1997	3,373	2007	(2)	Leased		21
Big Y 224 Salem Turnpike Norwich, CT 06360	1998	575	2008	(2)	Leased		—
344 Prospect Street Moosup, CT 06354	1998	2,160	2008	(2)	Leased		297
60 Cantor Drive Willimantic, CT 06226	1998	421	2005	(2)	Leased		15
180 Westminster Road, Route 14 Canterbury, CT 06331	1998	1,781	2008	(2)	Leased		35
474 Boston Post Road North Windham, CT 06256	2000	540	2005	(2)	Leased		99
180 River Road, Route 12 Lisbon, CT 06351	2001	656	2006	(2)	Leased		157
East Brook Mall Mansfield Center, CT 06250	2002	2,325	2022	(3)	Leased		564

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	Year Acquired	Square Footage	Date of Lease Expiration	Owend/ Leased		Net Book Value as of March 31, 2004
Other Properties:
66 Routes 32 and 87 Franklin, CT 06254	1983	2,380	—	Owned	(4)	267
5 Westminster Road Routes 14 and 169 Canterbury, CT 06331	1990	1,374	2008	Leased	(2)	92
190 Main Street Danielson, CT 06239	1990	4,990	—	Owned	(5)	647
7 Ledgebrook Drive Mansfield, CT 06250	1990	4,554	2007	Leased	(6)	16
779 Main Street Willimantic, CT 06226	1999	8,182	—	Owned	(7)	232
Riverbridge Court Condo Association 720 Main Street Willimantic, CT 06226	2000	3,884	—	Owned	(8)	161

⁽¹⁾ We have an option to renew this lease for one additional five-year period.

⁽²⁾ We have an option to renew this lease for two additional five year periods.

⁽³⁾ We have an option to renew this lease for four additional five year periods.

⁽⁴⁾ A portion of this property has been leased to a tenant under a lease that expires in 2006. The tenant has an option to renew this lease for one additional three-year period.

⁽⁵⁾ Includes the parking lot located at 39 Academy Street, Danielson, CT.

⁽⁶⁾ This facility houses our trust operations.

⁽⁷⁾ A portion of this property includes a parking lot for our main office. The remainder of this property has been leased to a subtenant under a lease that expires in 2007. The subtenant has an option to renew this lease for three additional five-year periods.

⁽⁸⁾ We use a portion of this facility for our employee training center. The remainder of this property has been leased to a subtenant under a lease that expires in 2005. The subtenant has an option to renew this lease for one additional five-year period.

Personnel

As of March 31, 2004, we had 157 full-time employees and 36 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

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Subsidiaries

SI Financial Group has one subsidiary other than Savings Institute. In 2002, SI Capital Trust I was established as a statutory trust under Delaware law as a wholly owned subsidiary of SI Bancorp, MHC for the purpose of issuing trust preferred securities. SI Capital Trust I issued trust preferred securities on April 10, 2002. On                     , 2004, all of the common stock of SI Capital Trust I was contributed to SI Financial Group from SI Bancorp, MHC, thus making SI Capital Trust I a wholly owned subsidiary of SI Financial Group. See “Our Business - Deposit Activities and Other Sources of Funds.” As described on page F-28 of our consolidated financial statements contained elsewhere in this prospectus, SI Capital Trust I is not consolidated for financial reporting purposes.

The following are descriptions of Savings Institute’s wholly owned subsidiaries.

803 Financial Corp. 803 Financial Corp. was established in 1995 as a Connecticut corporation to maintain an ownership interest in a third-party registered broker-dealer, Infinex Investments, Inc. Infinex operates an office at Savings Institute and offers customers a complete range of nondeposit investment products, including mutual funds, debt, equity and government securities, retirement accounts, insurance products and fixed and variable annuities. Savings Institute receives a portion of the commissions generated by Infinex from sales to customers. For the three months ended March 31, 2004 and the year ended December 31, 2003, Savings Institute received fees of $48,000 and $121,000, respectively, through its relationship with Infinex.

SI Realty Company, Inc. SI Realty, established in 1999 as a Connecticut corporation, holds real estate owned by Savings Institute, including foreclosure properties. At March 31, 2004, SI Realty had $560,000 in assets.

SI Mortgage Company. In January 1999, Savings Institute formed SI Mortgage to manage and hold loans secured by real property. SI Mortgage qualifies as a “passive investment company,” which exempts it from Connecticut income tax under current law. Income tax savings to Savings Institute from the use of a passive investment company was approximately $67,000 and $190,000 for the three months ended March 31, 2004 and the year ended December 31, 2003, respectively.

Savings Institute Foundation, Inc.

In 1998, we established a private charitable foundation, Savings Institute Foundation, Inc. This foundation, which is not a subsidiary of ours, provides grants to public charities that are operated for religious, charitable, scientific, literary or educational purposes within the communities that we serve. In 1998, we contributed marketable equity securities with a cost basis and fair market value of $114,000 and $310,000, respectively, at the date of contribution and transfer. At March 31, 2004, the foundation had assets of approximately $260,000. The foundation’s current nine member Board of Directors consists of current directors and officers and former corporators of Savings Institute. After the stock offering, we will continue to maintain the foundation. However, we do not expect to make any further contributions to the foundation. The existence of our current foundation is not expected to impact the business and affairs of SI Financial Group Foundation, which is being established in connection with the stock offering. See “The Stock Offering—Establishment of the Charitable Foundation.”

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Our Management

Directors

The Boards of Directors of SI Bancorp, MHC, SI Financial Group and Savings Institute are each presently composed of eight members who are elected for terms of three years, approximately one-third of whom are elected annually. All of the directors of SI Financial Group are independent under the current listing standards of the Nasdaq Stock Market, except for Mr. Brouillard who is the President and Chief Executive Officer of SI Bancorp, MHC, SI Financial Group and Savings Institute. Information regarding the directors is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five years. Ages presented are as of March 31, 2004.

The following directors have terms ending in 2005:

Robert C. Cushman, Sr. is a former real estate appraiser with Cushman Real Estate and Appraisal located in Mystic, Connecticut. Age 69. Director since 1993.

Robert O. Gillard is the Chairman of The O.L. Willard Co., Inc., a full-service hardware store with locations in Storrs and Willimantic, Connecticut. Age 57. Director since 1999.

Everett A. Watson was a former union representative for the Connecticut Education Association. Age 71. Director since 1995.

The following directors have terms ending in 2006:

Donna M. Evan is a sales manager for Nutmeg Broadcasting, the owner of a commercial radio station located in Willimantic, Connecticut. Age 55. Director since 1996.

Henry P. Hinckley is the Chairman of the Board of Directors of SI Bancorp, MHC, SI Financial Group and Savings Institute. Mr. Hinckley also is the President of J.P. Mustard Agency, Inc., an insurance agency located in Willimantic. Age 63. Director since 1984.

Steven H. Townsend is the Chairman of the Board of Directors and Chief Executive Officer of United Natural Foods, Inc., a distributor of natural and organic food and related products located in Dayville, Connecticut. Age 50. Director since 2003.

The following directors have terms ending in 2007:

Rheo A. Brouillard has been the President and Chief Executive Officer of Savings Institute, SI Bancorp, MHC and SI Financial Group since 1995, 2000 and 2004, respectively. Age 50. Director since 1995.

Roger Engle was the President of The Crystal Water Co., a water supplier located in Danielson, Connecticut, from 1973 until his retirement in 2000. He is also a director of Connecticut Water Service, Inc., which delivers water to customers throughout 42 towns in Connecticut and Massachusetts. Age 65. Director since 1998.

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Executive Officers

The Board of Directors annually elects the executive officers of SI Financial Group, SI Bancorp, MHC and Savings Institute and they serve at the Board’s discretion. Our executive officers are:

Name	Position
Rheo A. Brouillard	President and Chief Executive Officer of SI Financial Group, SI Bancorp, MHC and Savings Institute
Brian J. Hull	Executive Vice President, Chief Financial Officer and Treasurer of SI Financial Group and SI Bancorp, MHC and Executive Vice President and Chief Financial Officer of Savings Institute
Sonia M. Dudas	Senior Vice President and Senior Trust Officer of Savings Institute
Michael J. Moran	Senior Vice President, Senior Credit Officer of Savings Institute

Below is information regarding our executive officers who are not also directors. Each executive officer has held his or her current position for at least the last five years. Ages presented are as of March 31, 2004.

Brian J. Hull has been Executive Vice President, Chief Financial Officer and Treasurer since he joined Savings Institute in August 1997. Mr. Hull has served as Chief Financial Officer and Treasurer of SI Bancorp, MHC and SI Financial Group since 2000 and 2004, respectively. Age 44.

Sonia M. Dudas has been Senior Vice President and Senior Trust Officer since she joined Savings Institute in 1992. Ms. Dudas oversees our wealth management group, which include our trust, investment and insurance operations. Age 53.

Michael J. Moran has been Senior Vice President, Senior Credit Officer of Savings Institute since he joined Savings Institute in 1995. Age 55.

Meetings and Committees of the Board of Directors of SI Financial Group

Due to the formation of SI Financial Group in                      2004, the Board of Directors has only held one special meeting at which the following committees were established:

The Audit Committee, consisting of Ms. Evan and Messrs. Engle and Townsend, is responsible for ensuring that SI Financial Group maintains reliable accounting policies and financial reporting processes, ensuring that the internal auditing department is adequate, and reviewing the work of SI Financial Group’s independent registered public accountants and internal auditing department to determine its effectiveness. Each member of the Audit Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The Board of Directors has designated Steven H. Townsend as an audit committee financial expert under the rules of the Securities and Exchange Commission.

The Compensation Committee, consisting of Ms. Evan and Messrs. Hinckley and Watson, will be responsible for determining annual grade and salary levels for employees and establishing personnel policies. Each member of the Compensation Committee is independent in accordance with the listing standards of the Nasdaq Stock Market.

The Nominating and Governance Committee, consisting of Ms. Evan and Messrs. Gillard and Townsend, will be responsible for the annual selection of management’s nominees for election as directors and developing and

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implementing policies and practices relating to corporate governance, including implementation of and monitoring adherence to SI Financial Group’s corporate governance policy. Each member of the Nominating and Governance Committee is independent in accordance with the listing standards of the Nasdaq Stock Market.

Each of the committees listed above operates under a written charter, which governs its composition, responsibilities and operations.

Committees of the Board of Directors of Savings Institute

We conduct business through meetings of our Board of Directors and its committees. During the year ended December 31, 2003, the Board of Directors of Savings Institute 12 regular meetings and three special meetings.

Our Board of Directors has standing Audit, Human Resources and Nominating Committees, among others.

The Audit Committee, consisting of Ms. Evan and Messrs. Engle and Townsend, is responsible for developing and monitoring our internal audit and compliance programs. The committee also receives and reviews all the reports and findings and other information presented to them by our officers regarding financial reporting policies and practices. This committee met four times during the year ended December 31, 2003.

The Human Resources Committee, consisting of Ms. Evan and Messrs. Brouillard, Hinckley and Watson, determines annual grade and salary levels for employees and establishes personnel policies. This committee met four times during the year ended December 31, 2003.

The Nominating Committee, consisting of Ms. Evan and Messrs. Gillard and Townsend, is responsible for the annual selection of management’s nominees for election as directors. This committee met once in 2003 to nominate the individuals for election at the 2004 annual meeting.

In addition, the Board of Directors has Trust, Loan, Investment, CRA, Trust Investment and Asset Liability/Management Committees.

Corporate Governance Policies and Procedures

In addition to having established committees of the Board of Directors, SI Financial Group has also adopted several policies to govern the activities of both SI Financial Group and Savings Institute, including corporate governance guidelines and a code of business conduct and ethics. The corporate governance guidelines set forth:

• the duties and responsibilities of each director;

• the composition, responsibilities and operation of the Board of Directors;

• the establishment and operation of board committees;

• succession planning;

• the convening of executive sessions of independent directors;

• the Board of Directors’ interaction with management and third parties; and

• the evaluation of the performance of the Board of Directors and of the chief executive officer.

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The code of business conduct and ethics, which applies to all employees and directors, addresses conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

Directors’ Compensation

Fees. Each non-employee director of Savings Institute receives a monthly retainer of $500. The Chairman of the Board of Directors receives a $1,000 monthly retainer. Each non-employee director of Savings Institute receives $400 for each board or loan committee meeting attended and $250 for any other committee meeting attended. Each non-employee director of SI Financial Group receives a quarterly retainer of $500.

Director Deferred Fee Agreements. Savings Institute and members of its Board of Directors have entered into individual agreements that provide the directors with the opportunity to defer the receipt of Savings Institute board fees until a director terminates service with the board. Interest will be paid on director deferrals in accordance with the terms of the plan. Directors may elect to receive their benefits in installments or a lump sum payment. Each director may exercise a one-time option to receive benefits prior to his or her termination of service. However, if a director exercises this option he or she will forfeit the opportunity to defer future director fees. In addition, directors may apply to the Board of Directors for a hardship withdrawal in the event of an unforeseeable financial emergency. In the event a director dies prior to receipt of his or her benefit, the director’s beneficiary will receive the director’s entire deferred account balance as of his or her date of death. Such benefit shall be paid in the form elected by the director before his or her death.

Director Retirement Plan. Savings Institute maintains the Director Retirement Plan for the purpose of providing designated directors with supplemental retirement benefits. Participants are eligible to retire and receive benefits under the plan as of the first of the month following the attainment of age 72 or prior to age 72 if the director has completed 15 years of service on the board of Savings Institute. Eligible directors who satisfy the retirement criteria are entitled to an annual retirement benefit equal to 70% of the average compensation received by the director for service as a director of Savings Institute during the three (3) calendar years preceding the date on which the director terminated services. Such amount is payable in monthly installments beginning with the first month of a director’s termination of service and ending on the earlier of: (1) the 120^th month following commencement of such monthly payments; or (2) the date on which the director attains age 82. Directors who elect to receive an early retirement benefit will be paid an amount equal to his or her accrued liability balance as of the director’s early retirement date. Early retirement benefits will also be paid in monthly installments for the same period of time as normal retirement benefits. If a director dies after he has begun to receive payments under the plan, all remaining benefits payable will be paid to the director’s beneficiary, heirs or assigns. If a director dies before he or she commences benefits under the plan, the benefit payable to his or her beneficiary, heir or assign will be the accrued liability as of the date of the director’s death. No benefits will be paid under the plan if a director is terminated for cause (as defined in the plan).

Director Consultation Plan. Savings Institute has entered into consulting arrangements with retired directors James Derby and Jack Stephens. In consideration for consulting services to Savings Institute, Messrs. Derby and Stevens receive an annual fee equal to 70% of the average annual cash compensation (retainers and fees) received by the directors for service as a director of Savings Institute. Consulting fees are payable in monthly installments. The consultants will cease to receive remuneration under the plan upon the: death of the consultant, resignation as the consultant, determination by the board of directors that the consultant has not fulfilled his service requirements or the first of the month following the date the consultant attains age 82.

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Executive Compensation

Summary Compensation Table. The following information is provided for Rheo A. Brouillard, our President and Chief Executive Officer, Brian J. Hull, our Executive Vice President, Chief Financial Officer and Treasurer and Michael J. Moran, our Senior Vice President and Senior Credit Officer. They are the only executive officers who received salary and bonus totaling $100,000 or more during the year ended December 31, 2003.

Name and Position	Annual Compensation(1)			All Other Compensation(2)
	Year	Salary	Bonus
Rheo A. Brouillard President and Chief Executive Officer	2003 2002 2001	$207,692 193,888 173,515	$34,757 23,774 13,989	$18,899 11,563 10,758
Brian J. Hull Executive Vice President, Chief Financial Officer and Treasurer	2003 2002 2001	$118,327 110,088 104,368	$19,872 15,631 8,001	$11,503 7,143 6,516
Michael J. Moran Senior Vice President, Senior Credit Officer	2003 2002 2001	$92,177 87,230 82,580	$16,694 14,475 9,615	$8,761 5,378 5,023

⁽¹⁾ Does not include the aggregate amount of perquisites or other personal benefits, which was less than $50,000 or 10% of the total annual salary and bonus reported.

⁽²⁾ Includes employer contributions under the Savings Institute’s Profit Sharing and 401(k) Plan of $16,000, $10,630 and $7,263 for Messrs. Brouillard, Hull and Moran, respectively, and $2,899, $873 and $1,498 for Messrs. Brouillard, Hull and Moran, respectively, which represents the economic benefit of employer-paid premiums for split-dollar life insurance.

Employment Agreements. Upon completion of the offering, Savings Institute and SI Financial Group will enter into employment agreements with Rheo A. Brouillard and Brian J. Hull. The employment agreements are intended to ensure that SI Financial Group and Savings Institute will be able to maintain a stable and competent management base after the offering. The continued success of SI Financial Group and Savings Institute depends to a significant degree on the skills and competence of Messrs. Brouillard and Hull.

The employment agreements will each provide for a three-year term. The term of each employment agreement will be extended on an annual basis unless written notice of non-renewal is given by the Board of Directors of Savings Institute. The employment agreements provide that the executive’s base salary will be reviewed annually. The base salary that will be effective for such employment agreement will be $253,000 and $150,000 for Messrs. Brouillard and Hull, respectively. In addition to the base salary, the employment agreements will provide for, among other things, participation in stock benefit plans and other fringe benefits applicable to executive personnel. The employment agreements provide for termination for cause, as defined in the employment agreements, at any time. If Savings Institute chooses to terminate the executive’s employment for reasons other than for cause, or if the executive resigns from Savings Institute after specified circumstances that would constitute constructive termination, the executive or, if he dies, his beneficiary, would be entitled to receive an amount equal to the remaining base salary payments due for the remaining term of the employment agreement and the contributions that would have been made on his behalf to any employee benefit plans of SI Financial Group and Savings Institute during the remaining term of the employment agreement. Savings Institute would also continue and/or pay for Messrs. Brouillard’s or Hull’s life, health and dental coverage for the remaining term of the employment agreement. Upon termination of Messrs. Brouillard or Hull for reasons other than a change in control, they must adhere to a one-year non-competition agreement.

Under the employment agreements, if voluntary (upon circumstances discussed in the agreement) or involuntary termination follows a change in control of SI Financial Group or Savings Institute, Messrs. Brouillard or Hull, or, if either of them dies, their beneficiary, would be entitled to a severance payment equal to the greater of: (1) the payments due for the remaining terms of the agreement; or (2) three times the average of the five

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preceding taxable years’ annual compensation. Savings Institute would also continue Messrs. Brouillard’s or Hull’s life, health, and dental coverage for 36 months. Section 280G of the Internal Revenue Code provides that severance payments that equal or exceed three times the individual’s base amount are deemed to be “excess parachute payments” if they are contingent upon a change in control. Individuals receiving excess parachute payments are subject to a 20% excise tax on the amount of the payment in excess of the base amount, and the employer would not be entitled to deduct such amount. The agreements provide that Messrs. Brouillard and Hull will not receive an excess parachute payment. If a change in control of SI Financial Group and Savings Institute occurred, and Messrs. Brouillard’s and Hull’s employment was terminated, the total payments due under the agreements, based solely on current cash compensation and excluding any benefits that would be payable under any employee benefit plans, would equal approximately $1.2 million.

All reasonable costs and legal fees paid or incurred by Messrs. Brouillard or Hull in any dispute or question of interpretation relating to the employment agreement will be paid by Savings Institute if Messrs. Brouillard or Hull is successful on the merits in a legal judgment, arbitration or settlement. The employment agreements also provide that Savings Institute and SI Financial Group will indemnify Messrs. Brouillard or Hull to the fullest extent legally allowable.

Change in Control Agreements. Upon completion of the offering, Savings Institute will enter into change in control agreements with Michael L. Alberts, William E. Anderson, Sonia M. Dudas, Laurie L. Gervais, Michael J. Moran and David T. Weston. Each change in control agreement will have an initial two-year term and is renewable by the Board of Directors for an additional year on an annual basis. If, following a change in control of SI Financial Group or Savings Institute, one of the named officers is terminated without cause, or the officer voluntarily resigns upon the occurrence of circumstances specified in the agreements, the officer will receive a severance payment under the agreements equal to two times the officer’s average annual compensation for the five most recent taxable years. Savings Institute will also continue health and welfare benefit coverage for 24 months following termination of employment. If a change in control of SI Financial Group and Savings Institute occurred, and Savings Institute terminated all officers covered by change in control agreements, the total payments due under the agreements, based solely on current cash compensation and excluding any benefits that would be payable under any employee benefit plans, would equal approximately $1.2 million.

Employee Severance Compensation Plan. In connection with the offering, Savings Institute adopted the Savings Institute Employee Severance Compensation Plan to provide benefits to eligible employees upon a change in control of SI Financial Group or Savings Institute. Eligible employees are those with a minimum of one year of service with Savings Institute. Generally, all eligible employees, other than officers who will enter into separate employment or change in control agreements with SI Financial Group and Savings Institute, will be eligible to participate in the severance plan. Under the severance plan, if a change in control of SI Financial Group or Savings Institute occurs, eligible employees who are terminated, or who terminate employment upon the occurrence of events specified in the severance plan, within 24 months of the effective date of a change in control will be entitled to a one month’s payment for each year of service with Savings Institute, with a maximum payment equal to 24 months of compensation. Based solely on current cash compensation and assuming that a change in control had occurred at March 31, 2004, and all eligible employees were terminated, the maximum aggregate payment due under the severance plan would be approximately $3.2 million.

Benefit Plans

401(k) Savings Plan. Savings Institute maintains the Savings Institute Profit Sharing and 401(k) Savings Plan, a tax-qualified defined contribution plan, for substantially all employees of Savings Institute who have completed 90 days of eligibility service with Savings Institute and attained age 21. Eligible employees may contribute an amount from 1% to 25% of their salary to the plan on a pre-tax basis, subject to the limitations imposed by the Internal Revenue Code of 1986, as amended. For 2004, the limit is $13,000; provided, however, that participants over age 50 may contribute an additional $3,000 per year. Under the plan, Savings Institute makes a matching contribution equal to 50% of the first 6% of compensation deferred by a participant. Savings Institute also has the authority to make discretionary profit sharing contributions under the plan for the benefit of participants employed on the last business day of the plan year. Participants vest in their profit sharing

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contributions at a rate of 25% per year following two years of service. Participants are always 100% vested in their salary deferrals and employer matching contributions.

The plan has an individual account for each participant’s contributions and allows each participant to direct the investment of his or her account in a variety of investment funds. Following the offering, the plan will add an additional investment alternative, the SI Financial Group Stock Fund. The SI Financial Group Stock Fund will permit participants to invest up to 100% of their deferrals in SI Financial Group common stock. A participant who elects to purchase common stock in the offering through the plan will receive the same subscription priority and be subject to the same individual purchase limitations as if the participant had elected to make such purchase using other funds. See “The Stock Offering—Subscription Offering and Subscription Rights” and “—Limitations on Purchases of Shares.” The plan will purchase common stock for participants in the offering, to the extent that shares are available. After the offering, the plan will purchase shares in open market transactions. Participants will direct the stock fund trustee on the voting of shares purchased for their plan accounts. Dividends paid on shares held in the Stock Fund will be used to purchase additional shares.

Employee Stock Ownership Plan. In connection with the offering, the Board of Directors of Savings Institute has adopted an employee stock ownership plan for eligible employees of Savings Institute. Eligible employees who are employed by Savings Institute as of the closing date of the offering begin participating in the plan on the earlier of the effective date of the plan or the date in which the employees first performed an hour of service for Savings Institute. Thereafter, new employees of Savings Institute who have attained age 21 and been employed by Savings Institute for ninety (90) days will begin participation in the employee stock ownership plan as of the first entry date following their completion of the Plan’s eligibility requirements.

It is anticipated that Savings Institute will engage an independent third party trustee to purchase 8% of the shares sold in the offering, including shares contributed to the foundation, on behalf of the employee stock ownership plan. This would range between 242,760 shares, assuming 3,034,500 shares are sold in the offering, including shares contributed to the foundation, and 328,440 shares, assuming 4,105,500 shares sold in the offering, including shares contributed to the foundation. If 4,721,325 shares are sold in the offering, including shares contributed to the foundation, the employee stock ownership plan will purchase 377,706 shares. It is anticipated that the employee stock ownership plan will fund its purchase in the offering through a loan from SI Financial Group. The loan will equal 100% of the aggregate purchase price of the common stock. The loan to the employee stock ownership plan will be repaid principally from Savings Institute’s contributions to the employee stock ownership plan and dividends payable on common stock held by the employee stock ownership plan over the anticipated fifteen-year term of the loan. The interest rate for the employee stock ownership plan loan is expected to be the prime rate as published in The Wall Street Journal on the closing date of the offering. See “Pro Forma Data.”

In any plan year, Savings Institute may make additional discretionary contributions (beyond those necessary to satisfy the loan obligation) to the employee stock ownership plan for the benefit of plan participants in either cash or shares of common stock, which may be acquired through the purchase of outstanding shares in the market or from individual stockholders or which constitute authorized but unissued shares or shares held in treasury by SI Financial Group. The timing, amount, and manner of discretionary contributions will be affected by several factors, including applicable regulatory policies, the requirements of applicable laws and regulations, and market conditions. Savings Institute’s contributions to the employee stock ownership plan are not fixed, so benefits payable under the employee stock ownership plan cannot be estimated.

Shares purchased by the employee stock ownership plan with the proceeds of the employee stock ownership plan loan will be held in a suspense account and released on a pro rata basis as the loan is repaid. Discretionary contributions to the employee stock ownership plan and shares released from the suspense account will be allocated among participants on the basis of each participant’s proportional share of compensation.

Participants will vest in the benefits allocated under the employee stock ownership plan at a rate of 25% per year after the first two years of continuous service with Savings Institute. A participant will become fully vested at retirement, upon death or disability, upon a change in control or upon termination of the employee stock

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ownership plan. Benefits are generally distributable upon a participant’s separation from service. Any unvested shares that are forfeited upon a participant’s termination of employment will be reallocated among the remaining plan participants.

Plan participants will be entitled to direct the plan trustee on how to vote common stock credited to their accounts. The trustee will vote all allocated shares held in the employee stock ownership plan as instructed by the plan participants and unallocated shares and allocated shares for which no instructions are received will be voted in the same ratio on any matter as those shares for which instructions are given, subject to the fiduciary responsibilities of the trustee.

Under applicable accounting requirements, compensation expense for a leveraged employee stock ownership plan is recorded at the fair market value of the employee stock ownership plan shares when committed to be released to participants’ accounts. See “Pro Forma Data.”

The employee stock ownership plan must meet certain requirements of the Internal Revenue Code and the Employee Retirement Income Security Act. Savings Institute intends to request a favorable determination letter from the Internal Revenue Service regarding the tax-qualified status of the employee stock ownership plan. Savings Institute expects to receive a favorable determination letter, but cannot guarantee that it will.

Supplemental Executive Retirement Plan. Savings Institute has adopted the Savings Institute Supplemental Executive Retirement Plan, which will be implemented upon consummation of the offering with an effective date of January 1, 2004. This plan provides restorative payments to executives designated by the board of directors who are prevented from receiving the full benefits contemplated by the employee stock ownership plan’s benefit formula and the full matching contribution under the 401(k) Plan. The board of directors of Savings Institute has designated Mr. Brouillard to participate in the plan. The restorative payments under the plan consist of payments in lieu of shares that cannot be allocated to the participant’s account under the employee stock ownership plan and payments for employer matching contributions that cannot be allocated under the 401(k) plan due to the legal limitations imposed on tax-qualified plans. In addition to providing for benefits lost under the employee stock ownership plan and 401(k) Plan as a result of limitations imposed by the Internal Revenue Code, the supplemental executive retirement plan also provides supplemental benefits to participants upon a Change in Control (as defined in the plan) before the complete scheduled repayment of the employee stock ownership plan loan. Generally, upon such an event, the supplemental executive retirement plan will provide the participant with a benefit equal to what the participant would have received under the employee stock ownership plan had he remained employed throughout the term of the employee stock ownership plan loan, less the benefits actually provided under the employee stock ownership plan on behalf of such participant.

Group Term Replacement Plan. Savings Institute maintains the Group Term Replacement Plan for the purpose of providing a death benefit to executives designated by the Human Resources committee of the Board of Directors. The death benefits are funded through certain insurance policies, which are owned by Savings Institute on the lives of the participating executives. Savings Institute pays the life insurance premiums which fund the death benefits from its general assets and is the beneficiary of any death benefits exceeding any executive’s maximum dollar amount specified in his or her split dollar endorsement policy. The maximum dollar amount of each executive’s split dollar death benefit equals three (3) times the executive’s annual compensation less $50,000 pre-retirement and three (3) times final annual compensation post-retirement not to exceed a specified dollar amount. For purposes of the plan, annual compensation includes an executive’s base compensation, plus commissions and cash bonuses earned under the Savings Institute’s bonus plan. Participation in the plan ceases in the event an executive is terminated for cause or the executive terminates employment for reasons other than death, disability or retirement. In the event Savings Institute wishes to maintain the insurance after a participant’s termination in the plan, Savings Institute will be the direct beneficiary of the entire death proceeds of the insurance policies.

Executive Supplemental Retirement Plan - Defined Benefit. Savings Institute maintains the Executive Supplemental Retirement Plan—Defined Benefit for the purpose of providing Rheo Brouillard, Sonia Dudas, Laurie Gervais, Brian Hull and Michael Moran with supplemental retirement benefits. The plan provides

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these designated executives with a retirement benefit equal to 70% of final three (3) year average compensation less 50% of the executive’s annual social security benefit and the value of the executive’s annual benefit under employer-provided tax-qualified plans. Plan participants are entitled to their supplemental retirement benefit upon the earlier of the participant’s termination of employment (other than for cause) at or after attaining age 65, or on the date when the sum of the participant’s years of service and age total 80 (or 78 in the case of Mr. Hull). In the event a participant terminates employment prior to satisfaction of these requirements, the participant may receive an early retirement benefit which would be adjusted by 2% for each point by which the sum of the participant’s age and years of service is less than 80. Participants may elect to receive benefits under the plan in the form of a single life annuity with 15 guaranteed annual payments or a lump sum equal to the actuarial equivalent of the annuity payment. Should a participant die while actively employed with Savings Institute or after the payments have begun, the executive’s designated beneficiary will receive the balance in the executive’s plan liability account on the date of death in a lump sum cash payment. In the event a participant terminates employment in connection with a change in control (as defined in the plan), the participant shall be entitled to a lump sum cash amount specified in the executive’s plan agreement payable within 30 days of the participant’s termination of employment. If the designated executives become disabled, Savings Institute will transfer funds to a Contingent Liability Trust equal to its accrued plan liability for the executive as of the date of the disability. When the accrued liability balance is transferred, Savings Institute’s obligation ends and a bank-owned disability policy from MassMutual Life Insurance Company covering the executive makes payments to the Contingent Liability Trust during the disability period.

Future Stock-Based Incentive Plan. Following the offering, SI Financial Group plans to adopt a stock-based incentive plan that will provide for grants of stock options and restricted stock. In accordance with applicable regulations, SI Financial Group anticipates that the plan will not award more than 25% of the number of shares ultimately held by persons other than SI Bancorp, MHC. Therefore, the number of shares reserved under the plan will range from 758,625 shares, assuming 3,034,500 shares are sold in the offering, including shares contributed to the foundation, to 1,026,375 shares, assuming 4,105,500 shares are sold in the offering, including shares contributed to the foundation.

SI Financial Group may fund the stock-based incentive plan through the purchase of common stock in the open market by a trust established in connection with the plan or from authorized, but unissued, shares of SI Financial Group common stock. The acquisition of additional authorized, but unissued, shares by the stock-based incentive plan after the offering would dilute the interests of existing shareholders. See “Pro Forma Data.”

SI Financial Group will grant all stock options at an exercise price equal to 100% of the fair market value of the stock on the date of grant. SI Financial Group will grant restricted stock awards at no cost to recipients. Restricted stock awards and stock options generally vest ratably over a five-year period, but SI Financial Group may also make vesting contingent upon the satisfaction of performance goals established by the Board of Directors or the Committee charged with administering the plan. All outstanding awards will accelerate and become fully vested upon a change in control of SI Financial Group.

SI Financial Group will submit the stock-based incentive plan to shareholders for their approval, at which time SI Financial Group will provide shareholders with detailed information about the plan.

Transactions with Savings Institute

Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits us from making loans to our executive officers and directors, but it contains a specific exemption from such prohibition for loans made by Savings Institute to our executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features. Savings Institute is therefore prohibited from making any loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public, except for loans made under a benefit program generally available to all other employees and that does not give preference to any executive officer or director over any other employee.

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In addition, loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to the person and his or her related interests, are in excess of the greater of $25,000 or 5% of Savings Institute’s capital and surplus, up to a maximum of $500,000, must be approved in advance by a majority of the disinterested members of the Board of Directors. See “Regulation and Supervision—Regulation of Federal Savings Associations—Transactions with Related Parties.”

The aggregate amount of loans to our officers and directors was $4.6 million at March 31, 2004, or approximately 7.3% of pro forma stockholders’ equity assuming that 3,400,000 shares are sold in the offering to persons other than SI Bancorp, MHC and contributed to SI Financial Group Foundation. These loans were performing according to their original terms at March 31, 2004.

Indemnification for Directors and Officers

Our bylaws provide that we will indemnify all of our officers, directors and employees to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or proceeding in which they may be involved by reason of their having been a director or officer. Such indemnification may include the advancement of funds to pay for or reimburse reasonable expenses incurred by an indemnified party to the fullest extent permitted under federal law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons by our bylaws or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

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Subscriptions by Executive Officers and Directors

The following table presents certain information as to the approximate purchases of common stock by our directors and executive officers, including their associates, if any, as defined by applicable regulations. No individual has entered into a binding agreement to purchase these shares and, therefore, actual purchases could be more or less than indicated. Directors and executive officers and their associates may not purchase more than 25% of the shares sold in the offering to persons other than SI Bancorp, MHC. For purposes of the following table, sufficient shares are assumed to be available to satisfy subscriptions in all categories. Mr. Gillard is subscribing for 1.0% of the shares being sold at the minimum of the offering range. None of our other directors or executive officers has subscribed for more than 1% of the shares of common stock being sold in the offering. Assuming that all subscriptions are filled, our directors and executive officers together are subscribing for 4.16% and 3.10% of the shares being offering at the minimum and maximum of the offering range, respectively.

Name	Proposed Purchases of Stock in the Offering
	Number of Shares	Dollar Amount
Rheo A. Brouillard	22,800	$	228,000
Robert C. Cushman, Sr.	5,000		50,000
Sonia M. Dudas	10,000		100,000
Roger Engle	6,000		60,000
Donna M. Evan	10,000		100,000
Robert O. Gillard	30,000		300,000
Henry P. Hinckley	5,000		50,000
Brian J. Hull	15,000		150,000
Michael J. Moran	6,000		60,000
Steven H. Townsend	10,000		100,000
Everett A. Watson	500		5,000
All directors and executive officers as a group (11 persons)	120,300	$	1,203,000

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Regulation and Supervision

General

Savings Institute is subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, as its primary federal regulator, and the Federal Deposit Insurance Corporation, as its deposits insurer. Savings Institute is a member of the Federal Home Loan Bank System and its deposit accounts are insured up to applicable limits by the Bank Insurance Fund managed by the Federal Deposit Insurance Corporation. Savings Institute must file reports with the Office of Thrift Supervision and the Federal Deposit Insurance Corporation concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the Office of Thrift Supervision and, under certain circumstances, the Federal Deposit Insurance Corporation to evaluate Savings Institute’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on SI Financial Group, SI Bancorp, MHC and Savings Institute and their operations. SI Financial Group and SI Bancorp, MHC, as savings and loan holding companies, are required to file certain reports with, are subject to examination by, and otherwise must comply with the rules and regulations of the Office of Thrift Supervision. SI Financial Group will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Certain of the regulatory requirements that are or will be applicable to Savings Institute, SI Financial Group and SI Bancorp, MHC are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Savings Institute, SI Financial Group and SI Bancorp, MHC and is qualified in its entirety by reference to the actual statutes and regulations.

Regulation of Federal Savings Associations

Business Activities. Federal law and regulations, primarily the Home Owners’ Loan Act and the regulations of the Office of Thrift Supervision, govern the activities of federal savings banks, such as Savings Institute. These laws and regulations delineate the nature and extent of the activities in which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.

Branching. Federal savings banks are authorized to establish branch offices in any state or states of the United States and its territories, subject to the approval of the Office of Thrift Supervision.

Capital Requirements. The Office of Thrift Supervision’s capital regulations require federal savings institution to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift Supervision regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.

The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%,

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respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. At March 31, 2004, the Bank met each of these capital requirements.

Prompt Corrective Regulatory Action. The Office of Thrift Supervision is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the Office of Thrift Supervision is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” An institution must file a capital restoration plan with the Office of Thrift Supervision within 45 days of the date it receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. “Significantly undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory actions. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Loans to One Borrower. Federal law provides that savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. A savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Office of Thrift Supervision determines that a savings institution fails to meet any standard prescribed by the guidelines, the Office of Thrift Supervision may require the institution to submit an acceptable plan to achieve compliance with the standard.

Limitation on Capital Distributions. Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to

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and the prior approval of the Office of Thrift Supervision is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if, like Savings Institute, it is a subsidiary of a holding company. If Savings Institute’s capital were ever to fall below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice.

Qualified Thrift Lender Test. Federal law requires savings institutions to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least 9 months out of each 12 month period.

A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered “qualified thrift investments.” As of March 31, 2004, Savings Institute maintained 88.0% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Transactions with Related Parties. Federal law limits Savings Institute’s authority to lend to, and engage in certain other transactions with (collectively, “covered transactions”), “affiliates” (e.g., any company that controls or is under common control with an institution, including SI Financial Group, Inc., SI Bancorp, MHC and their non-savings institution subsidiaries). The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution’s capital and surplus. Loans and other specified transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

The Sarbanes-Oxley Act of 2002 generally prohibits a company from making loans to its executive officers and directors. However, that act contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Savings Institute’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law restricts both the individual and aggregate amount of loans Savings Institute may make to insiders based, in part, on Savings Institute’s capital position and requires certain board approval procedures to be followed. Such loans must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. There are additional restrictions applicable to loans to executive officers.

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Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Assessments. Federal savings banks are required to pay assessments to the Office of Thrift Supervision to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution’s total assets, including consolidated subsidiaries, as reported in the institution’s latest quarterly thrift financial report.

Insurance of Deposit Accounts. Savings Institute is a member of the Bank Insurance Fund. The Federal Deposit Insurance Corporation maintains a risk-based assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution’s assessment rate depends upon the categories to which it is assigned. Assessment rates for Bank Insurance Fund member institutions are determined semi-annually by the Federal Deposit Insurance Corporation and currently range from zero basis points of assessable deposits for the healthiest institutions to 27 basis points of assessable deposits for the riskiest.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A material increase in Bank Insurance Fund insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Savings Institute. Management cannot predict what insurance assessment rates will be in the future.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize the predecessor to the Savings Association Insurance Fund. During the calendar year ended December 31, 2003, Financing Corporation payments for Bank Insurance Fund members averaged 1.56 basis points of assessable deposits.

The Federal Deposit Insurance Corporation may terminate an institution’s insurance of deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The management of Savings Institute does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Federal Home Loan Bank System. Savings Institute is a member of the Federal Home Loan Bank System, which consists of (12) regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Savings Institute, as a member of the Federal Home Loan Bank of Boston, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank in an amount at least equal to 1.0% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank, whichever is greater. Savings Institute was in compliance with this requirement with an investment in Federal Home Loan Bank stock at March 31, 2004 of $3.4 million.

The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts in the late 1980s and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or

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interest on future Federal Home Loan Bank advances increased, our net interest income would likely also be reduced.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by Office of Thrift Supervision regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift Supervision, in connection with its examination of a savings association, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

The Community Reinvestment Act requires public disclosure of an institution’s rating and requires the Office of Thrift Supervision to provide a written evaluation of an association’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system.

Savings Institute received a “satisfactory” rating as a result of its most recent Community Reinvestment Act assessment.

Holding Company Regulation

General. SI Financial Group and SI Bancorp, MHC are savings and loan holding companies within the meaning of federal law. As such, they are registered with the Office of Thrift Supervision and are subject to Office of Thrift Supervision regulations, examinations, supervision, reporting requirements and regulations concerning corporate governance and activities. In addition, the Office of Thrift Supervision has enforcement authority over SI Financial Group and SI Bancorp, MHC and their non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to Savings Institute.

Restrictions Applicable to Mutual Holding Companies. According to federal law and Office of Thrift Supervision regulations, a mutual holding company, such as SI Bancorp, MHC, may generally engage in the following activities: (1) investing in the stock of a bank; (2) acquiring a mutual association through the merger of such association into a bank subsidiary of such holding company or an interim bank subsidiary of such holding company; (3) merging with or acquiring another holding company, one of whose subsidiaries is a bank; and (4) any activity approved by the Federal Reserve Board for a bank holding company or financial holding company or previously approved by Office of Thrift Supervision for multiple savings and loan holding companies. Recent legislation, which authorized mutual holding companies to engage in activities permitted for financial holding companies, expanded the authorized activities. Financial holding companies may engage in a broad array of financial service activities including insurance and securities.

Federal law prohibits a savings and loan holding company, including a federal mutual holding company, from directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings institution, or its holding company, without prior written approval of the Office of Thrift Supervision. Federal law also prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those authorized for savings and loan holding companies by federal law; or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, except: (1) the

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approval of interstate supervisory acquisitions by savings and loan holding companies, and (2) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

If the savings institution subsidiary of a savings and loan holding company fails to meet the qualified thrift lender test, the holding company must register with the Federal Reserve Board as a bank holding company within one year of the savings institution’s failure to so qualify.

Stock Holding Company Subsidiary Regulation. The Office of Thrift Supervision has adopted regulations governing the two-tier mutual holding company form of organization and subsidiary stock holding companies that are controlled by mutual holding companies. We have adopted this form of organization and it will continue in place after the proposed offering. SI Financial Group is the stock holding company subsidiary of SI Bancorp, MHC. SI Financial Group is permitted to engage in activities that are permitted for SI Bancorp, MHC subject to the same restrictions and conditions.

Waivers of Dividends by SI Bancorp, MHC. Office of Thrift Supervision regulations require SI Bancorp, MHC to notify the Office of Thrift Supervision if it proposes to waive receipt of dividends from SI Financial Group. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the mutual holding company’s board of directors determines that such waiver is consistent with such directors’ fiduciary duties to the mutual holding company’s members; (ii) for as long as the savings association subsidiary is controlled by the mutual holding company, the dollar amount of dividends waived by the mutual holding company is considered as a restriction on the retained earnings of the savings association, which restriction, if material, is disclosed in the public financial statements of the savings association as a note to the financial statements; (iii) the amount of any dividend waived by the mutual holding company is available for declaration as a dividend solely to the mutual holding company, and, in accordance with SFAS 5, where the savings association determines that the payment of such dividend to the mutual holding company is probable, an appropriate dollar amount is recorded as a liability; and (iv) the amount of any waived dividend is considered as having been paid by the savings association in evaluating any proposed dividend under Office of Thrift Supervision capital distribution regulations. We anticipate that SI Bancorp, MHC will waive dividends that SI Financial Group may pay, if any.

Conversion of SI Bancorp, MHC to Stock Form. Office of Thrift Supervision regulations permit SI Bancorp, MHC to convert from the mutual form of organization to the capital stock form of organization. There can be no assurance when, if ever, a conversion transaction will occur, and the Board of Directors has no current intention or plan to undertake a conversion transaction. In a conversion transaction a new holding company would be formed as the successor to SI Financial Group, SI Bancorp, MHC’s corporate existence would end, and certain depositors of Savings Institute would receive the right to subscribe for additional shares of the new holding company. In a conversion transaction, each share of common stock held by stockholders other than SI Bancorp, MHC would be automatically converted into a number of shares of common stock of the new holding company based on an exchange ratio determined at the time of conversion that ensures that stockholders other than SI Bancorp, MHC own the same percentage of common stock in the new holding company as they owned in SI Financial Group immediately before conversion. Under Office of Thrift Supervision regulations, stockholders other than SI Bancorp, MHC would not be diluted because of any dividends waived by SI Bancorp, MHC (and waived dividends would not be considered in determining an appropriate exchange ratio), in the event SI Bancorp, MHC converts to stock form. The total number of shares held by stockholders other than SI Bancorp, MHC after a conversion transaction also would be increased by any purchases by stockholders other than SI Bancorp, MHC in the stock offering conducted as part of the conversion transaction.

Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings association. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the

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Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.

Federal Securities Laws

SI Financial Group has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued pursuant to the offering. Upon completion of the offering, SI Financial Group common stock will continue to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. SI Financial Group will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration, under the Securities Act of 1933, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of SI Financial Group may be resold without registration. Shares purchased by an affiliate of SI Financial Group will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If SI Financial Group meets the current public information requirements of Rule 144, each affiliate of SI Financial Group that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of SI Financial Group, or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, SI Financial Group may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002, which implemented legislative reforms intended to address corporate and accounting fraud. The Sarbanes-Oxley Act restricts the scope of services that may be provided by accounting firms to their public company audit clients and any non-audit services being provided to a public company audit client will require preapproval by the company’s audit committee. In addition, the Sarbanes-Oxley Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission, subject to civil and criminal penalties if they knowingly or willingly violate this certification requirement.

Under the Sarbanes-Oxley Act, bonuses issued to top executives before restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan “blackout” periods, and loans to company executives (other than loans by financial institutions permitted by federal rules and regulations) are restricted. The legislation accelerates the time frame for disclosures by public companies of changes in ownership in a company’s securities by directors and executive officers.

The Sarbanes-Oxley Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s “registered public accounting firm.” Among other requirements, companies must disclose whether at least one member of the audit committee is a “financial expert” (as such term is defined by the Securities and Exchange Commission) and if not, why not.

Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition.

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Privacy Requirements of the GLBA

The Gramm-Leach-Bliley Act of 1999 provided for sweeping financial modernization for commercial banks, savings banks, securities firms, insurance companies, and other financial institutions operating in the United States. Among other provisions, the Gramm-Leach-Bliley Act places limitations on the sharing of consumer financial information with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Anti-Money Laundering

On October 26, 2001, in response to the events of September 11, 2001, the President of the United States signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”). The USA PATRIOT ACT significantly expands the responsibilities of financial institutions, including savings and loan associations, in preventing the use of the U.S. financial system to fund terrorist activities. Title III of the USA PATRIOT ACT provides for a significant overhaul of the U.S. anti-money laundering regime. Among other provisions, it requires financial institutions operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations.

Other Regulations

Interest and other charges collected or contracted for by Savings Institute are subject to state usury laws and federal laws concerning interest rates. Savings Institute’s loan operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The deposit operations of Savings Institute also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

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• Check Clearing for the 21^st Century Act (also known as “Check 21”), which, effective October 28, 2004, gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check.

Federal and State Taxation

Federal Income Taxation

General. We report our income on a fiscal year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have been either audited or closed under the statute of limitations through tax year 1995. For its 2003 year, Savings Institute’s maximum federal income tax rate was 34%.

Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts for institutions with assets in excess of $500 million and the percentage of taxable income method for all institutions for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves. Approximately $3.7 million of our accumulated bad debt reserves would not be recaptured into taxable income unless Savings Institute makes a “non-dividend distribution” to Savings Institute as described below.

Distributions. If Savings Institute makes “non-dividend distributions” to SI Financial Group, the distributions will be considered to have been made from Savings Institute’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Savings Institute’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Savings Institute’s taxable income. Non-dividend distributions include distributions in excess of Savings Institute’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Savings Institute’s current or accumulated earnings and profits will not be so included in Savings Institute’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Savings Institute makes a non-dividend distribution to SI Financial Group, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. Savings Institute does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State Taxation

SI Bancorp, MHC, SI Financial Group and its subsidiaries are subject to the Connecticut corporation business tax. SI Bancorp, MHC, SI Financial Group and its subsidiaries will be eligible to file a combined Connecticut income tax return and will pay the regular corporation business tax.

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The Connecticut corporation business tax is based on the federal taxable income before net operating loss and special deductions of SI Bancorp, MHC, SI Financial Group and its subsidiaries and makes certain modifications to federal taxable income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate (9.0% for fiscal year 2004) to arrive at Connecticut income tax.

In May 1998, the State of Connecticut enacted legislation permitting the formation of passive investment company subsidiaries by financial institutions. This legislation exempts qualifying passive investment companies from the Connecticut corporation business tax and excludes dividends paid from a passive investment company from the taxable income of the parent financial institution. Savings Institute’s formation of a passive investment company in January 1999 is expected to substantially eliminate the state income tax expense of SI Bancorp, MHC, SI Financial Group and its subsidiaries. See “Our Business—Subsidiaries—SI Mortgage Company” for a discussion of Savings Institute’s passive investment company.

The Stock Offering

The Board of Directors of Savings Institute has approved the plan of reorganization and minority stock issuance. The Office of Thrift Supervision also has conditionally approved the plan of reorganization and minority stock issuance; however, such approval does not constitute a recommendation or endorsement of the plan of reorganization and minority stock issuance by such agency.

General

On December 16, 2003, and as amended and restated on June 8, 2004, the Board of Directors of SI Financial Group unanimously adopted the plan of reorganization and minority stock issuance, pursuant to which SI Financial Group will offer up to 40% of its common stock to qualifying depositors of Savings Institute in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. The completion of the offering depends on market conditions and other factors beyond our control. We can give no assurance as to the length of time that will be required to complete the sale of the common stock. If we experience delays, significant changes may occur in the appraisal of SI Financial Group and Savings Institute, which would require a change in the offering range. A change in the offering range would result in a change in the net proceeds realized by SI Financial Group from the sale of the common stock. If the offering is terminated, Savings Institute would be required to charge all offering expenses against current income. The Office of Thrift Supervision approved our plan of reorganization and minority stock issuance, subject to the fulfillment of certain conditions.

The following is a brief summary of the pertinent aspects of the offering. A copy of the plan of reorganization and minority stock issuance is available from Savings Institute upon request and is available for inspection at the offices of Savings Institute and at the Office of Thrift Supervision. The plan of reorganization and minority stock issuance is also filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Reasons for the Offering

After considering the advantages and disadvantages of the offering, the Boards of Directors of SI Bancorp, MHC, SI Financial Group and Savings Institute unanimously approved the offering as being in the best interests of SI Financial Group, Savings Institute, SI Bancorp, MHC and its members. The Boards of Directors concluded that the offering offers a number of advantages that will be important to our future growth and performance and that outweigh the disadvantages of the offering.

The offering will result in the raising of additional capital, which will support our future lending and operational growth and may also support possible future branching activities or the acquisition of other financial institutions or financial service companies or their assets. As a mutual holding company with a mid-tier stock holding company, we will have greater flexibility in structuring mergers and acquisitions, including giving us the

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ability to use stock as a form of merger consideration. Since we will not be offering all of our common stock for sale in the offering, the minority stock issuance will result in less capital raised in comparison to a standard mutual-to-stock conversion. Therefore, the minority stock issuance permits us to control the amount of capital being raised and enables us to deploy more prudently the proceeds of the offering, while at the same time enabling us to continue to grow our lending and investment activities. The minority stock issuance, however, also will allow us to raise additional capital in the future because a majority of our common stock will be available for sale in the event of a conversion of SI Bancorp, MHC to stock form.

The offering will afford our officers and employees the opportunity to become stockholders, which we believe to be an effective performance incentive and an effective means of attracting and retaining qualified personnel. The offering also will provide our customers and local community members with an opportunity to acquire our stock.

The disadvantages of the offering considered by the Boards of Directors are the additional expense and effort of operating as a public company listed on the Nasdaq Stock Market, the inability of stockholders other than SI Bancorp, MHC to obtain majority ownership of SI Financial Group and Savings Institute, which may result in the perpetuation of our management and board of directors, and that new forms of corporate ownership and regulatory policies relating to the mutual holding company structure may be adopted from time to time which may have an adverse impact on stockholders other than SI Bancorp, MHC.

A majority of our voting stock will be owned by SI Bancorp, MHC, which will be controlled by its board of directors. While this structure will permit management to focus on our long-term business strategy for growth and capital redeployment without undue pressure from stockholders, it will also serve to perpetuate our existing management and directors. SI Bancorp, MHC will be able to elect all of the members of SI Financial Group’s board of directors, and will be able to control the outcome of most matters presented to our stockholders for resolution by vote. The matters as to which stockholders other than SI Bancorp, MHC will be able to exercise voting control are limited and include any proposal to implement a stock-based incentive plan. No assurance can be given that SI Bancorp, MHC will not take action adverse to the interests of other stockholders. For example, SI Bancorp, MHC could prevent the sale of control of SI Financial Group or defeat a candidate for the board of directors of SI Financial Group or other proposals put forth by stockholders.

This offering does not preclude the conversion of SI Bancorp, MHC from the mutual to stock form of organization in the future. No assurance can be given when, if ever, SI Bancorp, MHC will convert to stock form or what conditions the Office of Thrift Supervision or other regulatory agencies may impose on such a transaction. See “Risk Factors” and “Summary– Possible Conversion of SI Bancorp, MHC to Stock Form.”

We Plan to Establish SI Financial Group Foundation

General. In furtherance of our commitment to our local community, the plan of reorganization and minority stock issuance provides that we will establish SI Financial Group Foundation as a nonstock Delaware corporation in connection with the stock offering. The foundation will be funded with SI Financial Group common stock, as described below. By further enhancing our visibility and reputation in our local community, we believe that the foundation will enhance the long-term value of our community banking franchise. The stock offering presents us with a unique opportunity to provide a substantial and continuing benefit to our community and to receive the associated tax benefits, without any significant cash outlay by us.

Purpose of the Charitable Foundation. We emphasize community lending and community activities. In 1998, we formed Savings Institute Foundation Inc., a charitable foundation that provides grants to public charities that are operated for religious, charitable, scientific, literary or educational purposes in the communities in which we operate. See “Our Business — Savings Institute Foundation, Inc.”

SI Financial Group Foundation is being formed to complement, not to replace, our existing community activities and our existing foundation’s activities. Although we intend to continue to emphasize community lending and community activities following the stock offering, such activities are not our sole corporate purpose.

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SI Financial Group Foundation will be dedicated completely to community activities and the promotion of charitable causes, and may be able to support such activities in manners that are not presently available to us. We believe that SI Financial Group Foundation will enable us to assist the communities within our market area in areas beyond community development and lending and will enhance our current activities under the Community Reinvestment Act.

We further believe that the funding of SI Financial Group Foundation with our common stock will allow our community to share in our potential growth and success long after the stock offering. SI Financial Group Foundation will accomplish that goal by providing for continued ties between it and us, thereby forming a partnership within the communities in which we operate.

We do not expect the contribution to SI Financial Group Foundation to take the place of our traditional community lending and charitable activities. For the three months ended March 31, 2004 and the year ended December 31, 2003, we contributed $6,600 and $49,000 to community organizations. We expect to continue making charitable contributions within our community. In connection with the closing of the offering, we intend to contribute to SI Financial Group Foundation 170,000 shares of our common stock at the midpoint of the offering range, valued at $1.7 million based on the offering price of $10.00 per share.

Structure of the Charitable Foundation. SI Financial Group Foundation will be incorporated under Delaware law as a non-stock corporation. The Certificate of Incorporation of SI Financial Group Foundation will provide that SI Financial Group Foundation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. The Certificate of Incorporation will further provide that no part of the net earnings of the foundation will inure to the benefit of, or be distributable to, its directors, officers or members.

We have selected five of our current officers and three of our current directors to serve on the initial board of directors of the foundation. As required by OTS regulations, we also will select one additional person to serve on the initial board of directors who will not be one of our officers or directors and who will have experience with local charitable organizations and grant making. While there are no plans to change the size of the initial board of directors during the year following the completion of the stock offering, following the first anniversary of the stock offering, the foundation may alter the size and composition of its board of directors. For five years after the stock offering, one seat on the foundation’s board of directors will be reserved for a person from our local community who has experience with local community charitable organizations and grant making and who is not one of our officers, directors or employees, and one seat on the foundation’s board of directors will be reserved for one of our directors.

The Board of Directors of SI Financial Group Foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a nonprofit corporation, directors of SI Financial Group Foundation will always be bound by their fiduciary duty to advance the foundation’s charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which the foundation is established. The directors of SI Financial Group Foundation also will be responsible for directing the activities of the foundation, including the management and voting of our common stock held by the foundation. However, as required by OTS regulations, all shares of common stock held by SI Financial Group Foundation must be voted in the same ratio as all other shares of the common stock on all proposals considered by our shareholders.

SI Financial Group Foundation’s place of business will be located at our administrative offices. The board of directors of SI Financial Group Foundation will appoint such officers and employees as may be necessary to manage its operations. To the extent applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and the OTS regulations governing transactions between us and the foundation.

SI Financial Group Foundation will receive working capital from: (1) any dividends that may be paid on our common stock in the future; (2) within the limits of applicable federal and state laws, loans collateralized by the common stock; or (3) the proceeds of the sale of any of the common stock in the open market from time to

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time. As a private foundation under Section 501(c)(3) of the Internal Revenue Code, SI Financial Group Foundation will be required to distribute annually in grants or donations a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of common stock by us is that the amount of common stock that may be sold by SI Financial Group Foundation in any one year shall not exceed 5% of the average market value of the assets held by SI Financial Group Foundation, except where the board of directors of the foundation determines that the failure to sell an amount of common stock greater than such amount would result in a long-term reduction of the value of its assets and/or would otherwise jeopardize its capacity to carry out its charitable purposes.

Tax Considerations. Our independent tax advisor has advised us that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified as a private foundation. SI Financial Group Foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as SI Financial Group Foundation files its application for tax-exempt status within 15 months from the date of its organization, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. Our independent tax advisor, however, has not rendered any advice on whether SI Financial Group Foundation’s tax exempt status will be affected by the regulatory requirement that all shares of our common stock held by SI Financial Group Foundation must be voted in the same ratio as all other outstanding shares of common stock on all proposals considered by our shareholders.

We are authorized under federal law to make charitable contributions. We believe that the stock offering presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact of the contribution of common stock to SI Financial Group Foundation on the amount of common stock to be sold in the stock offering. See “Capitalization,” “Historical and Pro Forma Regulatory Capital Compliance,” and “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.” The amount of the contribution will not adversely impact our financial condition. We therefore believe that the amount of the charitable contribution is reasonable given our pro forma capital position and does not raise safety and soundness concerns.

We have received an opinion from our independent tax advisor that our contribution of our stock to SI Financial Group Foundation should not constitute an act of self-dealing and that we should be entitled to a deduction in the amount of the fair market value of the stock at the time of the contribution less the nominal amount that SI Financial Group Foundation is required to pay us for such stock. We are permitted to deduct only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five year period following the contribution to SI Financial Group Foundation. We estimate that substantially all of the contribution should be deductible over the six-year period. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. Furthermore, even if the contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. We do not expect to make any further contributions to SI Financial Group Foundation within the first five years following the initial contribution, unless such contributions would be deductible under the Internal Revenue Code. Any such decisions would be based on an assessment of, among other factors, our financial condition at that time, the interests of our shareholders and depositors, and the financial condition and operations of the foundation.

Although we have received an opinion from our independent tax advisor that we should be entitled to a deduction for the charitable contribution, there can be no assurances that the Internal Revenue Service will recognize SI Financial Group Foundation as a Section 501(c)(3) exempt organization or that the deduction will be permitted. In such event, our contribution to SI Financial Group Foundation would be expensed without tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination.

As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains,

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is generally taxed at a rate of 2.0%. SI Financial Group Foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. SI Financial Group Foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation’s managers and a concise statement of the purpose of each grant.

Regulatory Conditions Imposed on the Charitable Foundation. Office of Thrift Supervision regulations will impose the following conditions on the establishment of SI Financial Group Foundation:

1. the Office of Thrift Supervision can examine the foundation;

2. the foundation must comply with all supervisory directives imposed by the Office of Thrift Supervision;

3. the foundation must provide annually to the Office of Thrift Supervision a copy of the annual report that the foundation submits to the IRS;

4. the foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy;

5. the foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt status under the Internal Revenue Code; and

6. the foundation must vote its shares in the same ratio as all of the other shares voted on each proposal considered by our shareholders.

In addition, within six months of completing the stock offering, SI Financial Group Foundation must submit to the Office of Thrift Supervision a three-year operating plan.

Effect on Liquidation Rights. In the unlikely event of a complete liquidation of Savings Institute prior to the completion of the offering, each depositor would receive a pro rata share of any assets of Savings Institute remaining after payment of expenses and satisfaction of claims of all creditors. Each depositor’s pro rata share of such liquidating distribution would be in the same proportion as the value of such depositor’s deposit account was to the total value of all deposit accounts in Savings Institute at the time of liquidation.

Upon a complete liquidation of Savings Institute after the offering, each depositor would have a claim as a creditor of the same general priority as the claims of all other general creditors of Savings Institute. However, except as described below, a depositor’s claim would be solely for the amount of the balance in such depositor’s deposit account plus accrued interest. Such depositor would not have an interest in the value or assets of Savings Institute above that amount. Instead, the holder of Savings Institute’s common stock (i.e., SI Financial Group) would be entitled to any assets remaining upon a liquidation of Savings Institute.

Upon a complete liquidation of SI Financial Group, the stockholders of SI Financial Group, including SI Bancorp, MHC, would be entitled to receive the remaining assets of SI Financial Group, following payment of all debts, liabilities and claims of greater priority of or against SI Financial Group.

If liquidation of SI Bancorp, MHC occurs following completion of the offering, all depositors of Savings Institute at that time will be entitled, pro rata, to the value of their deposit accounts, to a distribution of any assets of SI Bancorp, MHC remaining after payment of all debts and claims of creditors.

There are no plans to liquidate Savings Institute, SI Financial Group or SI Bancorp, MHC in the future.

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Material Income Tax Consequences

In connection with the stock offering we have received an opinion of counsel with respect to federal tax laws, and an opinion with respect to Connecticut tax laws, that no gain or loss will be recognized by Savings Institute, SI Financial Group or SI Bancorp, MHC as a result of the stock offering or by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinions summarized below address all material federal income tax consequences that are generally applicable to Savings Institute, SI Financial Group and SI Bancorp, MHC and persons receiving subscription rights.

Muldoon Murphy Faucette & Aguggia LLP has issued an opinion to Savings Institute that, for federal income tax purposes:

• with respect to SI Bancorp, MHC’s transfer of 100% of the common stock of Savings Institute to SI Financial Group, SI Financial Group will recognize no gain or loss upon its transfer of 100% of the common stock of Savings Institute from SI Bancorp, MHC and SI Bancorp, MHC will recognize no gain or loss upon its transfer of 100% of the common stock of Savings Institute from SI Bancorp, MHC to SI Financial Group;

• it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of SI Financial Group to be issued to eligible account holders, supplemental eligible account holders and other members is zero and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other members upon the issuance to them of the subscription rights or upon the exercise of the subscription rights;

• it is more likely than not that the tax basis to the holders of shares of common stock purchased in the stock offering pursuant to the exercise of the subscription rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the stock offering; and

• the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of the purchase.

The statements set forth in the second and third bullet points above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.

Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.

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SI Financial Group has also received an opinion from                     ,                 ,             , that, assuming the stock offering does not result in any federal income tax liability to Savings Institute, its account holders, or SI Financial Group, implementation of the plan of reorganization and minority stock issuance will not result in any Connecticut income tax liability to those entities or persons.

The opinions of Muldoon Murphy Faucette & Aguggia LLP and                     , are filed as exhibits to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Subscription Offering and Subscription Rights

Under the plan of reorganization and minority stock issuance, we have granted rights to subscribe for our common stock to the following persons in the following order of priority:

• Persons with deposits in Savings Institute with balances aggregating $50 or more (“qualifying deposits”) as of November 30, 2002 (“eligible account holders”). For this purpose, deposit accounts include all savings, time, and demand accounts.

• Our employee stock ownership plan.

• Persons with qualifying deposits in Savings Institute as of                     , 2004, other than our officers, directors and their associates (“supplemental eligible account holders”).

• Members of SI Bancorp, MHC as of                     , who are not eligible or supplemental eligible account holders (“other members”).

The amount of common stock that any person may purchase will depend on the availability of the common stock after satisfaction of all subscriptions having prior rights in the subscription offering and to the maximum and minimum purchase limitations set forth in the plan of reorganization and minority stock issuance. See “—Limitations on Purchases of Shares.” All persons on a joint account will be counted as a single depositor for purposes of determining the maximum amount that may be subscribed for by owners of a joint account.

We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.

Category 1: Eligible Account Holders. Subject to the $300,000 purchase limitation as described below under “—Limitations on Purchases of Shares,” each eligible account holder has the right to subscribe for up to the greater of:

• $200,000 of common stock (which equals 20,000 shares);

• one-tenth of 1% of the total offering of common stock to persons other than SI Bancorp, MHC; or

• 15 times the product, rounded down to the next whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders. The balance of qualifying deposits of all eligible account holders was $                     million.

If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account

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holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled. Subscription rights of eligible account holders who are also executive officers or directors of Savings Institute or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Savings Institute in the one year period preceding November 30, 2002.

To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which such eligible account holder had an ownership interest at November 30, 2002. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 2: Tax-Qualified Employee Benefit Plans. Our tax-qualified employee benefit plans have the right to purchase up to 10% of the shares of common stock sold in the offering, including shares issued to SI Financial Group Foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 3.36% of the shares of common stock issued in the offering, including shares issued to SI Bancorp, MHC and contributed to SI Financial Group Foundation. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of reorganization and minority stock issuance. If we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to 10% of the common stock issued in the offering to persons other than SI Bancorp, MHC. If the plan’s subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the Office of Thrift Supervision.

Category 3: Supplemental Eligible Account Holders. Subject to the $300,000 purchase limitation as described below under “—Limitations on Purchases of Shares,” each supplemental eligible account holder has the right to subscribe for up to the greater of:

• $200,000 of common stock (which equals 20,000 shares);

• one-tenth of 1% of the total offering of common stock to persons other than SI Bancorp, MHC; or

• 15 times the product, rounded down to the next whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders. The balance of qualifying deposits of all supplemental eligible account holders was $                     million.

If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at                     , 2004. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

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Category 4: Other Members. Each other member has the right to purchase up to the greater of $200,000 of common stock (which equals 20,000 shares) or one-tenth of 1% of the total offering of common stock issued to persons other than SI Bancorp, MHC. Other members refer to holders of savings, demand or other authorized accounts of Savings Institute as of the close of business on the last business day of the month before the month in which the plan of reorganization and minority stock issuance is approved by the Office of Thrift Supervision. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other members. If shares are available for other members but there are not sufficient shares to satisfy all subscriptions by other members, shares first will be allocated so as to permit each subscribing other member, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other members in the proportion that each other member’s subscription bears to the total subscriptions of all such subscribing other members whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each other member must list on his or her stock order form all deposit accounts in which such other member had an ownership interest at             , 2004. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation.

Expiration Date for the Subscription Offering. The subscription offering, and all subscription rights under the plan of reorganization and minority stock issuance will terminate at 12:00 Noon, Eastern time, on [DATE 1]. We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights, however all subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights.

Office of Thrift Supervision regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our passbook rate and all withdrawal authorizations will be canceled unless we receive approval of the Office of Thrift Supervision to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be returned promptly with interest, or withdrawal authorizations will be canceled. No single extension can exceed 90 days, and all extensions in the aggregate may not last beyond [DATE 3].

Persons in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of reorganization and minority stock issuance reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that state’s securities laws would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares. Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of reorganization and minority stock issuance or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any

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person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.

If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the Office of Thrift Supervision or another agency of the U.S. Government. We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights and will not honor orders known by us to involve the transfer of such rights.

Community Offering

To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may offer shares in a community offering to the following persons in the following order of priority:

• Borrowers of Savings Institute as of the close of business on the last business day of the month immediately preceding the month in which the Office of Thrift Supervision approves the plan of reorganization and minority stock issuance.

• Natural persons and trusts of natural persons who are residents of Hartford, New London, Tolland and Windham Counties, Connecticut; and

• Other persons to whom we deliver a prospectus.

We will consider persons residing in one of the specified counties if they occupy a dwelling in the county and establish an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident. In all cases, the determination of residence status will be made by us in our sole discretion.

Purchasers in the community offering are eligible to purchase up to $200,000 of common stock (which equals 20,000 shares). If not enough shares are available to fill orders in the community offering, the available shares will be allocated first to each subscriber whose order we accept in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such subscriber, if possible. After that, unallocated shares will be allocated among such subscribers whose orders remain unsatisfied in the same proportion that the unfilled order of each such subscriber bears to the total unfilled orders of all such subscribers.

The community offering, if held, may commence concurrently with or subsequent to the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the Office of Thrift Supervision. If we receive regulatory approval for an extension, all subscribers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be promptly returned with interest.

The opportunity to subscribe for shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

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Syndicated Community Offering

The plan of reorganization and minority stock issuance provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering through a syndicate of registered broker-dealers to be formed and managed by Sandler O’Neill, acting as our agent. Alternatively, we may sell any remaining shares in an underwritten public offering. However, we retain the right to accept or reject, in whole or in part, any orders in the syndicated community offering or underwritten public offering. Neither Sandler O’Neill nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Sandler O’Neill has agreed to use its best efforts in the sale of shares in any syndicated community offering. We have not selected any particular broker-dealers to participate in a syndicated community offering. The syndicated community offering would terminate no later than 45 days after the expiration of the subscription offering, unless extended by us, with approval of the Office of Thrift Supervision. See “—Community Offering” above for a discussion of rights of subscribers in the event an extension is granted.

Common stock sold in the syndicated community offering will be sold at a purchase price per share which is the same price as all other shares being offered in the offering. Orders for common stock in the syndicated community offering will be filled first to a maximum of 2% of the total number of shares sold in the offering and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares will be issued. We may begin the syndicated community offering or underwritten public offering at any time following the commencement of the subscription offering.

The opportunity to subscribe for shares of common stock in the syndicated community offering or underwritten public offering is subject to our right in our sole discretion to accept or reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

Stock sold in the syndicated community offering also will be sold at the $10.00 per share purchase price. Purchasers in the syndicated community offering are eligible to purchase up to $200,000 of common stock (which equals 20,000 shares). See “—How We Determined the Offering Range and the $10.00 Purchase Price.”

If we are unable to find purchasers from the general public for all unsubscribed shares, we will make other purchase arrangements, if feasible. Other purchase arrangements must be approved by the Office of Thrift Supervision and may provide for purchases for investment purposes by directors, officers, their associates and other persons in excess of the limitations provided in the plan of reorganization and minority stock issuance and in excess of the proposed director purchases discussed earlier, although no purchases are currently intended. If other purchase arrangements cannot be made, the plan of reorganization and minority stock issuance will terminate.

Plan of Distribution and Marketing Arrangements

Offering materials have been initially distributed to certain persons by mail, with additional copies made available through our stock information center and Sandler O’Neill. All prospective purchasers are to send payment directly to Savings Institute, where such funds will be held in a segregated savings account and not released until the offering is completed or terminated.

We have engaged Sandler O’Neill, a broker-dealer registered with the NASD, as a financial and marketing advisor in connection with the offering of our common stock. In its role as financial and marketing advisor, Sandler O’Neill will assist us in the offering as follows:

(1) consulting as to the securities marketing implications of any aspect of the plan of reorganization and minority stock issuance or related corporate documents;

(2) reviewing with our Board of Directors the financial and securities marketing implications of the independent appraiser’s appraisal of the common stock;

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(3) reviewing all offering documents, including the prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);

(4) assisting in the design and implementation of a marketing strategy for the offering;

(5) assisting us in preparing for meetings with potential investors and broker-dealers; and

(6) providing such other general advice and assistance regarding financial and marketing aspects of the offering.

For these services, Sandler O’Neill will receive a fee of 1.0% of the aggregate dollar amount of the common stock sold in the offering, excluding shares sold to the employee stock ownership plan, to the foundation and to our officers, employees and directors and their immediate families. If there is a syndicated community offering, Sandler O’Neill will receive a management fee of 1.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering. The total fees payable to Sandler O’Neill and other NASD member firms in the syndicated community offering shall not exceed 7.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering.

We also will reimburse Sandler O’Neill for its legal fees and expenses associated with its marketing effort, up to a maximum of $50,000. If the plan of reorganization and minority stock issuance is terminated or if Sandler O’Neill terminates its agreement with us in accordance with the provisions of the agreement, Sandler O’Neill will only receive reimbursement of its reasonable out-of-pocket expenses. We will indemnify Sandler O’Neill against liabilities and expenses (including legal fees) incurred in connection with certain claims or liabilities arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933.

We have also engaged Sandler O’Neill to act as conversion agent in connection with the offering. In its role as conversion agent, Sandler O’Neill will assist us in the offering as follows: (1) consolidation of accounts and development of a central file; (2) preparation of order and/or request forms; (3) organization and supervision of the stock information center; and (4) subscription services. For these services, Sandler O’Neill will receive a fee of $25,000 and reimbursement for its reasonable out-of-pocket expenses. We have made an advance payment of $5,000 to Sandler O’Neill for these services.

Sandler O’Neill has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the stock to be sold. Sandler O’Neill expresses no opinion as to the prices at which common stock to be issued may trade.

Our directors and executive officers may participate in the solicitation of offers to purchase common stock. Other trained employees may participate in the offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to executive officers or registered representatives. We will rely on Rule 3a4-1 of the Exchange Act, so as to permit officers, directors, and employees to participate in the sale of the common stock. No officer, director, or employee will be compensated for his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the common stock.

Procedure for Purchasing Shares in the Subscription and Community Offerings

Use of Order Forms. To purchase shares in the subscription offering, you must submit a properly completed and executed order form to us by 12:00 Noon, Eastern time, on [DATE 1]. Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account with Savings Institute. To

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purchase shares in the community offering, you must submit a properly completed and executed order form to us, accompanied by the required payment for each share subscribed for, before the community offering terminates, which may be on, or at any time after, the end of the subscription offering. Our interpretation of the terms and conditions of the plan of reorganization and minority stock issuance and of the acceptability of the order forms will be final.

To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account, the account number and the approximate account balance as of the appropriate eligibility date. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.

We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. In addition, we are not obligated to accept orders submitted on photocopied or facsimiled stock order forms. We have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that we will do so. Under the plan of reorganization and minority stock issuance, our interpretation of the terms and conditions of the plan of reorganization and minority stock issuance and of the order form will be final. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering, unless extended.

The reverse side of the order form contains a regulatorily mandated certification form. We will not accept order forms where the certification form is not executed. By executing and returning the certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.

To ensure that each purchaser receives a prospectus at least 48 hours before the end of the offering, as required by Rule 15c2-8 under the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days before that date or hand delivered any later than two days before that date. Execution of the order form will confirm receipt or delivery under Rule 15c2-8. Order forms will be distributed only when preceded or accompanied by a prospectus.

Payment for Shares. Payment for subscriptions may be made by check, bank draft or money order, or by authorization of withdrawal from deposit accounts maintained with Savings Institute. Appropriate means by which withdrawals may be authorized are provided on the order form. No wire transfers or third party checks will be accepted. Orders submitted by subscribers that total $50,000 or more must be paid by official bank certified check, a check issued by a NASD-registered broker-dealer or by withdrawal authorization from a deposit account maintained with Savings Institute. Interest will be paid on payments made by check, bank draft or money order at our passbook rate from the date payment is received at the stock information center until the completion or termination of the offering. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, unless the certificate matures after the date of receipt of the order form but before closing or termination of the offering, in which case funds will earn interest at the passbook rate from the date of maturity until the offering is completed or terminated, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the funds received in the offering will be used to purchase the shares of common stock ordered. The shares of common stock issued in the offering cannot and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest as described above.

If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for

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payment at the time the subscription order is received. We will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our passbook rate.

The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but rather may pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.

Our individual retirement accounts (IRAs) do not permit investment in common stock. A depositor interested in using his or her IRA funds to purchase common stock must do so through a self-directed IRA. Since we do not offer those accounts, we will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that the funds will be used to purchase our common stock in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositor’s IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in an IRA with us to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. In addition, federal laws and regulations require that officers, directors and 10% shareholders who use self-directed IRA funds to purchase shares of common stock in the subscription offering, make purchases for the exclusive benefit of IRAs.

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How We Determined the Offering Range and the $10.00 Purchase Price

Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value on a fully converted basis (i.e., taking into account the expected receipt of proceeds from the sale of securities in the offering), as determined by an independent appraisal. We have retained Keller & Company, Inc., which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. Keller & Company will receive fees totaling $23,000 for its appraisal services, plus reasonable out-of-pocket expenses. We have agreed to indemnify Keller & Company under certain circumstances against liabilities and expenses, including legal fees, arising out of, related to, or based upon the offering.

Keller & Company prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, Keller & Company undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, Keller & Company reviewed our stock issuance application as filed with the Office of Thrift Supervision and our registration statement as filed with the Securities and Exchange Commission. Furthermore, Keller & Company visited our facilities and had discussions with our management. Keller & Company did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on Keller & Company in connection with its appraisal.

In connection with its appraisal, Keller & Company reviewed the following factors, among others:

• the economic make-up of our primary market area;

• our financial performance and condition in relation to publicly traded companies that Keller & Company deemed comparable to us;

• the specific terms of the offering of our common stock;

• the pro forma impact of the additional capital raised in the reorganization;

• our proposed dividend policy;

• conditions of securities markets in general; and

• the market for thrift institution common stock in particular.

Consistent with Office of Thrift Supervision appraisal guidelines, Keller & Company’s analysis utilized three selected valuation procedures, the price book method, the price/core earnings method, and price/assets method, all of which are described in its report. Keller & Company’s appraisal report is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.” Keller & Company placed the greatest emphasis on the price/core earnings and price book methods in estimating pro forma market value. Keller & Company compared the pro forma price book and price/core earnings ratios for SI Financial Group to the same ratios for a peer group of comparable companies. The peer group consisted of ten publicly traded companies based in the New England, Mid-Atlantic and Midwestern United States. The peer group included companies with:

• average assets of $812.1 million;

• average non-performing assets of 0.68% of total assets;

• average net loans of 74.5% of total assets;

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• average equity of 10.5% of total assets; and

• average core income of 0.91% of average assets.

On the basis of the analysis in its report, Keller & Company has advised us that, in its opinion, as of May 21, 2004, our estimated pro forma market value on a fully converted basis was within the valuation range of $72.2 million and $97.8 million with a midpoint of $85.0 million and that the estimated pro forma market value of our shares of common stock held by persons other than SI Bancorp, MHC and SI Financial Group Foundation, was within the valuation range of $28.9 million to $39.1 million with a midpoint of $34.0 million. As a result, we established the offering range of $28.9 million to $39.1 million, with a midpoint of $34.0 million. Our Board of Directors reviewed Keller & Company’s appraisal report, including the methodology and the assumptions used by Keller & Company, and determined that the offering range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the offering, the estimated number of shares issued in the offering would be between 7,225,000 and 9,775,000, with a midpoint of 8,500,000 and the estimated number of shares issued to persons other than SI Bancorp, MHC and SI Financial Group Foundation would be between 2,890,000 and 3,910,000 with a midpoint of 3,400,000. The purchase price of $10.00 per share was determined by discussion among us and Sandler O’Neill, taking into account, among other factors, the requirement under Office of Thrift Supervision regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.

Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the Office of Thrift Supervision, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.

If, upon completion of the subscription offering, at least the minimum number of shares are subscribed for, Keller & Company, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering.

No shares will be sold unless Keller & Company confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, the offering may be canceled, a new offering range and price per share set and new subscription, community and syndicated community offerings held. Under those circumstances, subscribers would have the right to confirm, modify or cancel their subscriptions within a specified period of time or else their subscription would be cancelled. If the offering is terminated all subscriptions will be cancelled and subscription funds will be returned promptly with interest, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced.

Depending on market and financial conditions, the number of shares sold to persons other than SI Bancorp, MHC and SI Financial Group Foundation may be more than 4,496,500 shares or less than 2,890,000 shares. If the total amount of shares sold to persons other than SI Bancorp, MHC and SI Financial Group Foundation is less than 2,890,000 or more than 4,496,500 (15% above the maximum of the offering range), for aggregate gross proceeds of less than $28.9 million or more than $45.0 million, subscription funds will be returned promptly with interest to each subscriber unless he or she indicates otherwise. If Keller & Company establishes a new valuation range, it must be approved by the Office of Thrift Supervision.

In formulating its appraisal, Keller & Company relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. Keller & Company also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While Keller & Company believes this information to be reliable, Keller & Company does not guarantee the accuracy or completeness of the information and did not independently verify the financial statements and other data provided by us or independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted

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as, a recommendation of any kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.

Copies of the appraisal report of Keller & Company, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under “Where You Can Find More Information.”

Limitations on Purchases of Shares

In addition to the purchase limitations described above under “—Subscription Offering and Subscription Rights,” “—Community Offering” and “—Syndicated Community Offering,” the plan of reorganization and minority stock issuance provides for the following purchase limitations:

• The aggregate amount of our outstanding common stock owned or controlled by persons other than SI Bancorp, MHC at the close of the offerings shall be less than 50.1% of our total outstanding common stock.

• Except for our tax-qualified employee stock benefit plans, no person, either alone or together with associates of or persons acting in concert with such person, may purchase in the aggregate more than $300,000 of the common stock sold in the offering to persons other than SI Bancorp, MHC (which equals 30,000 shares), subject to increase as described below.

• Each subscriber must subscribe for a minimum of 25 shares.

• The aggregate amount of common stock acquired in the offerings, by any non-tax-qualified employee stock benefit plan or any management person and his or her associates, exclusive of any shares of common stock acquired by such plan or management person and his or her associates in the secondary market, shall not exceed 4.9% of the (i) outstanding shares of common stock at the conclusion of the offerings or (ii) the stockholders’ equity of SI Financial Group at the conclusion of the offerings. In calculating the number of shares held by management persons and their associates, shares held by any tax-qualified or non-tax qualified employee stock benefit plan that are attributable to such person will not be counted.

• The aggregate amount of common stock acquired in the offerings by all of our stock benefit plans other than employee stock ownership plans, shall not exceed 25% of the outstanding common stock held by persons other than SI Bancorp, MHC.

• The aggregate amount of common stock acquired in the offerings, by any one or more tax-qualified employee stock benefit plans, exclusive of any shares of common stock acquired by such plans in the secondary market, shall not exceed 4.9% of (i) the outstanding shares of common stock at the conclusion of the offerings or (ii) the stockholders’ equity of SI Financial Group at the conclusion of the offerings.

• The aggregate amount of common stock acquired in the offerings by all of our stock benefit plans other than employee stock ownership plans, shall not exceed 25% of the outstanding common stock held by persons other than SI Bancorp, MHC.

• The aggregate amount of common stock acquired in the offerings, by all non-tax-qualified employee stock benefit plans or management persons and their associates, exclusive of any common stock acquired by such plans or management persons and their associates in the secondary market, shall not exceed 34% of (i) the outstanding shares of common stock held by persons other than SI Bancorp, MHC at the conclusion of the offering or (ii) the stockholders’ equity of SI Financial Group held by persons other than the SI Bancorp, MHC at the conclusion of the offerings.

We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offerings to persons other than SI Bancorp, MHC. We do not intend to increase the maximum purchase limitation unless market conditions warrant an increase in the maximum purchase limitation and the sale of a number of shares in excess of the minimum of the offering range. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights. We, in our discretion, also may give other large subscribers the right to increase their subscriptions.

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The plan of reorganization and minority stock issuance defines “acting in concert” to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement or understanding; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose under any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships and the fact that persons may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. For purposes of the plan of reorganization and minority stock issuance, our directors are not deemed to be acting in concert solely by reason of their Board membership.

The plan of reorganization and minority stock issuance defines “associate,” with respect to a particular person, to mean:

• any corporation or organization other than SI Bancorp, MHC, SI Financial Group or Savings Institute or a majority-owned subsidiary of SI Bancorp, MHC, SI Financial Group or Savings Institute of which a person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities;

• any trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as trustee or in a similar fiduciary capacity; and

• any relative or spouse of a person, or any relative of a spouse, who either has the same home as a person or who is a director or officer of SI Bancorp, MHC, SI Financial Group or Savings Institute or any of their subsidiaries.

For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the purchase limitations described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of reorganization and minority stock issuance. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”

Delivery of Certificates

Certificates representing the common stock sold in the offering will be mailed by our transfer agent to the persons whose subscriptions or orders are filled at the addresses of such persons appearing on the stock order form as soon as practicable following completion of the offering. We will hold certificates returned as undeliverable until claimed by the persons legally entitled to the certificates or otherwise disposed of in accordance with applicable law. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock may have commenced.

Restrictions on Repurchase of Stock

Under Office of Thrift Supervision regulations, we may not for a period of one year from the date of the completion of the offering repurchase any of our common stock from any person, except (1) in an offer made to all shareholders to repurchase the common stock on a pro rata basis, approved by the Office of Thrift Supervision, (2) the repurchase of qualifying shares of a director, or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the Office of Thrift Supervision may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Office of Thrift Supervision. Furthermore, repurchases of any common stock are prohibited if

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they would cause Savings Institute’s regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Office of Thrift Supervision.

Restrictions on Transfer of Shares After the Reorganization Applicable to Officers and Directors

Common stock purchased in the offering will be freely transferable, except for shares purchased by our directors and executive officers.

Shares of common stock purchased by our directors and executive officers may not be sold for a period of one year following the offering, except upon the death of the shareholder or unless approved by the Office of Thrift Supervision. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.

Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Savings Institute as account holders. While this aspect of the offering makes it difficult, if not impossible, for insiders to purchase stock for the explicit purpose of meeting the minimum of the offering, any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, Office of Thrift Supervision regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.

Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of reorganization and minority stock issuance, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued in the offering. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.

Interpretation, Amendment and Termination

To the extent permitted by law, all interpretations by us of the plan of reorganization and minority stock issuance will be final; however, such interpretations have no binding effect on the Office of Thrift Supervision. The plan of reorganization and minority stock issuance provides that, if deemed necessary or desirable, we may substantively amend the plan of reorganization and minority stock issuance as a result of comments from regulatory authorities or otherwise.

Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of reorganization and minority stock issuance by the Office of Thrift Supervision, unless an extension is granted by the Office of Thrift Supervision. If this condition is not satisfied, the plan of reorganization

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and minority stock issuance will be terminated and we will continue our business. We may terminate the plan of reorganization and minority stock issuance at any time.

Restrictions on Acquisition of SI Financial Group and Savings Institute

General

Certain provisions in the charter and bylaws of SI Financial Group may have antitakeover effects. In addition, regulatory restrictions may make it more difficult for persons or companies to acquire control of us.

Mutual Holding Company Structure

SI Financial Group owns all of the issued and outstanding common stock of Savings Institute. Following completion of the offering, SI Bancorp, MHC will own a majority of the issued and outstanding common stock of SI Financial Group. As a result, management of SI Bancorp, MHC is able to exert voting control over SI Financial Group and Savings Institute and will restrict the ability of the minority stockholders of SI Financial Group to effect a change of control of management. SI Bancorp, MHC, as long as it remains in the mutual form of organization, will control a majority of the voting stock of SI Financial Group.

Charter and Bylaws of SI Financial Group

Although our Board of Directors is not aware of any effort that might be made to obtain control of us after the offering, the Board of Directors believed it appropriate to adopt certain provisions permitted by federal regulations that may have the effect of deterring a future takeover attempt that is not approved by our Board of Directors. The following description of these provisions is only a summary and does not provide all of the information contained in our charter and bylaws. See “Additional Information” as to where to obtain a copy of these documents.

Limitation on Voting Rights. Our charter provides that no person, except SI Bancorp, MHC or a tax-qualified employee stock benefit plan of ours, may directly or indirectly acquire the beneficial ownership of more than 10% of any class of an equity security of ours for a period of five years following the offering. In the event shares are acquired in excess of 10%, those shares will be considered “excess shares” and will not be counted as shares entitled to vote.

Board of Directors.

Classified Board. Our Board of Directors is divided into three classes, each of which contains approximately one-third of the number of directors. The stockholders elect one class of directors each year for a term of three years. The classified Board makes it more difficult and time consuming for a stockholder group to fully use its voting power to gain control of the Board of Directors without the consent of the incumbent Board of Directors.

Filling of Vacancies; Removal. The bylaws provide that any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of a majority of the directors then in office. A person elected to fill a vacancy on the Board of Directors will serve until the next election of directors. Our bylaws provide that a director may be removed from the Board of Directors before the expiration of his or her term only for cause and only upon the vote of a majority of the outstanding shares of voting stock. These provisions make it more difficult for stockholders to remove directors and replace them with their own nominees.

Qualification. The bylaws provide that no person will be eligible to serve on the Board of Directors who has in the past 10 years been subject to a supervisory action by a financial regulatory agency that involved

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dishonesty or breach of trust or other bad actions, has been convicted of a crime involving dishonesty or breach of trust that is punishable by a year or more in prison, or is currently charged with such a crime, or has been found by a regulatory agent or a court to have breached a fiduciary duty involving personal profit or committed a wilful violation of any law governing banking securities or insurance. These provisions may prevent stockholders from nominating themselves or persons of their choosing for election to the Board of Directors.

Shareholder Action by Written Consent; Special Meetings of Shareholders. Our shareholders must act only through an annual or special meeting or by unanimous written consent. Our charter provides that for a period of five years following the offering, special meetings of shareholders relating to a change in control of us or amendments to our charter may be called only upon direction of the Board of Directors. Subject to this restriction, the bylaws provide that holders of not less than 10% of our outstanding shares may request the calling of a special meeting. At a special meeting, shareholders may consider only the business specified in the notice of meeting given by us. The provisions of our charter and bylaws limiting shareholder action by written consent and calling of special meetings of shareholders may have the effect of delaying consideration of a shareholder proposal until the next annual meeting, unless a special meeting is called at the request of a majority of the Board of Directors or holders of not less than 10% of our outstanding shares. These provisions also would prevent the holders of a majority of common stock from unilaterally using the written consent procedure to take shareholder action.

Advance Notice Provisions for Shareholder Nominations and Proposals. Our bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders. A person may not be nominated for election as a director unless that person is nominated by or at the direction of our Board of Directors or by a shareholder who has given appropriate notice to us before the meeting. Similarly, a shareholder may not bring business before an annual meeting unless the shareholder has given us appropriate notice of its intention to bring that business before the meeting. Our Secretary must receive notice of the nomination or proposal not less than 30 days before the annual meeting. A shareholder who desires to raise new business must provide us with certain information concerning the nature of the new business, the shareholder and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide us with certain information concerning the nominee and the proposing shareholder.

Advance notice of nominations or proposed business by shareholders gives our Board of Directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by our Board of Directors, to inform shareholders and make recommendations about those matters.

Authorized but Unissued Shares of Capital Stock. Following the offering, we will have authorized but unissued shares of common and preferred stock. Our charter authorizes the Board of Directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Although such shares of common and preferred stock could be issued by the Board of Directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, it is anticipated that such uses will be unlikely given that SI Bancorp, MHC must always own a majority of our common stock.

Regulatory Restrictions

Office of Thrift Supervision Regulations. Office of Thrift Supervision regulations provide that for a period of three years following the date of the completion of the offering, no person, acting singly or together with associates in a group of persons acting in concert, will directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of our class of our equity securities of without the prior written approval of the Office of Thrift Supervision. Where any person, directly or indirectly, acquires beneficial ownership of more than 10% of our class of any equity securities without the prior written approval of the Office of Thrift Supervision, the securities beneficially owned by such person in excess of 10% will not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote, and will not be counted as

118

outstanding for purposes of determining the affirmative vote necessary to approve any matter submitted to the stockholders for a vote.

Change in Bank Control Act. The acquisition of 10% or more of our outstanding common stock may trigger the provisions of the Change in Bank Control Act. The Office of Thrift Supervision has also adopted a regulation under the Change in Bank Control Act which generally requires persons who at any time intend to acquire control of a federally chartered savings association or its holding company to provide 60 days prior written notice and certain financial and other information to the Office of Thrift Supervision.

The 60-day notice period does not commence until the information is deemed to be substantially complete. Control for these purposes exists in situations in which the acquiring party has voting control of at least 25% of any class of our voting stock or the power to direct our management or policies. However, under Office of Thrift Supervision regulations, control is presumed to exist where the acquiring party has voting control of at least 10% of any class of our voting securities if specified “control factors” are present. The statute and underlying regulations authorize the Office of Thrift Supervision to disapprove a proposed acquisition on certain specified grounds.

Description of SI Financial Group Capital Stock

Our common stock will represent nonwithdrawable capital, will not be an account of any type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

General

We are authorized to issue 75,000,000 shares of common stock having a par value of $.01 per share and 1,000,000 shares of preferred stock having a par value of $.01 per share. Each share of our common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock, as required by the plan of reorganization and minority stock issuance, all stock will be duly authorized, fully paid and nonassessable. We will not issue any shares of preferred stock in the offering.

Common Stock

Dividends. We can pay dividends if, as and when declared by our Board of Directors. The payment of dividends is limited by law and applicable regulation. See “Our Dividend Policy.” The holders of our common stock will be entitled to receive and share equally in dividends as may be declared by the Board of Directors out of funds legally available for dividends. If we issue preferred stock, the holders of the preferred stock may have a priority over the holders of the common stock with respect to dividends.

Voting Rights. After the offering, the holders of our common stock will possess exclusive voting rights in us. They will elect our Board of Directors and act on other matters as are required to be presented to them under federal law or as are otherwise presented to them by the Board of Directors. Except as discussed in “Restrictions on Acquisition of SI Financial Group and Savings Institute,” each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If we issue preferred stock, holders of SI Financial Group preferred stock may also possess voting rights.

Liquidation. If there is any liquidation, dissolution or winding up of Savings Institute, SI Financial Group, as the holder of Savings Institute’s capital stock, would be entitled to receive all of Savings Institute’s assets available for distribution after payment or provision for payment of all debts and liabilities of Savings

119

Institute, including all deposit accounts and accrued interest. Upon liquidation, dissolution or winding up of SI Financial Group, the holders of its common stock would be entitled to receive all of the assets of SI Financial Group available for distribution after payment or provision for payment of all its debts and liabilities. If SI Financial Group issues preferred stock, the preferred stock holders may have a priority over the holders of the common stock upon liquidation or dissolution.

Preemptive Rights; Redemption. Holders of our common stock will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.

Preferred Stock

We will not issue any preferred stock in the offering and we have no current plans to issue any preferred stock after the offering. Preferred stock may be issued with designations, powers, preferences and rights as the Board of Directors may from time to time determine. The Board of Directors can, without shareholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Registrar and Transfer Company, Cranford, New Jersey.

Registration Requirements

We have registered our common stock with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934, as amended, and will not deregister our common stock for a period of at least three years following the offering. As a result of registration, the proxy and tender offer rules, insider trading reporting and restrictions, annual and periodic reporting and other requirements of that statute will apply.

Legal and Tax Opinions

The legality of our common stock has been passed upon for us by Muldoon Murphy Faucette & Aguggia LLP, Washington, D.C. The federal tax consequences of the stock offering have been opined upon by Muldoon Murphy Faucette & Aguggia LLP and the state tax consequences of the stock offering have been opined upon by             ,             ,             . Muldoon Murphy Faucette & Aguggia LLP and              have consented to the references to their opinion in this prospectus. Certain legal matters will be passed upon for Sandler O’Neill by Tyler Cooper & Alcorn, LLP, Hartford, Connecticut.

Experts

The consolidated financial statements appearing in this prospectus and registration statement have been audited by McGladrey & Pullen, LLP, independent registered public accountants to the extent and for the periods indicated in their report appearing elsewhere and are included in reliance upon such report and upon the authority of such Firm as experts in accounting and auditing.

Keller & Company, Inc. has consented to the summary in this prospectus of its report to us setting forth its opinion as to our estimated pro forma market value, as converted, and to the use of its name and statements with respect to it appearing in this prospectus.

120

Where You Can Find More Information

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, that registers the common stock sold in the stock offering, including the shares to be contributed to SI Financial Group Foundation. The registration statement, including the exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the Securities and Exchange Commission allow us to omit certain information included in the registration statement from this prospectus. You may read and copy the registration statement at the Securities and Exchange Commission’s public reference room at 450 Fifth Street, N.W., Washington, D.C. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the Securities and Exchange Commission’s public reference rooms. The registration statement also is available to the public from commercial document retrieval services and at the Internet World Wide Website maintained by the Securities and Exchange Commission at “http://www.sec.gov.”

Savings Institute has filed an application for approval of the plan of reorganization and minority stock issuance with the Office of Thrift Supervision. This prospectus omits certain information contained in the application. The applications may be inspected, without charge, at the offices of the Office of Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the offices of the Regional Director of the Office of Thrift Supervision at the Northeast Regional Office of the Office of Thrift Supervision, 10 Exchange Place Center, 18^th Floor, Jersey City, New Jersey 07302.

A copy of the plan of reorganization and minority stock issuance and our charter and bylaws are available without charge.

121

Index to Consolidated Financial Statements

SI Bancorp, MHC

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statements of Financial Condition as of March 31, 2004 (unaudited) and December 31, 2003 and 2002	F-2
Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 (unaudited) and for the Years Ended December 31, 2003, 2002 and 2001	F-3
Consolidated Statements of Changes in Capital Accounts for the Three Months Ended March 31, 2004 (unaudited) and for the Years Ended December 31, 2003, 2002 and 2001	F-4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (unaudited) and for the Years Ended December 31, 2003, 2002 and 2001	F-5
Notes to Consolidated Financial Statements	F-6

* * *

All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes.

Separate financial statements for SI Financial Group have not been included in this prospectus because SI Financial Group, which has engaged only in organizational activities to date, has no significant assets, contingent or other liabilities, revenues or expenses.

122

McGladrey & Pullen

Certified Public Accountants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

SI Bancorp, Inc. and Subsidiaries

Willimantic, Connecticut

We have audited the accompanying consolidated statements of financial condition of SI Bancorp, Inc. and Subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in capital accounts and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SI Bancorp, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

/S/ McGladrey & Pullen, LLP

New Haven, Connecticut

February 12, 2004

McGladrey & Pullen, LLP is a member firm of RSM International,

an affiliation of separate and independent legal entities.

F-1

SI BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, 2004 (Unaudited) and December 31, 2003 and 2002 (Dollars in Thousands)

	March 31, 2004 (Unaudited)		December 31,
			2003		2002
ASSETS
Cash and due from banks (Note 2):
Noninterest bearing deposits and cash	$	19,007	$	20,336	$	18,827
Interest bearing deposits		3,865		4,441		5,290
Federal funds sold		13,900		4,800		13,400
Cash and cash equivalents		36,772		29,577		37,517
Available for sale securities (at fair value) (Note 4)		81,396		77,693		87,914
Held to maturity securities, at cost (fair value $1,497 at March 31, 2004, $1,344 at December 31, 2003 and $8,985 at December 31, 2002) (Note 4)		1,688		1,728		9,463
Loans held for sale		—		—		1,939
Loans receivable (net of allowances for loan losses of $2,835 at March 31, 2004, $2,688 at December 31, 2003 and $3,067 at December 31, 2002) (Note 5)		394,697		386,924		334,598
Accrued interest receivable		2,311		2,238		2,293
Federal Home Loan Bank Stock, at cost (Note 9)		3,350		2,858		2,386
Cash surrender value of bank-owned life insurance (Note 11)		7,344		7,258		—
Other real estate owned (Note 6)		328		328		43
Deferred tax asset, net (Note 10)		511		601		411
Bank premises and equipment, net (Note 7)		6,519		6,675		6,095
Core deposit intangible (Note 3)		365		389		486
Other assets (Note 9)		2,129		1,872		1,799
Total assets	$	537,410	$	518,141	$	484,944
LIABILITIES AND CAPITAL
Liabilities
Deposits (Note 8):
Noninterest bearing	$	38,812	$	40,371	$	37,624
Interest bearing		385,795		374,719		358,726
Total deposits		424,607		415,090		396,350
Mortgagors’ and investors’ escrow accounts		992		2,221		1,965
Accrued expenses and other liabilities (Note 11)		4,518		2,346		2,135
Advances from the Federal Home Loan Bank (Note 9)		64,997		57,168		43,918
Collateralized borrowings		—		—		1,951
Subordinated debt (Note 9)		7,217		7,217		7,217
Total liabilities		502,331		484,042		453,536
Commitments and contingencies (Notes 12, 14 and 18)
Capital (Note 15)
Surplus		1,000		1,000		1,000
Undivided profits (Note 10)		33,386		32,582		29,197
Accumulated other comprehensive income - net unrealized gain on available for sale securities, net of taxes (Note 16)		693		517		1,211
Total capital		35,079		34,099		31,408
Total liabilities and capital	$	537,410	$	518,141	$	484,944

See Notes to Consolidated Financial Statements.

F-2

SI BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2004 and 2003 (Unaudited) and

Years Ended December 31, 2003, 2002 and 2001 (Dollars in Thousands)

	(Unaudited) Three Months Ended March 31,					Years Ended December 31,
	2004			2003		2003		2002			2001
Interest and Dividend Income
Interest and fees on loans	$	5,910		$	5,877	$	23,840	$	23,033		$	22,253
Debt securities:
Taxable		814			1,036		3,787		4,894			4,735
Tax exempt		6			7		27		2			158
Dividends		25			29		121		127			33
Other		28			46		155		274			428
Total interest and dividend income		6,783			6,995		27,930		28,330			27,607
Interest Expense
Interest on deposits (Note 8)		1,494			1,791		6,597		8,480			11,353
Interest on Federal Home Loan Bank advances (Note 9)		669			551		2,315		2,146			1,801
Interest on subordinated debt (Note 9)		87			93		360		301			—
Interest on collateralized borrowings		—			19		74		87			—
Total interest expense		2,250			2,454		9,346		11,014			13,154
Net interest income		4,533			4,541		18,584		17,316			14,453
Provision for Loan Losses (Note 5)		150			175		1,602		537			440
Net interest income after provision for loan losses		4,383			4,366		16,982		16,779			14,013
Noninterest Income
Service charges		803			735		3,116		2,579			2,332
Wealth management fees		250			197		849		766			765
Net gain (loss) on available for sale securities (Note 4)		184			56		121		(258	)		150
Net (loss) gain on sale of loans		(25	)		85		393		107			23
Other		23			143		243		90			92
Total noninterest income		1,235			1,216		4,722		3,284			3,362
Noninterest Expenses
Salaries and employee benefits (Note 11)		2,282			2,164		9,090		8,278			7,602
Occupancy		583			551		2,059		1,982			1,882
Furniture and equipment		260			250		914		1,000			1,105
Computer services		256			230		857		844			804
Professional services		142			66		310		290			336
Marketing		120			102		387		385			463
Supplies		82			92		266		292			290
FDIC deposit insurance and state assessment		24			19		75		76			64
Impairment charge - other asset		51			—		36		111			—
Other real estate operations (Note 6)		7			11		15		23			(69	)
Other		626			621		2,597		2,113			1,993
Total noninterest expenses		4,433			4,106		16,606		15,394			14,470
Income before income taxes		1,185			1,476		5,098		4,669			2,905
Provision for Income Taxes (Note 10)		381			526		1,713		1,587			989
Net income	$	804		$	950	$	3,385	$	3,082		$	1,916

See Notes to Consolidated Financial Statements.

F-3

SI BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS

Three Months Ended March 31, 2004 (Unaudited) and

Years Ended December 31, 2003, 2002 and 2001 (Dollars in Thousands)

	Surplus		Undivided Profits		Accumulated Other Comprehensive Income			Total
Balance at December 31, 2000	$	1,000	$	24,199	$	74		$	25,273
Comprehensive income
Net income		—		1,916		—			1,916
Unrealized gain on available for sale securities, net of taxes (Note 16)		—		—		627			627
Total comprehensive income									2,543
Balance at December 31, 2001		1,000		26,115		701			27,816
Comprehensive income
Net income		—		3,082		—			3,082
Unrealized gain on available for sale securities, net of taxes (Note 16)		—		—		510			510
Total comprehensive income									3,592
Balance at December 31, 2002		1,000		29,197		1,211			31,408
Comprehensive income
Net income		—		3,385		—			3,385
Unrealized loss on available for sale securities, net of taxes (Note 16)		—		—		(694	)		(694	)
Total comprehensive income									2,691
Balance at December 31, 2003		1,000		32,582		517			34,099
Comprehensive income
Net income		—		804		—			804
Unrealized loss on available for sale securities, net of taxes (Note 16)		—		—		176			176
Total comprehensive income									980
Balance at March 31, 2004	$	1,000	$	33,386	$	693		$	35,079

See Notes to Consolidated Financial Statements.

F-4

SI BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2004 and 2003 (Unaudited) and

Years Ended December 31, 2003, 2002 and 2001 (Dollars in Thousands)

	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
	2004			2003			2003			2002			2001
Cash Flows From Operating Activities
Net income	$	804		$	950		$	3,385		$	3,082		$	1,916
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of premiums and discounts on investments, net		35			233			466			714			115
Net (gain) loss from available for sale securities		(184	)		(56	)		(121	)		258			(150	)
Provision for loan losses		150			175			1,602			537			440
Amortization and accretion of loan premiums and discounts, net		83			54			192			109			224
Loans originated for sale		(4,471	)		(5,873	)		(21,000	)		(12,687	)		(12,667	)
Proceeds from sale of loans		4,446			5,957			22,996			12,795			12,690
Net decrease in loans held for sale		—			173			320			—			—
Net loss (gain) on sale of loans		25			(85	)		(393	)		(107	)		(23	)
Net gain on sale of other real estate owned		—			(13	)		(15	)		(32	)		(64	)
Depreciation and amortization of premises and equipment		271			265			1,039			1,106			1,219
Gain from disposal of premises and equipment		—			—			—			—			(1	)
Deferred income taxes		—			—			166			(270	)		(128	)
Impairment charge - other assets		51			—			36			111			—
Increase in cash surrender value of bank-owned life insurance		(86	)		—			(258	)		—			—
Amortization of core deposit intangible		24			24			97			97			97
Amortization of deferred debt issuance costs		9			9			35			26			—
Change in assets and liabilities:
Change in deferred loan fees and costs		(52	)		(27	)		(596	)		(141	)		121
(Increase) decrease in accrued interest receivable		(73	)		(90	)		55			(51	)		215
(Increase) decrease in other assets		(317	)		(464	)		(144	)		(425	)		119
Increase in accrued expenses and other liabilities		2,172			4,228			212			640			505
Net cash provided by operating activities		2,887			5,460			8,074			5,762			4,628
Cash Flows from Investing Activities
Proceeds from sales of available for sale securities		2,840			4,243			11,650			9,956			7,369
Proceeds from maturities of and principal repayments on available for sale securities		7,888			13,380			42,323			37,571			32,211
Purchases of available for sale securities		(14,016	)		(17,237	)		(45,102	)		(56,791	)		(50,273	)
Proceeds from maturities of and principal repayments on held to maturity securities		40			5,397			7,689			11,085			2,721
Purchases of held to maturity securities		—			—			—			(7,503	)		(6,517	)
Purchases of Federal Home Loan Bank stock		(492	)		(31	)		(472	)		(252	)		(147	)
Net increase in loans		(7,954	)		(7,388	)		(55,311	)		(43,982	)		(29,477	)
Proceeds from sales of other real estate owned		—			56			433			82			199
Proceeds from disposal of bank premises and equipment		—			—			—			—			1
Purchases of bank premises and equipment		(115	)		(439	)		(1,619	)		(1,216	)		(715	)
Purchase of bank-owned life insurance		—			(7,000	)		(7,000	)		—			—
Purchase of common stock of trust subsidiary		—			—			—			(217	)		—
Net cash used in investing activities		(11,809	)		(9,019	)		(47,409	)		(51,267	)		(44,628	)

(Continued)

F-5

SI BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

Three Months Ended March 31, 2004 and 2003 (Unaudited) and

Years Ended December 31, 2003, 2002 and 2001, Continued (Dollars in Thousands)

	Three Months Ended March 31,						Years Ended December 31,
	2004			2003			2003			2002			2001
Cash Flows from Financing Activities
Net increase in demand, money market and savings deposits	$	3,332		$	7,957		$	19,471		$	22,186		$	24,460
Net increase (decrease) in certificates of deposit		6,185			(395	)		(731	)		12,826			16,544
(Decrease) increase in mortgagors’ and investors’ escrow accounts		(1,229	)		(1,009	)		256			275			203
Proceeds from Federal Home Loan Bank advances		11,000			4,000			18,695			15,000			19,800
Repayments of Federal Home Loan Bank advances		(3,171	)		(1,253	)		(5,445	)		(6,265	)		(10,348	)
Net (decrease) increase in collateralized borrowings		—			(851	)		(851	)		1,951			—
Proceeds from issuance of subordinated debt		—			—			—			7,217			—
Debt issuance costs		—			—			—			(245	)		—
Net cash provided by financing activities		16,117			8,449			31,395			52,945			50,659
Net increase (decrease) in cash and cash equivalents		7,195			4,890			(7,940	)		7,440			10,659
Cash and cash equivalents
Beginning		29,577			37,517			37,517			30,077			19,418
Ending	$	36,772		$	42,407		$	29,577		$	37,517		$	30,077
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest	$	2,311		$	2,455		$	9,367		$	11,029		$	13,181
Income taxes	$	1		$	46		$	1,848		$	1,765		$	1,115
Noncash Investing and Financing Activities
Unrealized gain (loss) on securities arising during the period	$	266		$	(747	)	$	(1,050	)	$	773		$	950
Transfer of loans to other real estate owned	$	—		$	413		$	703		$	50		$	135
Transfer of loans to held for sale	$	—		$	—		$	—		$	1,939		$	—
Derecognition of loans and collateralized borrowings	$	—		$	—		$	1,100		$	—		$	—

See Notes to Consolidated Financial Statements.

F-6

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 1. Nature of Business and Summary of Significant Accounting Policies

SI Bancorp, Inc. (the “Company”), a Connecticut non-stock corporation, is a mutual bank holding company that was organized in 2000. On June 5, 2000, upon receipt of all required regulatory approvals, the Company acquired all the outstanding shares of SI-Stock Savings Bank (the “Bank”), a newly formed state-chartered capital stock bank. At the same time, Savings Institute, formerly a state-chartered mutual savings bank, merged with and into the Bank. The Bank currently operates under the name Savings Institute. The Bank’s deposits are insured under the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. The Company provides a full range of banking services to consumer and commercial customers through its main office in Willimantic, Connecticut, and fourteen branches located in eastern Connecticut.

In 1998, the Bank established, through the contribution of securities, the Savings Institute Foundation, Inc., a not-for-profit organization which provides charitable contributions for organizations in communities served by the Company.

In January 2001, the Company’s application to operate as a financial holding company was approved by the Federal Reserve Board. As a financial holding company, the Company may engage in activities that are financial in nature or incidental or complementary to a financial activity, such as insurance activities; providing financial, investment and advisory services; underwriting securities and limited merchant banking activities.

On March 25, 2002, the Company formed SI Capital Trust I for the purpose of issuing trust preferred securities and investing the proceeds in subordinated debentures issued by the Company, and on April 10, 2002, $7,217 of trust preferred securities were issued.

A description of the Company’s significant accounting policies is presented below.

Basis of financial statement presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the statement of financial condition and reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

Unaudited interim financial statements

The consolidated financial statements and related notes as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 are unaudited. All adjustments, consisting of only normal recurring adjustments, which in the opinion of management are necessary for fair presentation of financial position, results of operations and cash flows, have been made. The results of operations for the three months ended March 31, 2004 are not necessary indicative of the results which may be expected for a full year.

F-7

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 803 Financial Corp., SI Mortgage Company and SI Realty Company, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Significant group concentrations of credit risk

Most of the Company’s activities are with customers located within eastern Connecticut. Note 4 discusses the types of securities that the Company invests in. Note 5 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations in any one industry or customer.

Cash and cash equivalents and statements of cash flows

Cash and due from banks, Federal funds sold and short-term investments with maturities of less than 90 days are recognized as cash equivalents in the statements of cash flows. Federal funds sold generally mature in one day. For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash flows from loans and deposits are reported net. The Company maintains amounts due from banks and Federal funds sold that, at times, may exceed federally insured limits. The Company has not experienced any losses from such concentrations.

Investment in debt and marketable equity securities

Management determines the appropriate classification of securities at the date individual investment securities are acquired, and the appropriateness of such classification is reassessed at each statement of financial condition date.

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Trading securities, if any, are carried at fair value, with unrealized gains and losses recognized in earnings. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of taxes.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for

F-8

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The sale of a held to maturity security within three months of its maturity date or after collection of at least 85% of the principal outstanding at the time the security was acquired is considered a maturity for purposes of classification and disclosure.

Transfers of debt securities into the held to maturity classification from the available for sale classification are made at fair value on the date of transfer. The unrealized holding gain or loss on the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the held to maturity securities. Such amounts are amortized over the remaining contractual lives of the securities by the interest method.

Loans held for sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to non-interest income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date.

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and no condition both constrains the transferee from taking advantage of that right and provides more than a trivial benefit for the transferor, and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Servicing

Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing

F-9

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Capitalized servicing rights are reported in other assets and are amortized into non-interest 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 into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Loans receivable

Loans receivable are stated at current unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees. Management has the ability and intent to hold its loans receivable for the foreseeable future or until maturity or payoff.

An impaired loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.

A loan is classified as a restructured loan when certain concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments, due to the borrowers’ financial condition.

Management considers all nonaccrual loans and restructured loans to be impaired. In most cases, loan payments less than ninety days past due, are considered minor collection delays, and the related loans are generally not considered impaired. The Company considers consumer loans to be pools of smaller balance homogeneous loans which are collectively evaluated for impairment.

F-10

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Allowance for loan losses

The allowance for loan losses, a material estimate which could change significantly in the near-term, is established as losses are estimated to have occurred, through provisions for losses charged against operations, and is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on the evaluation of the known and inherent risk characteristics and size of the loan portfolio, the assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination reports and evaluations of loans, and other relevant factors. Loans are charged against the allowance for loan losses when management believes that the uncollectibility of principal is confirmed. Any subsequent recoveries are credited to the allowance for loan losses when received. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, when considered necessary.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The majority of the Company’s loans are collateralized by real estate located in eastern Connecticut. Accordingly, the collateral value of a substantial portion of the Company’s loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance or write-downs may be necessary based on changes in economic conditions, particularly in eastern Connecticut. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies have the authority to require the Company to recognize additions to the allowance or write-downs based on the agencies’ judgments about information available to them at the time of their examination.

Interest and fees on loans

Interest on loans is accrued and included in operating income based on contractual rates applied to principal amounts outstanding. Accrual of interest is discontinued when loan payments are 90 days or more past due, based on contractual terms, or when, in the judgment of management, collectibility of the loan or loan interest

F-11

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

becomes uncertain. Subsequent recognition of income occurs only to the extent payment is received subject to management’s assessment of the collectibility of the remaining interest and principal. A non-accrual loan is restored to accrual status when it is no longer delinquent and collectibility of interest and principal is no longer in doubt. Interest collected on non-accrual loans and impaired loans is recognized only to the extent cash payments are received, and may be recorded as a reduction to principal if the collectibility of all loan principal is unlikely.

Loan origination fees and direct loan origination costs are deferred, and the net amount is recognized as an adjustment of the related loan’s yield utilizing the interest method over the contractual life of the loan.

Rate lock commitments

On March 13, 2002, the Financial Accounting Standards Board determined that loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments, effective for fiscal quarters beginning after April 10, 2002. Accordingly, the Company adopted such accounting on July 1, 2002.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates. Prior to July 1, 2002, such commitments were recorded to the extent of fees received. Fees received were subsequently included in the net gain or loss on sale of mortgage loans.

The cumulative effect of adopting Statement of Financial Accounting Standards (“SFAS”) No. 133 for rate lock commitments as of July 1, 2002 was not material.

Derivative financial instruments

On January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement requires that all derivatives be recognized as assets or liabilities in the statement of financial condition and measured at fair value.

Collateralized borrowings

Collateralized borrowings represent loans sold which do not meet the criteria for derecognition, due primarily to recourse and other provisions which could not be measured at the date of transfer. Transferred loans and any related collateralized borrowings are derecognized when all recourse and other provisions that could not be measured at the date of transfer either expire or become measurable.

F-12

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Other real estate owned

Other real estate owned consists of properties acquired through, or in lieu of, loan foreclosure or other proceedings and is initially recorded at the lower of the related loan balances less any specific allowance for loss, or fair value at the date of foreclosure, which establishes a new cost basis. Subsequent to foreclosure, the properties are held for sale and are carried at the lower of cost or fair value less estimated costs of disposal. Any write-down to fair value at the time of acquisition is charged to the allowance for loan losses. Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose. Revenue and expense from the operation of other real estate owned and the provision to establish and adjust valuation allowances are included in operations. Costs relating to the development and improvement of the property are capitalized, subject to the limit of fair value of the collateral. Gains or losses are included in operations upon disposal.

Income taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized.

Premises and equipment

Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the improvements’ estimated economic lives or the related lease terms. The estimated useful lives of the assets are as follows:

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	3 to 20 years

Gains and losses on dispositions are recognized upon realization. Maintenance and repairs are expensed as incurred and improvements are capitalized.

Impairment of long-lived assets

Long-lived assets, including premises and equipment and certain identifiable intangible assets that are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment is indicated by that review, the asset is written down to its estimated fair value through a charge to noninterest expense.

F-13

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Core deposit intangible

In connection with branch acquisitions that do not represent business combinations, the excess of deposit liabilities assumed from other banks over assets acquired is recorded as a core deposit intangible.

Other investment

The Company’s investment in a Small Business Investment Company is recorded at cost and is evaluated for impairment annually. Impairment considered by management to be other than temporary, results in a write-down of the investment which is recognized in earnings as a realized loss. Write-downs of $51 and $0 during the three months ended March 31, 2004 and 2003, respectively, and $36, $111 and $0, during the years ended December 31, 2003, 2002 and 2001, respectively, were recognized on this investment. This investment, with a net book value of $495 at March 31, 2004 and $546 and $582 at December 31, 2003 and 2002, respectively, is included in Other Assets.

Trust assets

Assets of the Trust Department, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company. Trust fees are recognized on the accrual basis of accounting.

Related party transactions

Directors and officers of the Company and the Bank and their affiliates have been customers of and have had transactions with the Bank, and it is expected that such persons will continue to have such transactions in the future. Management believes that all deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who are not directors or officers. In the opinion of management, the transactions with related parties did not involve more than normal risks of collectibility, nor favored treatment or terms, nor present other unfavorable features. Notes 5, 8 and 13 contain details regarding related party transactions.

Comprehensive income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the capital section of the statement of financial condition, such items, along with net income, are components of comprehensive income.

F-14

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Fair values of financial instruments

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and due from banks interest bearing deposits, federal funds sold, accrued interest receivable and mortgagors’ and investors’ escrow accounts: The carrying amount is a reasonable estimate of fair value.

Securities: Fair values, excluding restricted Federal Home Loan Bank (“FHLB”) stock, are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The carrying value of FHLB stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Loans held for sale: The fair value of loans held for sale is estimated using quoted market prices.

Loans receivable: For variable rate loans which reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of fixed rate loans are estimated by discounting the future cash flows using the year-end rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Servicing assets: The fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

Deposits: The fair value of demand deposits, negotiable orders of withdrawal, regular savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits.

Advances from the Federal Home Loan Bank: The fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances.

Subordinated debt: Based on the floating rate characteristic of these instruments, the carrying value is considered to approximate fair value.

Collaterialized borrowings: The fair value of collaterialized borrowings is estimated by discounting the future cash flows using market rates for similar borrowings.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings.

Recent accounting pronouncements

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (“FIN 45”), which covers guarantees such as standby letters of credit, performance guarantees, and direct or indirect guarantees of the indebtedness of others, but not guarantees of funding. FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing

F-15

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

the guarantee, and requires disclosure about the maximum potential payments that might be required, as well as the collateral or other recourse obtainable. The recognition and measurement provisions of FIN 45 were effective on a prospective basis after December 31, 2002, and its adoption by the Company on January 1, 2003 has not had a significant effect on the Company’s consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN 46”), which establishes guidance for determining when an entity should consolidate another entity that meets the definition of a variable interest entity. FIN 46 requires a variable interest entity to be consolidated by a company if that company will absorb a majority of the expected losses, will receive a majority of the expected residual returns, or both. Transfers to qualified special-purpose entities (“QSPEs”) and certain other interests in a QSPE are not subject to the requirements of FIN 46. On December 17, 2003, the FASB revised FIN 46 (“FIN 46R”) and deferred the effective date of FIN 46 to no later than the end of the first reporting period that ends after March 15, 2004, however, for special-purpose entities, FIN 46 would be required to be applied as of December 31, 2003. See Note 9 for the impact of the adoption of FIN 46 by the Company.

In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. This Statement did not have a material effect on the Company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement provides new rules on the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. Such financial instruments include mandatorily redeemable shares, instruments that require the issuer to buy back some of its shares in exchange for cash or other assets, or obligations that can be settled with shares, the monetary value of which is fixed. Most of the guidance in SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 30, 2003. This Statement had no effect on the Company’s consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Postretirement Benefits.” This Statement requires additional disclosures about the assets, obligations and cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans. This Statement had no effect on the Company’s consolidated financial statements.

Reclassifications

Certain 2003, 2002 and 2001 amounts have been reclassified to conform with the March 31, 2004 presentation, and such reclassifications had no effect on 2003, 2002 and 2001 net income.

F-16

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 2. Restrictions on Cash and Due From Banks

The Bank is required to maintain reserves against its respective transaction accounts and non-personal time deposits. At March 31, 2004 and December 31, 2003, the Bank was required to have cash and liquid assets of approximately $4,984 and $5,314, respectively, to meet these requirements, and is required to maintain $6,000 in the Federal Reserve Bank for clearing purposes.

Note 3. Core Deposit Intangible

In 1998, the Bank acquired certain assets and assumed certain deposit liabilities of the Canterbury, Connecticut branch of Chelsea Groton Savings Bank. In consideration of the assumption of approximately $8,107 of deposit liabilities, the Bank received approximately $7,134 in cash and other assets. The resulting core deposit premium intangible is being amortized over 10 years using the straight-line method. The net book value of this asset at March 31, 2004 and December 31, 2003 and 2002 is as follows:

	March 31, 2004		December 31,
			2003		2002
Core deposit intangible	$	973	$	973	$	973
Less accumulated amortization		608		584		487
	$	365	$	389	$	486

Amortization expense for each of the three month periods ended March 31, 2004 and 2003 was $24, and was $97 for each of the years ended December 31, 2003, 2002 and 2001. Expected future amortization expense as of December 31, 2003 is as follows:

2004	$	97
2005		97
2006		97
2007		98
	$	389

F-17

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 4. Investment Securities

The carrying and approximate fair values of investment securities at March 31, 2004 and December 31, 2003 and 2002 are as follows:

March 31, 2004	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government and agency securities	$	47,337	$	668	$	(56	)	$	47,949
Mortgage backed securities		17,400		89		(609	)		16,880
Corporate debt securities		11,873		805		—			12,678
Obligations of state and political subdivisions		3,129		94		—			3,223
Foreign government securities		75		—		—			75
Total debt securities		79,814		1,656		(665	)		80,805
Marketable equity securities		531		60		—			591
	$	80,345	$	1,716	$	(665	)	$	81,396
Held to Maturity:
Mortgage backed securities	$	1,688	$	—	$	(191	)	$	1,497

December 31, 2003	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government and agency securities	$	38,583	$	524	$	(108	)	$	38,999
Mortgage backed securities		19,050		87		(773	)		18,364
Corporate debt securities		15,540		911		—			16,451
Obligations of state and political subdivisions		3,129		88		—			3,217
Foreign government securities		75		—		—			75
Total debt securities		76,377		1,610		(881	)		77,106
Marketable equity securities		531		56		—			587
	$	76,908	$	1,666	$	(881	)	$	77,693
Held to Maturity:
Mortgage backed securities	$	1,728	$	—	$	(384	)	$	1,344

F-18

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

December 31, 2002	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government and agency securities	$	27,931	$	924	$	(34	)	$	28,821
Mortgage backed securities		32,341		439		(152	)		32,628
Interest-only strips		228		—		(86	)		142
Corporate debt securities		19,542		772		(59	)		20,255
Public utility debt securities		1,512		12		—			1,524
Obligations of state and political subdivisions		3,199		110		—			3,309
Foreign government securities		75		—		—			75
Total debt securities		84,828		2,257		(331	)		86,754
Marketable equity securities		1,251		55		(146	)		1,160
	$	86,079	$	2,312	$	(477	)	$	87,914
Held to Maturity:
Mortgage backed securities	$	9,463	$	20	$	(498	)	$	8,985

The following tables present the Company’s available for sale and held to maturity securities’ gross unrealized losses and fair value, aggregated by the length of time the individual securities have been in a continuous unrealized loss position, at March 31, 2004 and December 31, 2003:

	Less Than 12 Months				12 Months or More				Total
March 31, 2004	Fair Value		Unrealized Loss		Fair Value		Unrealized Losses		Fair Value		Unrealized Loss
U.S. Government and agency securities	$	6,325	$	28	$	691	$	28	$	7,016	$	56
Mortgage backed securities		5,323		404		7,401		396		12,724		800
Totals	$	11,648	$	432	$	8,092	$	424	$	19,740	$	856

	Less Than 12 Months				12 Months or More				Total
December 31, 2003	Fair Value		Unrealized Loss		Fair Value		Unrealized Losses		Fair Value		Unrealized Loss
U.S. Government and agency securities	$	8,351	$	84	$	1,291	$	24	$	9,642	$	108
Mortgage backed securities		11,772		744		2,768		413		14,540		1,157
Totals	$	20,123	$	828	$	4,059	$	437	$	24,182	$	1,265

F-19

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

At March 31, 2004 and December 31, 2003, unrealized losses on securities that have existed for a period of twelve months or more totaled $424 and $437, respectively. Management believes that none of the unrealized losses on these securities are other than temporary because all of the unrealized losses relate to debt and mortgage-backed securities issued by the U.S. Treasury or Government Agencies and private issuers that maintain investment grade ratings, which the Company has both the intent and the ability to hold until maturity or until the fair value fully recovers. In addition, management considers the issuers of the securities to be financially sound and believes the Company will receive all contractual principal and interest related to these investments.

The amortized cost and fair value of debt securities at March 31, 2004 and December 31, 2003 by contractual maturities are presented below. Actual maturities of mortgage backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties. Because mortgage backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.

	Available for Sale				Held to Maturity
March 31, 2004	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	6,074	$	6,203	$	—	$	—
After 1 but within 5 years		47,969		49,131		—		—
After 5 but within 10 years		2,432		2,468		—		—
After 10 years		5,939		6,123		—		—
		62,414		63,925		—		—
Mortgage backed securities		17,400		16,880		1,688		1,497
	$	79,814	$	80,805	$	1,688	$	1,497

	Available for Sale				Held to Maturity
December 31, 2003	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	4,107	$	4,137	$	—	$	—
After 1 but within 5 years		42,700		43,891		—		—
After 5 but within 10 years		2,939		2,947		—		—
After 10 years		7,581		7,767		—		—
		57,327		58,742		—		—
Mortgage backed securities		19,050		18,364		1,728		1,344
	$	76,377	$	77,106	$	1,728	$	1,344

F-20

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

At March 31, 2004 and December 31, 2003 and 2002, U.S. Treasury securities with a carrying value of $4,118, $4,135 and $3,207, respectively, were pledged to secure U.S. Treasury tax and loan payments and public deposits.

For the three months ended March 31, 2004 and 2003, and for the years ended December 31, 2003, 2002 and 2001, gross gains and losses were realized on the sale or write-down of available for sale securities as follows:

	March 31,					December 31,
	2004		2003			2003			2002			2001
Gross gains on sales	$	184	$	163		$	410		$	414		$	359
Gross losses on sales		—		(8	)		(215	)		(323	)		(209	)
Impairment charges		—		(99	)		(74	)		(349	)		—
Net gain (loss)	$	184	$	56		$	121		$	(258	)	$	150

Note 5. Loans and Allowance for Loan Losses

A summary of the Company’s loan portfolio at March 1, 2004 and December 31, 2003 and 2002 is as follows:

	March 31, 2004			December 31,
				2003			2002
Real estate loans:
Residential	$	228,625		$	226,881		$	213,831
Commercial		75,650			73,428			61,214
Construction (net of undisbursed portion of $15,108 at March 31, 2004 $15,193 at December 31, 2003 and $12,114 at December 31, 2002		19,518			20,652			21,104
		323,793			320,961			296,149
Commercial business loans		54,466			50,746			27,003
Consumer loans		18,834			17,518			14,722
Total loans		397,093			389,225			337,874
Net deferred loan costs (fees)		439			387			(209	)
Allowance for loan losses		(2,835	)		(2,688	)		(3,067	)
Loans, net	$	394,697		$	386,924		$	334,598

The Company services certain loans that it has sold with and without recourse to third parties and other loans for which the Company acquired the servicing rights. The aggregate of loans serviced for others approximated

F-21

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

$46,134, $44,720 and $40,941 at March 31, 2004 and December 31, 2003 and 2002, respectively. As of March 31, 2004 and December 31, 2003, the Company was liable under recourse provisions for loans sold by the Company of approximately $197 and $222, respectively.

The balance of capitalized servicing rights, included in other assets at March 31, 2004 and December 31, 2003 and 2002, was $119, $124 and $0, respectively. No impairment charges related to servicing rights were recognized during the three months ended March 31, 2004 and 2003, or during the years ended December 31, 2003, 2002 and 2001.

At March 31, 2004, and December 31, 2003 and 2002, the unpaid principal balances of loans placed on non-accrual status were approximately $1,367, $1,295 and $1,837, respectively. If non-accrual loans had been performing in accordance with their original terms, the Company would have recorded approximately $30 and $29, in additional interest income during the three months ended March 31, 2004 and 2003, respectively, and $67, $185 and $22 during the years ended December 31, 2003, 2002 and 2001, respectively.

The following information relates to impaired loans, which include all non-accrual loans and restructured loans, as of and for the three months ended March 31, 2004, and the years ended December 31, 2003 and 2002.

	March 31, 2004		December 31,
			2003		2002
Loans receivable for which there is a related allowance for credit losses determined:
Based on discounted cash flows	$	—	$	—	$	377
Based on the fair value of collateral		110		—		1,247
	$	110	$	—	$	1,624
Loans receivable for which there is no related allowance for credit losses determined:
Based on discounted cash flows	$	209	$	685	$	79
Based on the fair value of collateral		1,222		1,068		184
	$	1,431	$	1,753	$	263
Allowance for loan losses related to impaired loans	$	16	$	—	$	206
Average recorded investment in impaired loans	$	1,647	$	1,918	$	2,191
Interest income recognized	$	1	$	—	$	31
Cash interest received	$	3	$	41	$	64

F-22

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

The Company has no commitments to lend additional funds to borrowers whose loans are impaired.

The Company’s lending activities are conducted principally in eastern Connecticut. The Company grants single-family and multi-family residential loans, commercial loans and a variety of consumer loans. In addition, the Company grants loans for the construction of residential homes, residential developments and land development projects.

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and, in most cases, extends credit of up to 80% of the market value of the collateral at the date of the credit extension, depending on the borrowers’ creditworthiness and the type of collateral. The market value of collateral is monitored on an ongoing basis and additional collateral is obtained when warranted. Real estate is the primary form of collateral. Other important forms of collateral are time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrower’s ability to generate continuing cash flows. The Company’s policy for collateral requires that, generally, the amount of the loan may not exceed 90% of the original appraised value of the property. Private mortgage insurance is required for that portion of the loan in excess of 80% of the appraised value of the property.

Changes in the allowance for loan losses for the three months ended March 31, 2004 and 2003, and for the years ended December 31, 2003, 2002 and 2001 are as follows:

	March 31,						December 31,
	2004			2003			2003			2002			2001
Balance at beginning of year	$	2,688		$	3,067		$	3,067		$	2,861		$	2,605
Provision for loan losses		150			175			1,602			537			440
Loans charged-off		(6	)		(283	)		(2,113	)		(406	)		(404	)
Recoveries of loans previously charged off		3			52			132			75			220
	$	2,835		$	3,011		$	2,688		$	3,067		$	2,861

In the normal course of business, the Company grants loans to officers, directors and other related parties. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with customers, and did not involve more than the normal risk of collectibility. For the three months ended March 31, 2004 and for the years ended December 31, 2003 and 2002, all related party loans were performing.

F-23

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Changes in loans outstanding to such related parties during the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002 are as follows:

	March 31, 2004			December 31,
				2003			2002
Balance at beginning of year	$	4,368		$	4,207		$	3,668
Additional loans		242			2,174			1,618
Repayments		(203	)		(1,765	)		(1,261	)
Other		231			(248	)		182
Balance, end of year	$	4,638		$	4,368		$	4,207

Related party loan transactions labeled as “other” represent the net amount of loans, at the beginning of the period, to individuals who became, or ceased being, related parties during the period.

Note 6. Other Real Estate Operations

A summary of other real estate operations for the three months ended March 31, 2004 and 2003 and for the years ended December 31, 2003, 2002 and 2001, is as follows:

	March 31,					December 31,
	2004		2003			2003			2002			2001
Net gain from sales of other real estate owned	$	—	$	(13	)	$	(15	)	$	(32	)	$	(64	)
Expenses of holding other real estate owned, net of rental income		7		24			30			55			(5	)
Expense (income) from other real estate operations, net	$	7	$	11		$	15		$	23		$	(69	)

F-24

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 7. Premises and Equipment

Premises and equipment at March 31, 2004 and December 31, 2003 and 2002 are summarized as follows:

	March 31, 2004		December 31,
			2003		2002
Land	$	207	$	207	$	207
Buildings		6,440		6,440		5,630
Furniture and equipment		5,054		5,295		4,552
Leasehold improvements		2,498		2,486		2,439
Construction in process		2		2		122
		14,201		14,430		12,950
Less accumulated depreciation and amortization		7,682		7,755		6,855
	$	6,519	$	6,675	$	6,095

Depreciation and amortization expense was $271 and $265 for the three months ended March 31, 2004 and 2003, respectively, and $1,039, $1,106 and $1,219, respectively, for the years ended December 31, 2003, 2002 and 2001.

Note 8. Deposits

Deposits at March 31, 2004 and December 31, 2003 and 2002 were as follows:

	March 31, 2004		December 31,
			2003		2002
Noninterest bearing demand deposits	$	38,812	$	40,371	$	37,624
Interest bearing accounts:
NOW and money market		106,018		101,852		90,516
Savings		88,350		87,625		82,236
Time certificates of deposit		191,427		185,242		185,974
		385,795		374,719		358,726
	$	424,607	$	415,090	$	396,350

Time deposits in denominations of $100 or more were approximately $40,921, $38,817 and $40,477 at March 31, 2004 and December 31, 2003 and 2002, respectively.

Included in deposits at March 31, 2004 and December 31, 2003 is a $5,000 brokered deposit account which has a maturity date of December 24, 2007.

F-25

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Contractual maturities of time certificates of deposit as of March 31, 2004 and December 31, 2003 are summarized below.

	March 31, 2004		December 31, 2003
2004	$	84,632	$	99,016
2005		39,156		31,310
2006		29,640		27,182
2007		30,232		22,324
2008 and thereafter		7,767		5,410
	$	191,427	$	185,242

Deposit accounts of officers, directors, and other related parties aggregated approximately $326, $551 and $448 at March 31, 2004 and December 31, 2003 and 2002, respectively.

A summary of interest expense by account type for the three months ended March 31, 2003 and 2004 and for the years ended December 31, 2003, 2002 and 2001 is as follows:

	March 31,				December 31,
	2004		2003		2003		2002		2001
NOW and money market	$	87	$	125	$	424	$	685	$	1,089
Savings		131		193		666		1,071		1,578
Time certificates of deposit		1,276		1,473		5,507		6,724		8,686
	$	1,494	$	1,791	$	6,597	$	8,480	$	11,353

Note 9. Long-Term Debt

Federal Home Loan Bank Borrowings

The Bank is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). At March 31, 2004 and December 31, 2003, the Bank had access to a pre-approved secured line of credit with the FHLBB of $6,202, and the capacity to obtain additional advances up to a certain percentage of the value of its qualified collateral, as defined in the FHLBB Statement of Credit Policy. In accordance with an agreement with the FHLBB, the qualified collateral must be free and clear of liens, pledges and encumbrances. At March 31, 2004, and December 31, 2003 and 2002, there were no advances outstanding under the line of credit. Other outstanding advances from the FHLBB aggregated $64,997 at March 31, 2004, at interest rates ranging from 1.87% to 5.84%, and $57,168 and $43,918, at December 31, 2003 and 2002, respectively, at interest rates ranging from 1.89% to 5.84% and 3.39% to 6.45%, respectively.

F-26

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

The Bank is required to maintain an investment in capital stock of the FHLBB, as collateral, in an amount equal to a percentage of its outstanding residential first mortgage loans. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the FHLBB.

Subordinated Debt

On March 25, 2002, the Company formed SI Capital Trust I (the “Trust”), which became its wholly-owned subsidiary when it purchased all of the Trust’s common securities. The Trust has no independent assets or operations, and exists for the sole purpose of issuing trust securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company.

The Company issued $7,000 of trust preferred securities in 2002. Pursuant to FASB Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities,” issued in December 2003, the Company deconsolidated the Trust at December 31, 2003 and restated the 2002 statement of financial condition. As a result, the statement of financial condition at March 31, 2004, December 31, 2003 and 2002 (as restated) includes $7,217 of subordinated debt, which was previously presented in the statement of financial condition as $7,000 in trust preferred securities after a consolidation elimination entry of $217. The Company’s investment in the Trust of $217 is included in other assets. The overall effect on the financial position and operating results of the Company as a result of the deconsolidation was not material.

Trust preferred securities are currently considered regulatory capital for purposes of determining the Company’s Tier I capital ratios. The Company believes that the Board of Governors of the Federal Reserve System, which is the Company’s banking regulator, may rule on continued inclusion of trust preferred securities in regulatory capital following the issuance of FIN 46R. At this time, it is not possible to estimate the effect, if any, on the Company’s Tier I regulatory capital as a result of any future action taken by the Board of Governors of the Federal Reserve System.

The subordinated debt securities are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities. The subordinated debentures, which bear interest at 6 month LIBOR plus 3.70% (4.92%, 4.92% and 5.32% at March 31, 2004, and December 31, 2003 and 2002, respectively), mature on April 22, 2032 and can be redeemed at the Company’s option in 2007.

The trust securities also bear interest at 6 month LIBOR plus 3.70%. The duration of the trust is 30 years; however, the trust securities are redeemable at par at the Trust’s option in 2007.

F-27

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

The contractual maturities of long-term debt at March 31, 2004 and December 31, 2003, by year, are as follows:

March 31, 2004	Fixed Rate		Floating Rate		Total
2004	$	11,800	$	—	$	11,800
2005		10,397		—		10,397
2006		9,526		—		9,526
2007		10,595		—		10,595
2008		8,679		—		8,679
Thereafter		14,000		7,217		21,217
Total long-term debt	$	64,997	$	7,217	$	72,214

December 31, 2003	Fixed Rate		Floating Rate		Total
2004	$	14,800	$	—	$	14,800
2005		10,449		—		10,449
2006		9,576		—		9,576
2007		6,630		—		6,630
2008		8,713		—		8,713
Thereafter		7,000		7,217		14,217
Total long-term debt	$	57,168	$	7,217	$	64,385

Note 10. Income Taxes

The components of the income tax provision for the three months ended March 31, 2004 and 2003, and the years ended December 31, 2003, 2002 and 2001, are as follows:

	March 31,				December 31,
	2004		2003		2003		2002			2001
Current provision:
Federal	$	380	$	525	$	1,546	$	1,857		$	1,117
State		1		1		1		—			—
Total		381		526		1,547		1,857			1,117
Deferred expense (benefit):
Federal		—		—		166		(270	)		(128	)
Total		—		—		166		(270	)		(128	)
Total provision for income taxes	$	381	$	526	$	1,713	$	1,587		$	989

F-28

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

A reconciliation of the anticipated income tax provision (computed by applying the Federal statutory income tax rate of 34% to income before income tax expense), to the provision for income taxes as reported in the statements of income is as follows:

	March 31,						December 31,
	2004			2003			2003			2002			2001
Provision for income tax at statutory rate	$	403		$	502		$	1,733		$	1,587		$	988
Increase (decrease) resulting from:
Dividends received deduction		(2	)		(3	)		(11	)		(11	)		(8	)
Tax exempt income		(33	)		(3	)		(99	)		(4	)		(17	)
Nondeductible expenses		1			1			6			4			5
Other		12			29			84			11			21
	$	381		$	526		$	1,713		$	1,587		$	989

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002 are presented below:

	December 31,
	2003		2002
Deferred tax assets:
Allowance for loan losses	$	914	$	1,043
Intangible assets		101		95
Premises and equipment		324		304
Investment write-downs		87		156
Other		152		89
Gross deferred tax assets		1,578		1,687
Deferred tax liabilities:
Unrealized gains on securities		268		624
Excess tax bad debt reserves		—		24
Deferred loan costs		703		620
Other		6		8
Gross deferred tax liabilities		977		1,276
Net deferred tax asset	$	601	$	411

As of March 31, 2004, the components of the net deferred tax asset have not changed significantly from December 31, 2003.

F-29

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Undivided profits at March 31, 2004 and December 31, 2003 includes a contingency reserve for loan losses of approximately $3,700 which represents the tax reserve balance existing at December 31, 1987, and is maintained in accordance with provisions of the Internal Revenue Code applicable to mutual savings banks. Amounts transferred to the reserve have been claimed as deductions from taxable income, and, if the reserve is used for purposes other than to absorb losses on loans, a Federal income tax liability could be incurred. It is not anticipated that the Company will incur a Federal income tax liability relating to this reserve balance, and accordingly, deferred income taxes of approximately $1,260 at March 31, 2004 and December 31, 2003 and 2002 have not been recognized.

Effective for taxable years commencing after December 31, 1998, financial services companies doing business in Connecticut are permitted to establish a “passive investment company” (“PIC”) to hold and manage loans secured by real property. PICs are exempt from Connecticut corporation business tax, and dividends received by the financial services companies from PICs are not taxable. In January 1999, the Bank established a PIC, as a wholly-owned subsidiary, and in June 2000, began to transfer a portion of its residential and commercial mortgage loan portfolios from the Bank to the PIC. A substantial portion of the Company’s interest income is now derived from the PIC, an entity whose net income is exempt from State of Connecticut taxes, and accordingly, state income taxes represent minimum state tax amounts.

The Bank’s ability to continue to realize the tax benefits of the PIC is subject to the PIC continuing to comply with all statutory requirements related to the operations of the PIC.

Note 11. Employee Benefits

Profit sharing/401(k) plan

The Company has a profit sharing plan (the “Plan”) for the benefit of its employees. The Company’s contribution to the Plan is a discretionary amount authorized by the Board of Directors, based on the financial results of the Company. An employee’s share of the profit sharing contribution represents the ratio of the employee’s salary to the total salary expense of the Company. Contributions to the profit sharing plan were approximately $82 and $69 for the three months ended March 31, 2004 and 2003, respectively, and $303, $246 and $138 for the years ended December 31, 2003, 2002 and 2001, respectively.

The Company’s profit sharing plan also includes a 401(k) feature. An eligible employee may contribute up to a certain percentage of his/her compensation, and the Company makes a matching contribution of 50% of the first 6% of the employee’s contribution. Company contributions were approximately $40 and $37 for the three months ended March 31, 2004 and 2003, respectively and $146, $179 and $288 for the years ended December 31, 2003, 2002 and 2001, respectively.

F-30

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Other benefit plans

During the year ended December 31, 2003, the Company adopted a deferred compensation plan that provides directors with the option of deferring their director fees until retirement. The liability related to this plan is being accrued over the participants’ service periods and was $13 and $9 at March 31, 2004 and December 31, 2003, respectively.

During the year ended December 31, 2003, the Company adopted unfunded supplemental defined-benefit retirement plans with its directors and members of senior management. The liabilities related to these plans are being accrued over the individual participant’s service periods and aggregated $296 and $215 at March 31, 2004 and December 31, 2003, respectively.

The Company has an investment in, and is the beneficiary of, life insurance policies on the lives of certain officers. The purpose of these life insurance investments is to provide income through the appreciation in cash surrender value of the policies, which is used to offset the costs of various benefit and retirement plans. These policies have aggregate cash surrender values of approximately $7,344 and $7,258 at March 31, 2004 and December 31, 2003, respectively. Income earned on these life insurance policies aggregated $86 for the three months ended March 31, 2004 and $258 for the year ended December 31, 2003, respectively.

Note 12. Commitments and Contingencies

Leases

The Company leases certain of its branch offices and equipment under operating lease agreements that expire at various dates through 2022. In addition to rental payments, the branch leases require payments for property taxes in excess of base year taxes.

Future minimum rental commitments under the terms of these leases, by year and in the aggregate, at December 31, 2003, are as follows:

2004	$	588
2005		530
2006		437
2007		235
2008		133
Thereafter		814
	$	2,737

F-31

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Rental expense charged to operations for cancelable and noncancelable operating leases approximated $145 and $142 for the three months ended March 31, 2004 and 2003, respectively, and $576, $556 and $485 for the years ended December 31, 2003, 2002 and 2001, respectively.

Subleases

The Company subleases excess office space in its premises to various tenants under noncancelable operating leases, with terms ranging from two to five years. Future minimum lease payments receivable for non-cancelable leases, by year and in the aggregate, at December 31, 2003, are as follows:

2004	$	46
2005		46
2006		31
2007		25
2008		2
	$	150

Rental income under noncancelable leases approximated $11 and $13, respectively, for the three months ended March 31, 2004 and 2003, respectively, and $39, $61 and $55 for the years ended December 31, 2003, 2002 and 2001, respectively.

Legal Matters

The Company is involved in various legal proceedings that have arisen in the normal course of business. Management believes that resolution of these matters will not have a material effect on the Company’s financial condition or results of operations.

Other

In 1998, the Bank became a limited partner in a Small Business Investment Corporation, and made a commitment to make a capital investment of $1,000 in the limited partnership. At March 31, 2004 and December 31, 2003, the Bank’s remaining off-balance-sheet commitment for capital investment was approximately $307.

Also, the Bank has entered into agreements with certain customers whereby the Bank, on a nightly basis, transfers to a third party a portion of the customers’ demand deposit account balance above a certain level. The balance of the amounts so transferred of approximately $14,952 and $13,531 at March 31, 2004 and December 31, 2003, respectively, has been derecognized and is not reflected in the statements of financial condition.

F-32

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 13. Related Party Transactions

During the three months ended March 31, 2004 and 2003, the Company paid approximately $16 and $169, respectively, and during the years ended December 31, 2003, 2002 and 2001, $187, $90 and $84, respectively, for insurance, supplies and advertising, to companies related to directors of the Company. Loans to related parties are discussed in Note 5, and related party deposits are discussed in Note 8.

Note 14. Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments whose contract amounts represent credit risk are as follows at March 31, 2004, December 31, 2003 and 2002 were as follows:

	March 31, 2004		December 31,
			2003		2002
Commitments to extend credit
Future loan commitments	$	21,027	$	22,224	$	24,140
Undisbursed construction loans		15,108		15,193		12,114
Undisbursed home equity lines of credit		16,271		15,577		10,915
Undisbursed commercial lines of credit		6,809		7,360		7,757
Unused credit card lines		—		—		6,620
Overdraft protection lines		1,029		1,012		921
Standby letters of credit		971		718		826
	$	61,215	$	62,084	$	63,293

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

F-33

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

At January 1, 2003, newly issued or modified guarantees, that are not derivative contracts, are required to be recorded on the Company’s consolidated statement of financial condition at their fair value at inception. There was no liability related to such guarantees at March 31, 2004 and December 31, 2003. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include residential and commercial property; accounts receivable; inventory; property, plant and equipment; deposits and securities.

At March 31, 2004 and December 31, 2003, the outstanding balance of loans sold with recourse was approximately $197 and $222, respectively. Loan repurchase commitments are agreements to repurchase loans previously sold upon the occurrence of conditions established in the contract, including default by the underlying borrower.

Note 15. Regulatory Matters

The Company and the Bank 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 Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Company’s and the Bank’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 Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of March 31, 2004 and December 31, 2003, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2003, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since then that management believes have changed the Bank’s category.

F-34

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

The Company’s and Bank’s actual capital amounts and ratios at March 31, 2004 and December 31, 2003 and 2002 were:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
SI Bancorp - March 31, 2004:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	43,989	14.31	%	$	24,592	8.00	%	$	N/A	N/A
Tier I Capital to Risk Weighted Assets		40,990	13.33	%		12,300	4.00	%		N/A	N/A
Tier I Capital to Total Average Assets		40,990	7.82	%		20,967	4.00	%		N/A	N/A
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
Savings Institute - March 31, 2004:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	38,550	12.58	%	$	24,515	8.00	%	$	30,644	10.00	%
Tier I Capital to Risk Weighted Assets		35,551	11.60	%		12,259	4.00	%		18,388	6.00	%
Tier I Capital to Total Average Assets		35,551	6.88	%		20,669	4.00	%		25,836	5.00	%
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
SI Bancorp - December 31, 2003:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	43,013	14.23	%	$	24,182	8.00	%	$	N/A	N/A
Tier I Capital to Risk Weighted Assets		40,163	13.29	%		12,088	4.00	%		N/A	N/A
Tier I Capital to Total Average Assets		40,163	7.77	%		20,676	4.00	%		N/A	N/A
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
Savings Institute - December 31, 2003:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	37,529	12.45	%	$	24,115	8.00	%	$	30,144	10.00	%
Tier I Capital to Risk Weighted Assets		34,679	11.50	%		12,062	4.00	%		18,093	6.00	%
Tier I Capital to Total Average Assets		34,679	6.81	%		20,369	4.00	%		25,462	5.00	%

F-35

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
SI Bancorp - December 31, 2002:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	40,021	14.48	%	$	22,111	8.00	%	$	N/A	N/A
Tier I Capital to Risk Weighted Assets		36,936	13.37	%		11,050	4.00	%		N/A	N/A
Tier I Capital to Total Average Assets		36,936	7.75	%		19,064	4.00	%		N/A	N/A
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
Savings Institute - December 31, 2002:	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	33,406	12.12	%	$	22,050	8.00	%	$	27,563	10.00	%
Tier I Capital to Risk Weighted Assets		30,321	11.00	%		11,026	4.00	%		16,539	6.00	%
Tier I Capital to Total Average Assets		30,321	6.46	%		18,775	4.00	%		23,468	5.00	%

Note 16. Other Comprehensive Income

Other comprehensive income, which is comprised solely of the change in unrealized gains and losses on available for sale securities, is as follows:

	March 31, 2004
	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Unrealized holding gains arising during the period	$	450		$	(153	)	$	297
Less reclassification adjustment for gains recognized in net income		(184	)		63			(121	)
Unrealized holding losses on available for sale securities, net of taxes	$	266		$	(90	)	$	176

F-36

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

	December 31, 2003
	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Unrealized holding losses arising during the period	$	(1,171	)	$	397		$	(774	)
Less reclassification adjustment for gains recognized in net income		121			(41	)		80
Unrealized holding losses on available for sale securities, net of taxes	$	(1,050	)	$	356		$	(694	)
	December 31, 2002
	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Unrealized holding gains arising during the period	$	515		$	(175	)	$	340
Add reclassification adjustment for losses recognized in net income		258			(88	)		170
Unrealized holding gains on available for sale securities, net of taxes	$	773		$	(263	)	$	510
	December 31, 2001
	Before-Tax Amount			Tax Benefit (Expense)			Net-of-Tax Amount
Unrealized holding gains arising during the period	$	1,100		$	(374	)	$	726
Less reclassification adjustment for gains recognized in net income		(150	)		51			(99	)
Unrealized holding gains on available for sale securities, net of taxes	$	950		$	(323	)	$	627

F-37

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 17. Fair Value of Financial Instruments and Interest Rate Risk

Financial Accounting Standards Board Statement No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 excludes certain financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at either December 31, 2003 or 2002. The estimated fair value amounts for 2003 and 2002 have been measured as of their respective year-ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other banks may not be meaningful.

F-38

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

As of December 31, 2003 and 2002, the recorded book balances and estimated fair values of the Company’s financial instruments were:

	2003				2002
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	$	20,336	$	20,336	$	18,827	$	18,827
Interest bearing deposits		4,441		4,441		5,290		5,290
Federal funds sold		4,800		4,800		13,400		13,400
Available for sale securities		77,693		77,693		87,914		87,914
Held to maturity securities		1,728		1,344		9,463		8,985
Loans held for sale		—		—		1,939		1,939
Loans receivable, net		386,924		397,260		334,598		348,636
FHLB stock		2,858		2,858		2,386		2,386
Accrued interest receivable		2,238		2,238		2,293		2,293
Servicing assets		124		124		—		—
Financial Liabilities:
Savings deposits		87,625		87,625		82,236		82,236
Demand deposits, negotiable orders of withdrawal and money market		142,223		142,223		128,140		128,140
Time deposits		185,242		187,094		185,974		189,030
Mortgagors’ and investors’ escrow accounts		2,221		2,221		1,965		1,965
Advances from FHLBB		57,168		58,590		43,918		46,531
Collateralized borrowings		—		—		1,951		1,951
Subordinated debt		7,217		7,217		7,217		7,217

Off-balance-sheet instruments

Loan commitments on which the committed interest rate is less than the current market rate are insignificant at March 31, 2004 and December 31, 2003 and 2002.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

F-39

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 18. Reorganization

On December 10, 2003, the Boards of Directors of the Company and the Bank unanimously adopted a Plan of Reorganization and Minority Stock Issuance (the “Plan”) under which a newly chartered subsidiary or “mid-tier” holding company of the Company will sell and issue a minority interest in shares of its common stock. The Company also intends to establish a charitable foundation in connection with the reorganization and minority stock offering.

The newly chartered mid-tier holding company will offer shares of its common stock for sale to the Bank’s eligible account holders, to the Bank’s tax-qualified employee benefit plans, to directors, officers and employees of the Company and the Bank, and to the general public in accordance with the priorities set forth in the Plan. The amount of common stock to be sold in the offering will not exceed 49% of the total outstanding shares of the mid-tier holding company.

Following the reorganization and minority stock offering, the Bank will become a wholly-owned subsidiary of the mid-tier holding company, and the Company will own a majority, controlling interest in the mid-tier holding company. It is anticipated that this transaction will be completed prior to the end of the third quarter of 2004. This transaction is subject to the approval of various regulatory bodies. Costs incurred in connection with the stock offering will be recorded as a reduction of the proceeds from the offering. If the transaction is not consummated, all costs incurred in connection with the transaction will be expensed. At March 31, 2004 (unaudited), $150 in deferred offering costs are included in other assets.

On January 21, 2004, the Board of Directors of the Company and the Bank unanimously approved a charter change in which the Company and the Bank would convert from their state of Connecticut charters to federal charters and become regulated by the Office of Thrift Supervision. Pending regulatory approval, this change is expected to occur by June 30, 2004.

Note 19. Restrictions on Dividends, Loans and Advances

Federal and state regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the company. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the Bank, and loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis.

At March 31, 2004 and December 31, 2003, the Bank’s retained earnings available for payment of dividends was $8,334 and $7,912, respectively. Accordingly, $28,255 and $27,655 of the Company’s equity in the net assets of the Bank was restricted at March 31, 2004 and December 31, 2003, respectively.

Under Federal Reserve regulation, the Bank is also limited to the amount it may loan to the Company, unless such loans are collateralized by specific obligations. Loans or advances to the Company by the Bank are limited to 10% of the Bank’s capital stock and surplus on a secured basis.

F-40

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 20. SI Bancorp, Inc. Parent Company Only Financial Information

SI Bancorp, Inc.

Condensed Statements of Financial Condition

	March 31, 2004 (Unaudited)		December 31,
			2003		2002
Cash and due from banks	$	3,266	$	3,215	$	4,113
Available for sale securities		2,041		2,036		2,085
Investment in SI-Stock Savings Bank		36,588		35,566		32,010
Other assets		561		569		493
Total assets	$	42,456	$	41,386	$	38,701
Liabilities and Capital
Other liabilities		7,377		7,287		7,293
Total liabilities		7,377		7,287		7,293
Capital		35,079		34,099		31,408
Total liabilities and capital	$	42,456	$	41,386	$	38,701

SI Bancorp, Inc.

Condensed Statements of Income

	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
	2004			2003			2003		2002		2001
Dividends from subsidiary	$	—		$	—		$	350	$	325	$	100
Interest on investments		23			24			94		82		—
Other income		10			14			47		82		—
Total income		33			38			491		489		100
Operating expenses		100			106			412		347		5
(Loss) income before income taxes and equity in undistributed net income of subsidiary		(67	)		(68	)		79		142		95
Income tax benefit		23			23			92		62		2
		(44	)		(45	)		171		204		97
Equity in undistributed net income of subsidiary		848			995			3,214		2,878		1,819
Net income	$	804		$	950		$	3,385	$	3,082	$	1,916

F-41

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

SI BANCORP, INC.

CONDENSED STATEMENTS OF CASH FLOWS

	(Unaudited) Three Months Ended March 31,						Years Ended December 31,
	2004			2003			2003			2002			2001
Cash Flows From Operating Activities:
Net income	$	804		$	950		$	3,385		$	3,082		$	1,916
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary		(848	)		(995	)		(3,214	)		(2,878	)		(1,819	)
Other, net		95			100			(69	)		(266	)		(2	)
Cash provided by operating activities		51			55			102			(62	)		95
Cash Flows From Investing Activities
Investment in subsidiary		—			—			(1,000	)		(3,167	)		—
Cash provided by investing activities		—			—			(1,000	)		(3,167	)		—
Cash Flows From Financing Activities
Proceeds from issuance of subordinated debt		—			—			—			7,217			—
Cash provided by financing activities		—			—			—			7,217			—
Net increase (decrease) in cash and cash equivalents		51			55			(898	)		3,988			95
Cash and Cash Equivalents
Beginning		3,215			4,113			4,113			125			30
Ending	$	3,266		$	4,168		$	3,215		$	4,113		$	125

F-42

SI BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

March 31, 2004 and 2003 (Unaudited) and December 31, 2003, 2002 and 2001

(Dollars in Thousands)

Note 21. Quarterly Data (Unaudited)

	2003								2002
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
Interest and dividend income	$	6,707	$	7,142	$	7,086	$	6,995	$	7,276	$	7,183	$	6,947	$	6,924
Interest expense		2,218		2,295		2,379		2,454		2,741		2,756		2,723		2,794
Net interest income		4,489		4,847		4,707		4,541		4,535		4,427		4,224		4,130
Provision for loan losses		120		340		967		175		140		195		97		105
Net interest income after provision for loan losses		4,369		4,507		3,740		4,366		4,395		4,232		4,127		4,025
Non-interest income		1,162		1,143		1,201		1,216		744		820		787		933
Non-interest expenses		4,140		4,167		4,193		4,106		3,956		3,805		3,787		3,846
Income before income taxes		1,391		1,483		748		1,476		1,183		1,247		1,127		1,112
Provision for income taxes		453		503		231		526		364		448		397		378
Net income	$	938	$	980	$	517	$	950	$	819	$	799	$	730	$	734

F-43

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered by this prospectus to any person or in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make an offer or solicitation in those jurisdictions. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.

[LOGO]

(Holding Company for Savings Institute Bank and Trust Company)

Up to 3,910,000 Shares

(Anticipated Maximum)

COMMON STOCK

Par Value $0.01 per share

PROSPECTUS

SANDLER O’NEILL & PARTNERS, L.P.

                    , 2004

These securities are not deposits or accounts and are not federally insured or guaranteed.

Until _________, 2004, or 25 days after commencement of the syndicated community offering, if any, whichever is later, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus when acting as underwriters and with respect to their unsold allotments of subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

SEC filing fee (1)	$	5,982
OTS filing fee		6,400
NASD filing fee (1)		5,222
Stock Market listing fee		100,000
EDGAR, printing, postage and mailing		125,000
Legal fees and expenses (including underwriter’s counsel fees)		325,000
Accounting fees and expenses		50,000
Appraiser and Business Planner’s fees and expenses		50,000
Marketing fees and expenses (1)		451,000
Conversion agent fees and expenses		50,000
Transfer agent and registrar fees and expenses		20,000
Certificate printing		10,000
Miscellaneous		27,396
Total	$	1,226,000

⁽¹⁾ Estimated expenses based on the registration of 4,721,325 shares at $10.00 per share.

Item 14. Indemnification of Directors and Officers.

Article XII of the Registrant’s bylaws provide:

The Subsidiary Holding Company shall indemnify all officers, directors and employees of the Subsidiary Holding Company, and their heirs, executors and administrators, to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or proceeding in which they may be involved by reason of their having been a director or officer of the Subsidiary Holding Company, whether or not they continue to be a director or officer at the time of incurring such expenses or liabilities, such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

Generally, federal law provides indemnity coverage for:

(a) Any person against whom any action is brought or threatened because that person is or was a director or officer of the association, for:

(i) Any amount for which that person becomes liable under a judgment in such action; and

(ii) Reasonable costs and expenses, including reasonable attorneys’ fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under this section if he or she attains a favorable judgment in such enforcement action.

II-1

(b) Indemnification shall be made to such person only if:

(i) Final judgment on the merits is in his or her favor; or

(ii) In case of:

a. Settlement,

b. Final judgment against him or her, or

c. Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the savings association determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of the savings association or its members.

However, no indemnification shall be made unless the association gives the Office of Thrift Supervision at least 60 days notice of its intention to make such indemnification. No such indemnification shall be made if the Office of Thrift Supervision advises the association in writing, within such notice period, of its objection thereto.

(c) As used in this paragraph:

(i) “Action” means any judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or other proceeding for review.

(ii) “Court” includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought.

(iii) “Final judgment” means a judgment, decree, or order which is not appealable or as to which the period for appeal has expired with no appeal taken.

(iv) “Settlement” includes the entry of a judgment by consent or confession or a plea of guilty or of nolo contendere.

Item 15. Recent Sales of Unregistered Securities

None.

II-2

Item 16. Exhibits and Financial Statement Schedules.

The exhibits and financial statement schedules filed as a part of this registration statement are as follows:

(a)	List of Exhibits (filed herewith unless otherwise noted)
1.1	Engagement Letter between Savings Institute and Sandler O’Neill & Partners, L.P.
1.2	Draft Form of Agency Agreement*
2.1	Plan of Reorganization and Minority Stock Issuance, as amended and restated
3.1	Charter of SI Financial Group, Inc.
3.2	Bylaws of SI Financial Group, Inc.
4.1	Specimen Stock Certificate of SI Financial Group, Inc.
5.1	Form of Opinion of Muldoon Murphy Faucette & Aguggia LLP re: Legality
8.1	Form of Opinion of Muldoon Murphy Faucette & Aguggia LLP re: Federal Tax Matters
8.2	Form of Opinion re: State Tax Matters*
10.1	Form of Savings Institute Bank and Trust Company Employee Stock Ownership Plan and Trust
10.2	Form of ESOP Loan Commitment Letter and ESOP Loan Documents
10.3	Savings Institute Profit Sharing and 401(k) Savings Plan, as amended
10.4	Form of SI Financial Group, Inc. and Savings Institute Bank and Trust Company Employment Agreement
10.5	Form of Savings Institute Bank and Trust Company Change in Control Agreement
10.6	Form of Savings Institute Bank and Trust Company Employee Severance Compensation Plan
10.7	Savings Institute Directors Retirement Plan
10.8	Form of Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan
10.9	Savings Institute Group Term Replacement Plan
10.10	Form of Savings Institute Executive Supplemental Retirement Plan - Defined Benefit
10.11	Form of Savings Institute Director Deferred Fee Agreement
10.12	Form of Savings Institute Director Consultation Plan
21.1	Subsidiaries of the Registrant
23.1	Consent of Muldoon Murphy Faucette & Aguggia LLP (contained in Exhibits 5.1 and 8.1)
23.2	Consent of McGladrey & Pullen, LLP
23.3	Consent of Keller & Company, Inc.
24.1	Powers of Attorney
99.1	Appraisal Report of Keller & Company, Inc. (P)
99.2	Marketing Materials*
99.3	Subscription Order Form and Instructions*
99.4	Draft of SI Financial Group Foundation Gift Instrument

* To be filed by amendment

(P) The supporting exhibits of financial schedules are filed in paper format pursuant to Rule 202 and Rule 311 of Regulation S-T.

(b) Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the rules of Regulation S-X.

II-3

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Willimantic, State of Connecticut, on June 10, 2004.

SI Financial Group, Inc.
By:	/s/    RHEO A. BROUILLARD
	Rheo A. Brouillard
	President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/    RHEO A. BROUILLARD         Rheo A. Brouillard	President, Chief Executive Officer and Director (principal executive officer)	June 10, 2004
/s/    BRIAN J. HULL         Brian J. Hull	Executive Vice President, Chief Financial Officer and Treasurer (principal accounting and financial officer)	June 10, 2004
/s/    HENRY P. HINCKLEY         Henry P. Hinckley	Chairman of the Board	June 10, 2004
/s/    ROBERT C. CUSHMAN, SR.          Robert C. Cushman, Sr.	Director	June 10, 2004
/s/    ROGER ENGLE         Roger Engle	Director	June 10, 2004
/s/    ROBERT O. GILLARD         Robert O. Gillard	Director	June 10, 2004
/s/    EVERETT A. WATSON         Everett A. Watson	Director	June 10, 2004
/s/    DONNA M. EVAN         Donna M. Evan	Director	June 10, 2004
/s/    STEVEN H. TOWNSEND         Steven H. Townsend	Director	June 10, 2004

II-5

As filed with the Securities and Exchange Commission on June 10, 2004

Registration No. 333-             

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

EXHIBITS

TO THE

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SI Financial Group, Inc.

(Exact name of registrant as specified in its charter)

TABLE OF CONTENTS

List of Exhibits (filed herewith unless otherwise noted)

1.1	Engagement Letter between Savings Institute and Sandler O’Neill & Partners, L.P.
1.2	Draft Form of Agency Agreement*
2.1	Plan of Reorganization and Minority Stock Issuance, as amended and restated
3.1	Charter of SI Financial Group, Inc.
3.2	Bylaws of SI Financial Group, Inc.
4.1	Specimen Stock Certificate of SI Financial Group, Inc.
5.1	Form of Opinion of Muldoon Murphy Faucette & Aguggia LLP re: Legality
8.1	Form of Opinion of Muldoon Murphy Faucette & Aguggia LLP re: Federal Tax Matters
8.2	Form of Opinion re: State Tax Matters*
10.1	Form of Savings Institute Bank and Trust Company Employee Stock Ownership Plan and Trust
10.2	Form of ESOP Loan Commitment Letter and ESOP Loan Documents
10.3	Savings Institute Profit Sharing and 401(k) Savings Plan, as amended
10.4	Form of SI Financial Group, Inc. and Savings Institute Bank and Trust Company Employment Agreement
10.5	Form of Savings Institute Bank and Trust Company Change in Control Agreement
10.6	Form of Savings Institute Bank and Trust Company Employee Severance Compensation Plan
10.7	Savings Institute Directors Retirement Plan
10.8	Form of Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan
10.9	Savings Institute Group Term Replacement Plan
10.10	Form of Savings Institute Executive Supplemental Retirement Plan - Defined Benefit
10.11	Form of Savings Institute Director Deferred Fee Agreement
10.12	Form of Savings Institute Director Consultation Plan
21.1	Subsidiaries of the Registrant
23.1	Consent of Muldoon Murphy Faucette & Aguggia LLP (contained in Exhibits 5.1 and 8.1)
23.2	Consent of McGladrey & Pullen, LLP
23.3	Consent of Keller & Company, Inc.
24.1	Powers of Attorney
99.1	Appraisal Report of Keller & Company, Inc. (P)
99.2	Marketing Materials*
99.3	Subscription Order Form and Instructions*
99.4	Draft of SI Financial Group Foundation Gift Instrument

* To be filed by amendment

(P) The supporting exhibits of financial schedules are filed in paper format pursuant to Rule 202 and Rule 311 of Regulation S-T.

EX-1.1

[Sandler O’Neill & Partners, L.P. Letterhead]

Exhibit 1.1

December 11, 2003

Board of Directors

SI Bancorp, Inc.

803 Main Street

Willimantic, CT 06226

Board of Directors

The Savings Institute

803 Main Street

Willimantic, CT 06226

Attention:         Mr. Rheo A. Brouillard

President and Chief Executive Officer

Ladies and Gentlemen:

Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) is pleased to act as an independent financial advisor to the The Savings Institute (the “Bank”) and SI Bancorp, Inc. (the “Holding Company”) in connection with the formation of a middle-tier stock holding company (the “Reorganization”) and the offer and sale of certain shares of the common stock (the “Common Stock”) of the newly-organized middle-tier stock holding company (the “MHC”) to the Bank’s eligible account holders in a Subscription Offering, to members of the Bank’s community in a Direct Community Offering and, under certain circumstances, to the general public in a Syndicated Community Offering (collectively, the “Offerings”). For purposes of this letter, the term “Actual Purchase Price” shall mean the price at which the shares of the Common Stock are sold in the Offerings. This letter is to confirm the terms and conditions of our engagement.

ADVISORY SERVICES

Sandler O’Neill will act as a consultant and advisor to the Bank, the MHC and the Holding Company and will work with the Bank’s, the MHC’s and the Holding Company’s management, counsel, accountants and other advisors in connection with the Reorganization and the Offerings. We anticipate that our services will include the following, each as may be necessary and as the Bank, the MHC and the Holding Company may reasonably request:

1. Consulting as to the securities marketing implications of any aspect of the Plan of Reorganization or related corporate documents;

2. Reviewing with the Board of Directors the independent appraiser’s appraisal of the Common Stock;

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 2

3. Reviewing all offering documents, including the Prospectus, stock order forms and related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Bank, the MHC and the Holding Company and their counsel);

4. Assisting in the design and implementation of a marketing strategy for the Offerings;

5. Assisting in obtaining all requisite regulatory approvals;

6. Assisting Bank management in scheduling and preparing for meetings with potential investors and broker-dealers; and

7. Providing such other general advice and assistance as may be requested to promote the successful completion of the Reorganization.

FEES

If the Offerings are consummated, the Bank, the MHC and the Holding Company agree to pay Sandler O’Neill for its services hereunder the fees set forth below:

1. a fee of one percent (1.0%) of the aggregate Actual Purchase Price of the shares of common stock sold in the Subscription Offering and in the Direct Community Offering, excluding in each case shares purchased by (i) any employee benefit plan of the Holding Company, the MHC or the Bank established for the benefit of their respective directors, officers and employees, and (ii) any director, officer or employee of the Holding Company or the Bank or members of their immediate families; and

2. with respect to any shares of the Holding Company’s common stock sold by any NASD member firm under any selected dealers agreement in the Syndicated Community Offering, (a) the sales commission payable to the selected dealer under such agreement, (b) any sponsoring dealer’s fees, and (c) a management fee to Sandler O’Neill of one percent (1.0%) of the Aggregate Purchase Price. Any fees payable to Sandler O’Neill for common stock sold by Sandler O’Neill under any such agreement shall be limited to an aggregate of one percent (1.0%) of the Actual Purchase Price of such shares.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 3

If (i) Sandler O’Neill’s engagement hereunder is terminated for any of the reasons provided for under the second paragraph of the section of this letter captioned “Definitive Agreement,” or (ii) the Reorganization is terminated by the Bank, no fees shall be payable by the Bank or the Holding Company to Sandler O’Neill hereunder; however, the Bank and the Holding Company shall reimburse Sandler O’Neill for its reasonable out-of-pocket expenses (including legal fees) incurred in connection with its engagement hereunder and for any fees and expenses incurred by Sandler O’Neill on behalf of the Bank or the Holding Company pursuant to the second paragraph under the caption “Costs and Expenses” below.

All fees payable to Sandler O’Neill hereunder shall be payable in cash at the time of the closing of the Offerings. In recognition of the long lead times involved in the reorganization process, the Bank agrees to make an advance payment to Sandler O’Neill in the aggregate amount of $25,000, which shall be payable upon execution of this letter and which shall be credited against any fees or reimbursement of expenses payable hereunder.

SYNDICATED COMMUNITY OFFERING

If any shares of the Common Stock remain available after the expiration of the Subscription Offering and the Direct Community Offering, at the request of the Bank and the Holding Company and subject to the continued satisfaction of the conditions set forth in the second paragraph under the caption “Definitive Agreement” below, Sandler O’Neill will seek to form a syndicate of registered dealers to assist in the sale of such Common Stock in a Syndicated Community Offering on a best efforts basis, subject to the terms and conditions set forth in a selected dealers agreement. Sandler O’Neill will endeavor to limit the aggregate fees to be paid by the Bank and the Holding Company under any such selected dealers agreement to an amount competitive with gross underwriting discounts charged at such time for underwritings of comparable amounts of stock sold at a comparable price per share in a similar market environment, which shall not exceed 7% of the aggregate Actual Purchase Price of the shares sold under such agreements. Sandler O’Neill will endeavor to distribute the Common Stock among dealers in a fashion which best meets the distribution objectives of the Bank and the Holding Company and the requirements of the Plan of Reorganization, which may result in limiting the allocation of stock to certain selected dealers. It is understood that in no event shall Sandler O’Neill be obligated to act as a selected dealer or to take or purchase any shares of the Common Stock.

COSTS AND EXPENSES

In addition to any fees that may be payable to Sandler O’Neill hereunder and the expenses to be borne by the Bank and the Holding Company pursuant to the following paragraph, the Bank and the Holding Company agree to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder,

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 4

regardless of whether the Reorganization or the Offerings are consummated, including, without limitation, legal fees, advertising, promotional, syndication, and travel, up to an aggregate maximum of $50,000; provided, however, that Sandler O’Neill shall document such expenses to the reasonable satisfaction of the Bank and the Holding Company. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this letter.

As is customary, the Bank and the Holding Company will bear all other expenses incurred in connection with the Reorganization and the Offerings, including, without limitation, (i) the cost of obtaining all securities and bank regulatory approvals, including any required NASD filing fees; (ii) the cost of printing and distributing the offering materials; (iii) the costs of blue sky qualification (including fees and expenses of blue sky counsel) of the shares in the various states; (iv) listing fees; and (v) all fees and disbursements of the Bank’s and the Holding Company’s counsel, accountants, conversion agent and other advisors. In the event Sandler O’Neill incurs any such fees and expenses on behalf of the Bank or the Holding Company, the Bank and the Holding Company will reimburse Sandler O’Neill for such fees and expenses whether or not the Reorganization is consummated.

DUE DILIGENCE REVIEW

Sandler O’Neill’s obligation to perform the services contemplated by this letter shall be subject to the satisfactory completion of such investigation and inquiries relating to the Bank, the MHC and the Holding Company, and their respective directors, officers, agents and employees, as Sandler O’Neill and its counsel in their sole discretion may deem appropriate under the circumstances. In this regard, the Bank and the Holding Company agree that, at their expense, it will make available to Sandler O’Neill all information which Sandler O’Neill requests, and will allow Sandler O’Neill the opportunity to discuss with the Bank’s, the MHC’s and the Holding Company’s management the financial condition, business and operations of the Bank, the MHC and the Holding Company. The Bank and the Holding Company acknowledge that Sandler O’Neill will rely upon the accuracy and completeness of all information received from the Bank, the MHC and the Holding Company and their directors, trustees, officers, employees, agents, independent accountants and counsel.

BLUE SKY MATTERS

The Bank and the Holding Company agree that if Sandler O’Neill’s counsel does not serve as counsel with respect to blue sky matters in connection with the Offerings, the Bank and the Holding Company will cause the counsel performing such services to prepare a Blue Sky Memorandum related to the Offerings including Sandler O’Neill’s participation therein and shall furnish Sandler O’Neill a copy thereof addressed to Sandler O’Neill or upon which such counsel shall state Sandler O’Neill may rely.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 5

CONFIDENTIALITY

Other than disclosure to other firms made part of any syndicate of selected dealers or as required by law or regulation or legal process, Sandler O’Neill agrees that it will treat as confidential all material, non-public information relating to the Bank, the MHC and the Holding Company obtained in connection with its engagement hereunder (the “Confidential Information”) whether or not the Reorganization is consummated. As used in this paragraph, the term “Confidential Information” shall not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by Sandler O’Neill, (ii) was available to Sandler O’Neill on a non-confidential basis prior to its disclosure to Sandler O’Neill by the Bank, the MHC or the Holding Company, or (iii) becomes available to Sandler O’Neill on a non-confidential basis from a person other than the Bank, the MHC or the Holding Company who is not otherwise known to Sandler O’Neill to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation.

INDEMNIFICATION

Since Sandler O’Neill will be acting on behalf of the Bank, the MHC and the Holding Company in connection with the Reorganization and the Offerings, the Holding Company, the MHC and the Bank agree to indemnify and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934 (Sandler O’Neill and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the Reorganization or the Offerings or the engagement of Sandler O’Neill pursuant to, or the performance by Sandler O’Neill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party; provided, however, that the Bank, the MHC and the Holding Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (i) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, or any of the applications, notices, filings or documents related thereto made in reliance on and in conformity with written information furnished to the Bank, the MHC or the Holding Company by Sandler O’Neill expressly for use therein, or (ii) is primarily attributable to the gross negligence, willful misconduct or bad faith of Sandler O’Neill. If the foregoing indemnification is unavailable for any reason, the Bank, the MHC and the Holding Company agree to contribute to such losses, claims, damages, liabilities and expenses in the proportion that its financial interest in the Reorganization and the Offerings bears to that of Sandler O’Neill.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 6

DEFINITIVE AGREEMENT

Sandler O’Neill and the Bank and the Holding Company agree that (a) except as set forth in clause (b), the foregoing represents the general intention of the Bank, the Holding Company and Sandler O’Neill with respect to the services to be provided by Sandler O’Neill in connection with the Offerings, which will serve as a basis for Sandler O’Neill commencing activities, and (b) the only legal and binding obligations of the Bank, the Holding Company and Sandler O’Neill with respect to the subject matter hereof shall be (1) the Bank’s and the Holding Company’s obligation to reimburse costs and expenses pursuant to the section captioned “Costs and Expenses,” (2) those set forth under the captions “Confidentiality” and “Indemnification,” and (3) as set forth in a duly negotiated and executed definitive Agency Agreement to be entered into prior to the commencement of the Subscription Offering relating to the services of Sandler O’Neill in connection with the Offerings. Such Agency Agreement shall be in form and content satisfactory to Sandler O’Neill, the Bank, the MHC and the Holding Company and their respective counsel and shall contain standard indemnification provisions mutually acceptable to the Bank, the MHC and the Holding Company and Sandler O’Neill and consistent herewith.

Sandler O’Neill’s execution of such Agency Agreement shall also be subject to (i) Sandler O’Neill’s satisfaction with its investigation of the Bank’s, the MHC’s and the Holding Company’s business, financial condition and results of operations, (ii) preparation of offering materials that are satisfactory to Sandler O’Neill and its counsel, (iii) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of Sandler O’Neill’s counsel, (iv) agreement that the price established by the independent appraiser is reasonable and (v) market conditions at the time of the proposed offering. Sandler O’Neill may terminate this agreement if such Agency Agreement is not entered into prior to June 30, 2004.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 7

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter enclosed herewith.

Very truly yours,
Sandler O’Neill & Partners, L.P.
By:	Sandler O’Neill & Partners Corp., the sole general partner
By:	/s/ Catherine A. Lawton
	Catherine A. Lawton Vice President

Accepted and agreed to as of the date first above written:
SI Bancorp, Inc.
By:	/s/ Rheo A. Brouillard
Name:	Rheo A. Brouillard
Its:	President and CEO
The Savings Institute
By:	/s/ Rheo A. Brouillard
Name:	Rheo A. Brouillard
Its:	President and CEO

[Sandler O’Neill & Partner, L.P. Letterhead]

December 11, 2003

SI Bancorp, Inc.

803 Main Street

Willimantic, CT 06226

The Savings Institute

803 Main Street

Willimantic, CT 06226

Attention:            Mr. Rheo Brouillard

                            President and Chief Executive Officer

Dear Mr. Brouillard:

Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) is pleased to act as conversion agent to The Savings Institute (the “Bank”) and SI Bancorp, Inc. (the “Holding Company”) in connection with the proposed reorganization of the Bank and the Holding Company and the formation of a middle-tier stock holding company (the “Reorganization”). This letter is to confirm the terms and conditions of our engagement.

SERVICES AND FEES

In our role as Conversion Agent, we anticipate that our services will include the services outlined below, each as may be necessary and as the Bank and the Holding Company may reasonably request:

I. Consolidation of Accounts and Development of a Central File

II. Preparation of Order and/or Request Forms

III. Organization and Supervision of the Conversion Center

IV. Subscription Services

Each of these services is further described in Appendix A to this agreement.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 2

For its services hereunder, the Bank and the Holding Company agree to pay Sandler O’Neill a fee of $25,000. The fee set forth above is based upon the requirements of current regulations and the Plan of Reorganization as currently contemplated. Any unusual or additional items or duplication of service required as a result of a material change in the regulations or the Plan of Reorganization, or a material delay or other similar events may result in extra charges which will be covered in a separate agreement if and when they occur.

All fees under this agreement shall be payable in cash, as follows: (a) $5,000 payable upon execution of this agreement by the Bank, which shall be non-refundable; and (b) the balance upon the completion of the Reorganization.

COSTS AND EXPENSES

In addition to any fees that may be payable to Sandler O’Neill hereunder, the Bank and the Holding Company agree to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder regardless of whether the Reorganization is consummated, including, without limitation, travel, lodging, food, telephone, postage, listings, forms and other similar expenses; provided, however, that Sandler O’Neill shall document such expenses to the reasonable satisfaction of the Bank and the Holding Company. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this agreement.

As is customary, all costs and expenses associated with the Conversion Center will be borne by the Bank and the Holding Company. In addition, all taxes however designated, arising from or based upon this agreement or the payments made to Sandler O’Neill pursuant hereto, including, but not limited to, any applicable sales, use, excise and similar taxes, shall be paid by the Bank and the Holding Company as the same become due, and the Bank and the Holding Company shall, upon request by Sandler O’Neill, pay the same either to Sandler O’Neill or to the appropriate taxing authority at any time during, or after the termination of, this Agreement; provided, however, that the Bank and the Holding Company shall not be responsible for the payment of any state, federal, or local franchise or income taxes based upon the net income of Sandler O’Neill.

RELIANCE ON INFORMATION PROVIDED

The Bank and the Holding Company will provide Sandler O’Neill with such information as Sandler O’Neill may reasonably require to carry out its duties. The Bank and the Holding

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 3

Company recognize and confirms that Sandler O’Neill (a) will use and rely on such information in performing the services contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy or completeness of the information. The Bank and the Holding Company will also inform Sandler O’Neill within a reasonable period of time of any changes in the Plan of Reorganization which require changes in Sandler O’Neill’s services. If a substantial expense results from any such change, the parties shall negotiate an equitable adjustment in the fee.

LIMITATIONS

Sandler O’Neill, as Conversion Agent hereunder, (a) shall have no duties or obligations other than those specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form or any stock certificates or the shares represented thereby, and will not be required to and will make no representations as to the validity, value or genuineness of the offer; (c) shall not be liable to any person, firm or corporation including the Bank and the Holding Company by reason of any error of judgment or for any act done by it in good faith, or for any mistake of law or fact in connection with this agreement and the performance hereof unless caused by or arising out of its own willful misconduct, bad faith or gross negligence; (d) will not be obliged to take any legal action hereunder which might in its judgment involve any expense or liability, unless it shall have been furnished with reasonable indemnity satisfactory to it; and (e) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties.

Anything in this agreement to the contrary notwithstanding, in no event shall Sandler O’Neill be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if Sandler O’Neill has been advised of the likelihood of such loss or damage and regardless of form of action.

INDEMNIFICATION

The Bank and the Holding Company agree to indemnify and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons (Sandler O’Neill and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 4

to or arising out of the engagement of Sandler O’Neill pursuant to, and the performance by Sandler O’Neill of the services contemplated by this letter, and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party. The Bank and the Holding Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from Sandler O’Neill’s willful misconduct, bad faith or gross negligence.

MISCELLANEOUS

The following addresses shall be sufficient for written notices to each other:

If to you:	The Savings Institute
	803 Main Street
	Willimantic, CT. 06226
	Attention:	Mr. Rheo Brouillard
If to us:	Sandler O’Neill & Partners, L.P.
	919 Third Avenue, 6th Floor
	New York, New York 10022
	Attention:	Ms. Catherine A. Lawton General Counsel

The Agreement and appendix hereto constitute the entire Agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement is governed by the laws of the State of New York.

SI Bancorp, Inc.

The Savings Institute

December 11, 2003

Page 5

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter enclosed herewith.

Very truly yours,
Sandler O’Neill & Partners, L.P.
By:	Sandler O’Neill & Partners Corp., the sole general partner
By:	/s/ Thomas P. Duke
	Thomas P. Duke Vice President

Accepted and agreed to as of the date first above written:
SI Bancorp, Inc.
By:	/s/ Rheo A. Brouillard
Name:	Rheo A. Brouillard
Its:	President and CEO

APPENDIX A

OUTLINE OF CONVERSION AGENT SERVICES

I. Consolidation of Accounts

1. Consolidate files in accordance with regulatory guidelines.

2. Accounts from various files are all linked together. The resulting central file can then be maintained on a regular basis.

3. Our EDP format will be provided to your data processing people.

II. Order Form/Request Card Preparation

1. Any combination of request cards and stock order forms for ordering stock.

2. Target group identification for subscription offering.

III. Organization and Supervision of Conversion Center

1. Advising on and supervising the physical organization of the conversion center, including materials requirements.

2. Assist in the training of all Bank personnel who will be staffing the conversion center.

3. Establish reporting procedures.

4. On-site supervision of the Conversion Center during the solicitation/offering period.

IV. Subscription Services

1. Produce list of depositors by state (Blue Sky report).

2. Production of subscription rights and research books.

3. Stock order form processing.

4. Acknowledgment letter to confirm receipt of stock order.

5. Daily reports and analysis.

6. Proration calculation and share allocation in the event of an oversubscription.

7. Produce charter shareholder list.

8. Interface with Transfer Agent for Stock Certificate issuance.

9. Refund and interest calculations.

10. Confirmation letter to confirm purchase of stock.

11. Notification of full/partial rejection of orders.

12. Production of 1099/Debit tape.

A - 1

EX-2.1

Exhibit 2.1

SI BANCORP, MHC

SI FINANCIAL GROUP, INC.

SAVINGS INSTITUTE

PLAN OF REORGANIZATION

AND

MINORITY STOCK ISSUANCE

DATED AS OF DECEMBER 10, 2003

AS AMENDED AND RESTATED ON JUNE 8, 2004

TABLE OF CONTENTS

		PAGE
1.	Introduction	1
2.	Definitions	2
3.	General Procedure for the Stock Issuance	6
3A.	Establishment and Funding of Charitable Foundation	7
4.	Total Number of Shares and Purchase Price of Common Stock	8
5.	Subscription Rights of Eligible Account Holders (First Priority)	9
6.	Subscription Rights of Tax-Qualified Employee Stock Benefit Plans (Second Priority)	9
7.	Subscription Rights of Supplemental Eligible Account Holders(Third Priority)	10
8.	Subscription Rights of Other Members (Fourth Priority)	11
9.	Community Offering, Syndicated Community Offering, Public Offering and Other Offerings	11
10.	Limitations on Subscriptions and Purchases of Common Stock	13
11.	Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms	15
12.	Payment for Common Stock	17
13.	Account Holders in Nonqualified States or Foreign Countries	18
14.	Requirements Following the Stock Issuance for Registration, Market Making and Stock Exchange Listing	19
15.	Completion of the Stock Offering	19
16.	Requirements for Stock Purchases by Directors and Officers Following the Stock Issuance	19
17.	Restrictions on Transfer of Stock	19

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18.	Stock Compensation Plans	20
19.	Dividend and Repurchase Restrictions on Stock	21
20.	Amendment or Termination of the Plan	21
21.	Interpretation of the Plan	21

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1. INTRODUCTION.

For purposes of this section, all capitalized terms have the meanings ascribed to them in Section 2.

On December 10, 2003, the Boards of Directors of the Bank and the MHC adopted this Plan of Reorganization and Minority Stock Issuance. On February 25, 2004, the Boards of Directors of the Bank and the MHC adopted a Plan of Reorganization and Charter Conversion under which: (i) the Bank will convert from a Connecticut-chartered savings bank to a federal savings bank; (ii) the MHC will convert from a Connecticut-chartered mutual holding company to a federal mutual holding company and (iii) the Holding Company will be formed. The Bank, the MHC and the Holding company will all be federally-chartered. Accordingly, this Plan of Reorganization and Minority Stock Issuance was amended and restated to conform the rules and regulations of the OTS.

This Plan of Reorganization and Minority Stock Issuance provides for a stock offering, in compliance with OTS regulations, of up to 49.9% of the total aggregate voting stock of the Holding Company. This Plan of Reorganization and Minority Stock Issuance provides that non-transferable subscription rights to purchase up to 49.9% of the Common Stock of the Holding Company shall be granted to certain Members of the MHC pursuant to the Plan and in accordance with the rules and regulations of the OTS. The Stock Issuance will permit the Savings Bank to control the amount of capital being raised, while at the same time enabling the Savings Bank to: (1) support future lending and operational growth, including branching activities and acquisitions of other financial institutions or financial services companies; (2) increase its ability to render services to the communities it serves; (3) compete more effectively with commercial banks and other financial institutions for new business opportunities; and (4) increase its equity capital base and access the capital markets when needed. Upon completion of the Stock Issuance, the MHC will continue to own at least a majority of the Common Stock of the Holding Company.

In furtherance of the Savings Bank’s commitment to its community, the Plan provides for the establishment of a charitable foundation as part of the Stock Issuance. The charitable foundation is intended to complement the Savings Bank’s existing community reinvestment activities in a manner that will allow the Savings Bank’s local communities to share in the growth and profitability of the Holding Company and the Savings Bank over the long term. Consistent with the Savings Bank’s goal, the Holding Company intends to donate to the charitable foundation immediately following the Stock Issuance a number of shares of its authorized but unissued Common Stock in an amount up to 2% of the Common Stock issued in the Stock Issuance.

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2. DEFINITIONS.

As used in this Plan, the terms set forth below have the following meaning:

ACTING IN CONCERT means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement or understanding; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another Person or company (“other party”) shall also be deemed to be acting in concert with any Person who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated and participants or beneficiaries of any such Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert solely as a result of their common interests as participants or beneficiaries. When Persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is Acting in Concert shall be made solely by the Board of Directors of the Holding Company or Officers delegated by such Board and may be based on any evidence upon which the Board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact that such Persons have filed joint Schedules 13D or Schedules 13G with the SEC with respect to other companies. Directors of the Holding Company, the Savings Bank and the MHC shall not be deemed to be Acting in Concert solely as a result of their membership on any such board or boards.

ACTUAL PURCHASE PRICE means the price per share at which the Common Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof.

AFFILIATE means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

ASSOCIATE, when used to indicate a relationship with any Person, means (i) a corporation or organization (other than the MHC, the Holding Company, the Savings Bank or a majority-owned subsidiary of the MHC, the Holding Company or the Savings Bank) of which such Person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the MHC, Holding Company or the Savings Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the MHC, the Holding Company or the Savings Bank or any of their subsidiaries.

CODE means the Internal Revenue Code of 1986, as amended.

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COMMON STOCK means the shares of common stock, par value $0.01 per share, to be issued by the Holding Company to the MHC, to be contributed by the Holding Company to the Foundation and to be issued and sold by the Holding Company in the Offerings, all pursuant to the Plan. The Common Stock will not be insured by the Federal Deposit Insurance Corporation.

COMMUNITY OFFERING means the offering for sale by the Holding Company of any shares of Common Stock not subscribed for in the Subscription Offering to such Persons within or without Hartford, New London, Tolland and Windham Counties, Connecticut as may be selected by the Holding Company in its sole discretion and to whom a copy of the Prospectus is delivered by or on behalf of the Holding Company.

CONTROL (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

DEPOSIT ACCOUNT means any withdrawable account as defined in Section 561.42 of the Rules and Regulations of the OTS, including a demand account as defined in Section 561.16 of the Rules and Regulations of the OTS.

ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining Subscription Rights.

ELIGIBILITY RECORD DATE means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on November 30, 2002.

ESOP means a Tax Qualified Employee Stock Benefit Plan adopted by the MHC, the Holding Company or the Savings Bank in connection with the Stock Issuance, the purpose of which shall be to acquire the Common Stock.

ESTIMATED PRICE RANGE means the range of the estimated aggregate pro forma market value of the total number of shares of Common Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof.

FDIC means the Federal Deposit Insurance Corporation or any successor thereto.

FOUNDATION means a charitable foundation that will qualify as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the establishment and funding of which is contemplated by Section 3A herein.

HOLDING COMPANY means SI Financial Group, Inc., the federal stock corporation that holds all of the outstanding capital stock of the Savings Bank.

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INDEPENDENT APPRAISER means the independent investment banking or financial consulting firm retained by the Holding Company and the Savings Bank to prepare an appraisal of the estimated pro forma market value of the Common Stock.

INITIAL PURCHASE PRICE means the price per share to be paid initially by Participants for shares of Common Stock subscribed for in the Subscription Offering and by Persons for shares of Common Stock ordered in the Community Offering and/or Syndicated Community Offering.

MANAGEMENT PERSON means any Officer or director of the Savings Bank or the Holding Company or any Affiliate of the Savings Bank or the Holding Company and any person Acting in Concert with such Officer or director.

MEMBER means any Person qualifying as a member of the MHC in accordance with its mutual charter and bylaws and the laws of the United States.

MHC means SI Bancorp, MHC, the federal mutual holding company, that, upon completion of the Stock Issuance, shall hold at least 50.1% of the Common Stock.

MINORITY STOCKHOLDER means any owner of the Common Stock other than the MHC and the Foundation.

OFFERINGS mean the offering of Common Stock to Persons other than the MHC and the Foundation in the Subscription Offering, the Community Offering and the Syndicated Community or Public Offering.

OFFICER means the president, chief executive officer, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.

ORDER FORM means the form or forms to be provided by the Holding Company, containing all such terms and provisions as set forth in Section 11 hereof, to a Participant or other Person by which Common Stock may be ordered in the Offerings.

OTHER MEMBER means a Member on the close of business on the last business day of the month prior to the month in which the Plan is approved by the OTS, who is not an Eligible Account Holder or a Supplemental Eligible Account Holder.

OTS means the Office of Thrift Supervision or any successor thereto.

PARTICIPANT means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other Member, but does not include the MHC or the Foundation.

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PERSON means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a limited liability partnership, a trust, an unincorporated organization or a government or any political subdivision thereof.

PLAN and PLAN OF REORGANIZATION AND MINORITY STOCK ISSUANCE mean this Plan of Reorganization and Minority Stock Issuance as adopted by the Board of Directors of the Holding Company and any amendment hereto approved as provided herein.

PROSPECTUS means the one or more documents to be used in offering the Common Stock in the Offerings.

PUBLIC OFFERING means an underwritten firm commitment offering to the public through one or more underwriters.

QUALIFYING DEPOSIT means the aggregate balance of all Deposit Accounts in the Savings Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.

SAVINGS BANK means Savings Institute Bank and Trust Company.

SAVINGS BANK BENEFIT PLAN(S) includes, but is not limited to, Tax-Qualified Employee Stock Benefit Plans and Non-Tax Qualified Employee Stock Benefit Plans.

SAVINGS BANK COMMON STOCK means the Common Stock of the Savings Bank, par value $0.01 per share, which stock is not and will not be insured by the FDIC or any other governmental authority, all of which is held by the Holding Company.

SEC means the Securities and Exchange Commission.

STOCK ISSUANCE means the shares of Common Stock sold in the Offerings, the shares of Common Stock issued to the MHC and the shares of Common Stock issued to the Foundation.

SUBSCRIPTION OFFERING means the offering of the Common Stock to Participants.

SUBSCRIPTION RIGHTS mean nontransferable rights to subscribe for Common Stock granted to Participants pursuant to the terms of this Plan.

SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any Person, except directors and Officers of the Savings Bank, the Holding Company or the MHC and their Associates, holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date.

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SUPPLEMENTAL ELIGIBILITY RECORD DATE, if applicable, means the date for determining Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months prior to the date of the approval of the Stock Issuance by the OTS. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding OTS approval of the Stock Issuance.

SYNDICATED COMMUNITY OFFERING means the offering for sale by a syndicate of broker-dealers to the general public of shares of Common Stock not purchased in the Subscription Offering and the Community Offering.

TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and/or the Savings Bank and any Affiliate thereof and which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code as from time to time in effect. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution stock benefit plan that is not so qualified.

3. GENERAL PROCEDURE FOR THE STOCK ISSUANCE.

(a) Stock Issuance

The Holding Company will offer for sale in the Offerings, shares of Common Stock representing up to 49.9% of the pro forma market value of the Holding Company and the Savings Bank. The Holding Company will apply to the OTS to allow it to retain up to 50% of the net proceeds of the Offerings, or such other amount as may be determined by the Board of Directors. The Savings Bank may distribute additional capital to the Holding Company following the Stock Issuance, subject to the OTS regulations governing capital distributions.

The Board of Directors of the Holding Company and the Bank also intend to take all necessary steps to establish the Foundation and to fund the Foundation in the manner contemplated by Section 3A hereof.

(b) Applications and Regulatory Approval

The Holding Company will take the necessary steps to prepare and file the Application for Approval of a Minority Stock Issuance, including the Plan, together with all requisite material, with the OTS for approval. The Holding Company also will cause notice of the adoption of the Plan by the Board of Directors of the Holding Company to be given by publication in a newspaper having general circulation in each community in which an office of the Savings Bank is located, and will cause copies of the Plan to be made available at each office of the Savings Bank for inspection by Members. The Savings Bank will post the notice of the adoption of the Plan in each of its offices. Once the Application for Approval of a Minority Stock Issuance is filed, the Holding Company will again cause to be published, in accordance with the requirements of applicable regulations of the OTS, notices of the filing of the

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Application for Approval of a Minority Stock Issuance with the OTS, and will post notice of the filing of the Application for Approval of a Minority Stock Issuance in each office of the Savings Bank.

The Holding Company shall cause to be filed with the SEC a Registration Statement to register the Common Stock under the Securities Act of 1933, as amended. The Holding Company shall also register or qualify the Common Stock under any applicable state securities laws, subject to Section 13 hereof.

(c) Expenses

The Holding Company and the Savings Bank may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Stock Issuance, including the payment of fees to brokers for assisting Persons in completing and/or submitting Order Forms. The Holding Company shall use its best efforts to ensure that all fees, expenses, retainers and similar items shall be reasonable.

3A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.

As part of the Stock Issuance, the MHC, the Holding Company and the Savings Bank intend to establish a charitable foundation that will qualify as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and to donate to the Foundation from authorized but unissued shares of Common Stock, an amount up to 2% of the number of shares of Common Stock issued in the Stock Issuance. The Foundation is being formed in connection with the Stock Issuance to complement the Savings Bank’s existing community reinvestment activities and to share with the Savings Bank’s local community a part of the Savings Bank’s financial success as a locally headquartered, community minded, financial services institution. The funding of the Foundation with Common Stock accomplishes this goal as it enables the community to share in the growth and profitability of the Holding Company and the Savings Bank over the long-term.

The Foundation will be dedicated to the promotion of charitable purposes including community development, grants or donations to support housing assistance, not-for-profit community groups and other types of organizations or civic minded projects. The Foundation will annually distribute total grants to assist charitable organizations or to fund projects within its local community of not less than 5% of the average fair value of Foundation assets each year, less certain expenses. To serve the purposes for which it was formed and maintain its Section 501(c)(3) qualification, the Foundation may sell, on an annual basis, a limited portion of the Common Stock contributed to it by the Holding Company.

The Board of Directors of the Foundation will be comprised of individuals who are Officers and/or directors of the Holding Company or the Savings Bank. Additionally, for at least five years after the Foundation’s organization, one member of the Foundation’s Board of Directors must be a member of the local community that is not an officer, director or employee of the MHC, the Holding Company, the Savings Bank or any of its Affiliates and who has

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experience with local charitable organizations and grant making. The Board of Directors of the Foundation will be responsible for establishing the policies of the Foundation with respect to grants or donations, consistent with the stated purposes of the Foundation.

Establishment of the Foundation requires the approval of the affirmative vote of a majority of votes eligible to be cast by Members. However, the MHC, the Holding Company and the Savings Bank intend to apply for a waiver for the OTS of such voting requirement. If approval of Members is waived by the OTS, following approval of the Plan by the OTS, all other necessary organizational steps pursuant to applicable laws and regulations will be taken to effect the contribution. If approval of Members is not waived by the OTS, the MHC, the Holding Company and the Savings Bank will proceed with the Stock Issuance without establishment of the Foundation.

4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF COMMON STOCK.

(a) The aggregate price at which shares of Common Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Common Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Holding Company and the Savings Bank, market, financial and economic conditions, a comparison of the Holding Company and the Savings Bank with selected publicly-held financial institutions and holding companies and with comparable financial institutions and holding companies and such other factors as the Independent Appraiser may deem to be important, including, but not limited to, the projected operating results and financial condition of the Holding Company and Savings Bank. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall be no more than 15% below such average. The valuation shall be updated during the Stock Issuance as market and financial conditions warrant and as may be required by the OTS.

(b) Based upon the independent valuation, the Board of Directors of the Holding Company shall fix the Initial Purchase Price and the number of shares of Common Stock to be offered in the Offerings. The purchase price per share for the Common Stock shall be a uniform price determined in accordance with applicable OTS rules and regulations. The Actual Purchase Price and the total number of shares of Common Stock to be issued in the Offerings shall be determined by the Board of Directors of the Holding Company upon conclusion of the Offerings in consultation with the Independent Appraiser and any financial advisor or investment banker retained by the Holding Company in connection with such offering.

(c) Subject to the approval of the OTS, the Estimated Price Range may be increased or decreased to reflect market, financial and economic conditions prior to completion of the Stock Issuance or to fill the Order of the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the Holding Company may increase or decrease the total number of shares of Common Stock to be issued in the Stock Issuance to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required

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and subscribers shall not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Common Stock in the Offerings are less than the minimum or more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Offerings due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan.

5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY).

(a) Each Eligible Account Holder shall receive, as first priority and without payment, Subscription Rights to purchase up to the greater of (i) $200,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, in each case subject to Section 10 hereof.

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 5(a), available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

Subscription Rights of Eligible Account Holders who are also directors or Officers of the Holding Company or the Savings Bank and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date.

6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS (SECOND PRIORITY).

Tax-Qualified Employee Stock Benefit Plans shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Common Stock issued in the Offerings and contributed to the Foundation, including any shares of Common Stock to be issued as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and prior to completion of the Offerings, but excluding shares issued to the MHC. The subscription rights granted to Tax-Qualified Employee Stock Benefit Plans shall be subject to the availability of shares of Common Stock after taking into account the shares of Common Stock

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purchased by Eligible Account Holders; provided, however, that if the total number of shares of Common Stock is increased to any amount greater than the number of shares representing the maximum of the Estimated Price Range as set forth in the Prospectus (“Maximum Shares”), the ESOP shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 10% of Common Stock issued in the Offerings and contributed to the Foundation, excluding shares issued to the MHC. Shares of Common Stock purchased by any individual participant (“Plan Participant”) in a Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the exercise of subscription rights granted to such Participant in his individual capacity as an Eligible Account Holder and/or supplemental Eligible Account Holder and/or purchases by such Plan Participant in the Community Offering shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of calculating the maximum amount of Common Stock that Tax-Qualified Employee Stock Benefit Plans may purchase pursuant to the first sentence of this Section 6 if the individual Plan Participant controls or directs the investment authority with respect to such account or subaccount. Consistent with applicable laws and regulations and policies and practices of the OTS, the Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Savings Bank and/or borrowed from an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Savings Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Savings Bank to fail to meet any applicable regulatory capital requirement.

The Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be an Associate or Affiliate of or Person Acting in Concert with any Management Person.

7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY).

(a) In the event that the Eligibility Record Date is more than 15 months prior to the date of the OTS approval, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $200,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, in each case subject to Section 10 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through the exercise of Subscription Rights under Sections 5 and 6 hereof.

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 7(a), available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent

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possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in accordance with Section 5(a)) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of their respective Qualifying Deposits bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY).

(a) Each Other Member shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $200,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering) and (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, subject to Section 10 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.

(b) If, pursuant to this Section 8, Other Members subscribe for a number of shares of Common Stock in excess of the total number of shares of Common Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Member, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Other Members whose subscriptions remain unsatisfied on a pro rata basis in the same proportion as each such Other Member’s subscription bears to the total subscriptions of all such subscribing Other Members, provided that no fractional shares shall be issued.

9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC OFFERING AND OTHER OFFERINGS.

(a) If less than the total number of shares of Common Stock offered by the Holding Company are sold in the Subscription Offering, it is anticipated that all remaining shares of Common Stock shall, if practicable, be sold in a Community Offering. Subject to the requirements set forth herein, the manner in which the Common Stock is sold in the Community Offering shall have as the objective the achievement of the widest possible distribution of such stock.

(b) In the event of a Community Offering, all shares of Common Stock that are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on

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its behalf, with preference given first to borrowers of the Bank as of the close of business on the last business day of the month prior to the month in which the Plan is approved by the OTS, and then to natural persons and trusts of natural persons residing in Hartford, New London, Tolland and Windham Counties, Connecticut (“Preferred Subscribers”).

(c) A Prospectus and Order Form shall be furnished to such Persons as the Holding Company may select in connection with the Community Offering, and each order for Common Stock in the Community Offering shall be subject to the absolute right of the Holding Company to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in the same proportion that the unfilled order bears to the total unfilled orders of all Preferred Subscribers whose accepted orders remain unsatisfied, provided that no fractional shares shall be issued. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, such remaining shares shall be allocated to other members of the general public who purchase in the Community Offering, applying the same allocation described above for Preferred Subscribers.

(d) The amount of Common Stock that any Person may purchase in the Community Offering shall not exceed $200,000 of Common Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Common Stock or decreased to less than $200,000, subject to any required regulatory approval but without the resolicitation of subscribers; and provided further that to the extent applicable, and subject to the preferences set forth in Section 9(b) and (c) of this Plan and the limitations on purchases of Common Stock set forth in this Section 9(d) and Section 10 of this Plan, orders for Common Stock in the Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company with any required regulatory approval.

(e) Subject to such terms, conditions and procedures as may be determined by the Holding Company, all shares of Common Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general public in a Syndicated Community Offering. Each order for Common Stock in the Syndicated Community Offering shall be subject to the absolute right of the Holding Company to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Common Stock that any Person may purchase in the Syndicated Community Offering shall not exceed $200,000 of Common Stock, provided, however, that this amount may be increased to up to 5%

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of the total offering of shares of Common Stock or decreased to less than $200,000, subject to any required regulatory approval but without the resolicitation of subscribers; and provided further that, to the extent applicable, and subject to the limitations on purchases of Common Stock set forth in this Section 9(e) and Section 10 of this Plan, orders for Common Stock in the Syndicated Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or Community Offering, and the Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company with any required regulatory approval.

(f) The Holding Company may sell any shares of Common Stock remaining following the Subscription Offering, Community Offering and/or the Syndicated Community Offering in a Public Offering. The provisions of Section 10 hereof shall not be applicable to the sales to underwriters for purposes of the Public Offering but shall be applicable to sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Actual Purchase Price less an underwriting discount to be negotiated among such underwriters and the Holding Company, subject to any required regulatory approval or consent.

(g) If for any reason a Syndicated Community Offering or Public Offering of shares of Common Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or if any insignificant residue of shares of Common Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Holding Company shall use its best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OTS.

10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF COMMON STOCK.

The following limitations shall apply to all purchases of Common Stock in the Offerings:

(a) The aggregate amount of outstanding Common Stock owned or controlled by persons other than the MHC at the close of the Offerings shall be less than 50% of the Holding Company’s total outstanding Common Stock.

(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans in the aggregate, as set forth in Section 10(e) hereof, and certain Eligible Account Holders and Supplemental Eligible Account Holders, as set forth in Sections 5(a)(ii) and (iii) and 7(a)(ii) and (iii) hereof, and in addition to the other restrictions and limitations set forth herein, the maximum amount of Common Stock that any Person, any Person together with any Associates, or Persons otherwise Acting in Concert may, directly or indirectly, subscribe for or purchase in the Offerings, shall not exceed $300,000 of the total number of shares of Common Stock issued in the Offerings.

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(c) No Person may purchase fewer than 25 shares of Common Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00.

(d) The aggregate amount of Common Stock acquired in the Offerings by any Non-Tax-Qualified Employee Stock Benefit Plan or any Management Person and his or her Associates, exclusive of Common Stock acquired by such plan or Management Person and his or her Associates in the secondary market, shall not exceed 4.9% of (i) the outstanding shares of Common Stock at the conclusion of the Stock Issuance or (ii) the stockholders’ equity of the Holding Company at the conclusion of the Stock Issuance. In calculating the number of shares held by any Management Person and his or her Associates under this paragraph, shares held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Savings Bank that are attributable to such Person shall not be counted.

(e) The aggregate amount of Common Stock acquired in the Offerings by any one or more Tax-Qualified Employee Stock Benefit Plans, exclusive of any shares of Common Stock acquired by such plans in the secondary market, shall not exceed 4.9% of (i) the outstanding shares of Common Stock at the conclusion of the Stock Issuance or (ii) the stockholders’ equity of the Holding Company at the conclusion of the Stock Issuance.

(f) The aggregate amount of Common Stock acquired in the Offerings by all stock benefit plans of the Holding Company or the Savings Bank, other than employee stock ownership plans, shall not exceed 25% of the outstanding common stock of the Holding Company held by persons other than the MHC.

(g) The aggregate amount of Common Stock acquired in the Offerings by all Non-Tax-Qualified Employee Stock Benefit Plans or Management Persons and their Associates, exclusive of any Common Stock acquired by such plans or Management Persons and their Associates in the secondary market, shall not exceed 34% of (i) the outstanding shares of Common Stock held by persons other than that MHC at the conclusion of the Offerings or (ii) the stockholders’ equity of the Holding Company held by persons other than the MHC at the conclusion of the Offerings. In calculating the number of shares held by Management Persons and their Associates under this paragraph or paragraph j. below, shares held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan that are attributable to such persons shall not be counted.

(h) For purposes of the foregoing limitations and the determination of Subscription Rights, (i) directors, Officers and employees of the MHC, the Holding Company, the Savings Bank or their subsidiaries shall not be deemed to be Associates or a group Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in Section 10(b) hereof, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to

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instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Savings Bank qualified under Section 401(k) of the Code, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

(i) Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without the resolicitation of subscribers, the Holding Company may increase or decrease any of the individual or aggregate purchase limitations set forth herein to a percentage which does not exceed 5% of the total offering of shares of Common Stock in the Offerings whether prior to, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. If an individual purchase limitation is increased after commencement of the Subscription Offering or any other offering, the Holding Company shall permit any Person who subscribed for the maximum number of shares of Common Stock to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. If any of the individual or aggregate purchase limitations are decreased after commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person.

(j) The Holding Company shall have the right to take all such action as it may, in its sole discretion, deem necessary, appropriate or advisable to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section 10 and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Common Stock that it believes might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the MHC, the Holding Company, the Savings Bank and their respective Boards shall be free from any liability to any Person on account of any such action.

11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS AND ORDER FORMS.

(a) The Offerings shall be conducted in compliance with 12 C.F.R. part 563g and, to the extent applicable, Form OC.

(b) The exact timing of the commencement of the Subscription Offering shall be determined by the Holding Company in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by it in connection with the Stock Issuance. The Holding Company may consider a number of factors, including, but not limited to, its current and projected future earnings, local and national economic conditions, and the

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prevailing market for stocks in general and stocks of financial institutions in particular. The Holding Company shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as it in its sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence.

(c) The Holding Company shall, promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, distribute or make available the Prospectus, together with Order Forms for the purchase of Common Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 13 hereof.

(d) A single Order Form for all Deposit Accounts maintained with the Savings Bank by an Eligible Account Holder and any Supplemental Eligible Account Holder may be furnished, irrespective of the number of Deposit Accounts maintained with the Savings Bank on the Eligibility Record Date and Supplemental Eligibility Record Date, respectively. No person holding a Subscription Right may exceed any otherwise applicable purchase limitation by submitting multiple orders for Common Stock. Multiple orders are subject to adjustment, as appropriate, on a pro rata basis and deposit balances will be divided equally among such orders in allocating shares in the event of an oversubscription.

(e) The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Holding Company. The Holding Company may extend such period by such amount of time as it determines is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Holding Company, along with full payment (or authorization for full payment by withdrawal) for the shares of Common Stock subscribed for, within the time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Common Stock. Each Participant shall be required to confirm to the Holding Company by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan.

(f) The Holding Company shall have the absolute right, in its sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper and full payment (or authorization of withdrawal for full payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price prior to 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Holding Company believes to be false or who it otherwise believes, either alone, or Acting in Concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. Furthermore, in the event Order Forms (i) are not delivered and are returned to the Holding Company by the United States Postal Service or the Holding Company is unable to locate the addressee, or (ii) are not

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mailed pursuant to a “no mail” order placed in effect by the account holder, the Subscription Rights of the Person to which such rights have been granted will lapse as though such Person failed to return the contemplated Order Form within the time period specified thereon. The Holding Company may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Common Stock by such date as they may specify. The interpretation of the Holding Company of the terms and conditions of the Order Forms shall be final and conclusive.

12. PAYMENT FOR COMMON STOCK.

(a) Payment for shares of Common Stock subscribed for by Participants in the Subscription Offering and payment for shares of Common Stock ordered by Persons in the Community Offering shall be equal to the Initial Purchase Price multiplied by the number of shares that are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check, bank draft or money order at the time the Order Form is delivered to the Holding Company, provided that checks will only be accepted subject to collection. The Holding Company, in its sole and absolute discretion, may also elect to receive payment for shares of Common Stock by wire transfer. In addition, the Holding Company may elect to provide Participants and/or other Persons who have a Deposit Account with the Savings Bank the opportunity to pay for shares of Common Stock by authorizing the Savings Bank to withdraw from such Deposit Account an amount equal to the aggregate Initial Purchase Price of such shares. Payment may also be made by a Participant using funds held for such Participant’s benefit by a Savings Bank Benefit Plan to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Common Stock. Orders for Common Stock submitted by subscribers that aggregate $50,000 or more must be paid by official bank or certified check, a check issued by a NASD-registered broker-dealer or by withdrawal authorization from a deposit account at the Savings Bank. If the Actual Purchase Price is less than the Initial Purchase Price, the Holding Company shall refund the difference to all Participants and other Persons, unless the Holding Company chooses to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Common Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Holding Company shall reduce the number of shares of Common Stock ordered by Participants and other Persons and refund any remaining amount that is attributable to a fractional share interest, unless the Holding Company chooses to provide Participants and other Persons the opportunity to increase the Actual Purchase Price submitted by them.

(b) Notwithstanding the above, if the Tax-Qualified Employee Stock Benefit Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Actual Purchase Price upon consummation of the Stock Offering, provided that, in the case of the employee stock ownership plan, there is in force from the time of its subscription until the consummation of the Stock Offering, a loan commitment to

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lend to the employee stock ownership plan, at such time, the aggregated price of the shares for which it subscribed.

(c) If a Participant or other Person authorizes the Savings Bank to withdraw the amount of the Initial Purchase Price from his or her Deposit Account, the Savings Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Savings Bank may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, the remaining balance will earn interest at the regular passbook rate. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as prior to such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Common Stock and is entirely within the discretion of the Holding Company and the Savings Bank.

(d) The subscription funds will be held by the Savings Bank or, in the Savings Bank’s discretion, in an escrow account at an unaffiliated institution. The Holding Company shall pay interest, at not less than the Savings Bank’s passbook rate, for all amounts paid in cash, by check, bank draft or money order to purchase shares of Common Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Offerings are completed or terminated.

(e) The Holding Company will not offer or sell any of the Common Stock proposed to be issued to any Person whose purchase would be financed by funds loaned, directly or indirectly, to the Person by the Savings Bank.

(f) Each share of Common Stock shall be non-assessable upon payment in full of the Actual Purchase Price.

13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.

The Holding Company shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Common Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which all of the following apply: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Common Stock to such Participants would require any of the Holding Company or the Savings Bank or their respective directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer, salesman or selling agent or to register or otherwise qualify the Common Stock for sale in such jurisdiction, or any of the Holding Company or the Savings Bank

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would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; or (c) such registration, qualification or filing in the judgment of the Holding Company would be impracticable or unduly burdensome for reasons of cost or otherwise.

14. REQUIREMENTS FOLLOWING THE STOCK ISSUANCE FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING.

In connection with the Stock Issuance, the Holding Company shall register the Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Common Stock, and (ii) list the Common Stock on a national or regional securities exchange or to have quotations for such stock disseminated on the Nasdaq Stock Market.

15. COMPLETION OF THE STOCK OFFERING.

The Offerings will be terminated if not completed within 90 days of the date of approval of the Plan by the OTS, unless an extension is approved by the OTS.

16. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE STOCK ISSUANCE.

For a period of three years following the Stock Issuance, the directors and Officers of the Holding Company and the Savings Bank and their Associates may not purchase Common Stock, without the prior written approval of the OTS, except from a broker-dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction involving more than 1% of the outstanding Common Stock, and (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of shareholder approval of such plan) even if such Common Stock may be attributable to individual Officers or directors and their Associates. The foregoing restriction on purchases of Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws.

17. RESTRICTIONS ON TRANSFER OF STOCK.

All shares of Common Stock that are purchased by Persons other than directors and Officers of the Holding Company or the Savings Bank shall be transferable without restriction. Shares of Common Stock purchased by directors and Officers of the Holding Company or the Savings Bank and their Associates on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser. The shares of Common Stock issued by the Holding Company to such directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction:

“The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to Part 575 of the Rules and Regulations of the Office of Thrift Supervision. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate.”

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In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws.

18. STOCK COMPENSATION PLANS.

(a) The Holding Company and the Savings Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Stock Issuance, including without limitation an employee stock ownership plan.

(b) Subsequent to the Stock Issuance, the Holding Company and the Savings Bank are authorized to adopt Non-Tax Qualified Employee Stock Benefit Plans, including without limitation, stock option plans and restricted stock plans, provided however that, with respect to any such plan, the total number of shares of common stock for which options may be granted and the total amount of common stock granted as restricted stock must not exceed the limitations set forth in Section 10 hereof. In addition, any such plan implemented during the one-year period subsequent to the date of consummation of the Stock Issuance: (i) shall be disclosed in the Prospectus; (ii) in the case of stock option plans and employee recognition or grant plans, shall be submitted for approval by the holders of the Common Stock no earlier than six months following consummation of the Stock Issuance; and (iii) shall comply with all other applicable requirements of the OTS.

(c) Existing, as well as any newly-created, Tax-Qualified Employee Stock Benefit Plans may purchase shares of Common Stock in the Offerings, to the extent permitted by the terms of such benefit plans and this Plan.

(d) The Holding Company and the Savings Bank are authorized to enter into employment or severance agreements with their executive officers.

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19. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.

The Holding Company may not declare or pay a cash dividend on its Common Stock if the effect thereof would cause the regulatory capital of the Savings Bank to be reduced below the amount required under § 567.2 of the OTS rules and regulations. Otherwise, the Holding Company may declare dividends or make other capital distributions in accordance with § 563b.520 of the OTS rules and regulations. Following completion of the Stock Offering, the Holding Company may repurchase its Common Stock consistent with § 563b.510 and § 563b.515 of the OTS rules and regulations relating to stock repurchases, as long as such repurchases do not cause the regulatory capital of the Savings Bank to be reduced below the amount required under the OTS rules and regulations. The MHC may from time to time purchase Common Stock of the Holding Company. Subject to any notice or approval requirements of the OTS under the OTS rules and regulations, the MHC may waive its right to receive dividends declared by the Holding Company.

20. AMENDMENT OR TERMINATION OF THE PLAN.

If deemed necessary or desirable by the Board of Directors of the Holding Company, this Plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the approval of the Plan by the OTS and at any time thereafter with the concurrence of the OTS. Prior to the approval of the Plan by the OTS, this Plan may be terminated by the Board of Directors of the Holding Company without approval of the OTS; after the approval of the Plan by the OTS, the Board of Directors may terminate this Plan only with the concurrence of the OTS.

21. INTERPRETATION OF THE PLAN.

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Boards of Directors of the Holding Company shall be final, subject to the authority of the OTS.

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EX-3.1

Exhibit 3.1

FEDERAL MHC SUBSIDIARY HOLDING COMPANY CHARTER

FOR

SI FINANCIAL GROUP, INC.

Section 1. Corporate Title.

The full corporate title of the MHC subsidiary holding company is SI Financial Group, Inc. (the “Holding Company”).

Section 2. Domicile

The domicile of the Holding Company is in the city of Willimantic, in the State of Connecticut.

Section 3. Duration.

The duration of the Holding Company is perpetual.

Section 4. Purpose and Powers.

The purpose of the Holding Company is to pursue any or all of the lawful objectives of a federal mutual holding company chartered under Section 10(o) of the Home Owners’ Loan Act, 12 U.S.C. 1467a(o), and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision (“OTS”).

Section 5. Capital Stock.

The total number of shares of all classes of the capital stock which the Holding Company has authority to issue is seventy-six million shares (76,000,000), of which seventy-five million shares (75,000,000) shall be common stock, par value $.01 per share, and of which one million shares (1,000,000) shall be preferred stock, par value $.01 per share. The shares may be issued from time to time as authorized by the Board of Directors without further approval of shareholders except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the Holding Company. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor,

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or services actually performed for the Holding Company, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the Board of Directors of the Holding Company, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the Holding Company that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.

Except for the initial offering of shares of the Holding Company, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the Holding Company other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.

Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share: provided, that this restriction on voting separately by class or series shall not apply:

(i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the Board of Directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;

(ii) To any provision which would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the Holding Company with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the Holding Company if the preferred stock is exchanged for securities of such other corporation; provided, that no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the OTS or the Federal Deposit Insurance Corporation;

(iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving Holding Company in a merger or consolidation for the Holding Company, shall not be considered to be such an adverse change.

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A description of the different classes and series (if any) of the Holding Company’s capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:

A. Common Stock. Except as provided in this Section 5 (or in any supplementary sections thereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder and there shall be no right to cumulate votes in an election of directors.

Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, or retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the Holding Company, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the Holding Company available for distribution remaining after: (i) payment or provision for payment of the Holding Company’s debts and liabilities; (ii) distributions or provision for distributions in settlement of a liquidation account; and (iii) distributions or provision for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the Holding Company. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.

B. Preferred Stock. The Holding Company may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:

(a) The distinctive serial designation and the number of shares constituting such series;

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(b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s) the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends;

(c) The voting powers, full or limited, if any, of the shares of such series;

(d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed;

(e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the Holding Company;

(f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;

(g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the Holding Company and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

(h) The price or other consideration for which the shares of such series shall be issued; and

(i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.

Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series.

The Board of Directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established.

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Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the Board of Directors, the Holding Company shall file with the Secretary to the OTS a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof.

Section 6. Certain Provisions Applicable for Five Years.

Notwithstanding anything contained in the Holding Company’s charter or bylaws to the contrary, for a period of five years from the date of an initial minority stock offering of shares of common stock of the Holding Company, the following provisions shall apply:

A. Beneficial Ownership Limitation. No person other than SI Bancorp, MHC shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of any equity security of the Holding Company. This limitation shall not apply to a transaction in which the Holding Company forms a holding company in conjunction with conversion, or thereafter, if such formation is without change in the respective beneficial ownership interests of the Holding Company’s shareholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under Section 574.3(c)(1)(vi) of the OTS’s Regulations.

In the event shares are acquired in violation of this Section 6, all shares beneficially owned by any person in excess of 10% shall be considered “excess shares” and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the shareholders for a vote.

For the purposes of this Section 6, the following definitions apply:

(i) The term “person” includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the Holding Company.

(ii) The term “offer” includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value.

(iii) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.

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(iv) The term “acting in concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

B. Call for Special Meetings. Special meetings of shareholders relating to changes in control of the Holding Company or amendments to its charter shall be called only at the direction of the Board of Directors.

Section 7. Preemptive Rights.

Holders of the capital stock of the Holding Company are not entitled to preemptive rights with respect to any shares of the Holding Company that may be issued.

Section 8. Directors.

The Holding Company shall be under the direction of a Board of Directors. The authorized number of directors, as stated in the Holding Company’s bylaws, shall be not be fewer than five nor more than 15 except when a greater or lesser number is approved by the Director of the OTS, or his or her delegate.

Section 9. Amendment of Charter.

Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is proposed by the Board of Directors of the Holding Company, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise is required, and approved or preapproved by the OTS.

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	SI FINANCIAL GROUP, INC.
Attest:
Sandra M. Mitchell Corporate Secretary	Rheo A. Brouillard President and Chief Executive Officer

Attest:		Office of Thrift Supervision
		By:
	Secretary Office of Thrift Supervision
		EFFECTIVE DATE:

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EX-3.2

Exhibit 3.2

BYLAWS OF

SI FINANCIAL GROUP, INC.

ARTICLE I. HOME OFFICE

The home office of SI Financial Group, Inc. (the “Subsidiary Holding Company”) is 803 Main Street, Willimantic, in the County of Windham, in the State of Connecticut.

ARTICLE II. SHAREHOLDERS

Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Subsidiary Holding Company or at such other convenient place as the board of directors may determine.

Section 2. Annual Meeting. A meeting of the shareholders of the Subsidiary Holding Company for the election of directors and for the transaction of any other business of the Subsidiary Holding Company shall be held annually within 150 days after the end of the Subsidiary Holding Company’s fiscal year on such date as the board of directors may determine.

Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision (“OTS”) or the Federal Stock Charter of the Subsidiary Holding Company, may be called at any time by the chairman of the board, the president or a majority of the board of directors, and shall be called by the chairman of the board, the president or the secretary upon the written request of the holders of not less than one-tenth of all of the outstanding capital stock of the Subsidiary Holding Company entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the home office of the Subsidiary Holding Company addressed to the chairman of the board, the president or the secretary.

Section 4. Conduct of Meetings. Annual and special meetings shall be conducted by the person designated by the board of directors to preside at such meetings in accordance with the written procedures agreed to by the board of directors. The board of directors shall designate, when present, either the chairman of the board or such other person as designated by the board of directors to preside at such meetings.

Section 5. Notice of Meetings. Written notice stating the place, day and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, the secretary or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Subsidiary Holding Company

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as of the record date prescribed in Section 6 of this Article II, with postage prepaid. When any shareholders’ meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken.

Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.

Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the Subsidiary Holding Company shall make a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the Subsidiary Holding Company and shall be subject to inspection by any shareholder of record or the shareholder’s agent at any time during usual business hours, for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder of record or any shareholder’s agent during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.

In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in § 552.6(d) of the OTS’s Regulations as now or hereafter in effect.

Section 8. Quorum. A majority of the outstanding shares of the Subsidiary Holding Company entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. If a quorum is present, the affirmative vote of the majority of the

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shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number of shareholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of directors.

Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the shareholder. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.

Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the Subsidiary Holding Company to the contrary, at any meeting of the shareholders of the Subsidiary Holding Company any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.

Section 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares held in trust in an IRA or Keogh Account, however, may be voted by the Subsidiary Holding Company if no other instructions are received. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

Neither treasury shares of its own stock held by the Subsidiary Holding Company, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of

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directors of such other corporation are held by the Subsidiary Holding Company, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

Section 12. No Cumulative Voting. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. No holder of such shares shall be entitled to cumulative voting for any purpose.

Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting, or at the meeting by the chairman of the board or the president.

Unless otherwise prescribed by regulations of the OTS, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.

Section 14. Nominating Committee. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Subsidiary Holding Company. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Subsidiary Holding Company at least 30 days prior to the date of the annual meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder must be received not later than the close of business on the 10^th day following the day on which notice of the date of the annual meeting was mailed or such public disclosure was made. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Subsidiary Holding Company. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or

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refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon.

Section 15. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary at least 30 days before the date of the annual meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder must be received not later than the close of business on the 10^th day following the day on which notice of the date of the annual meeting was mailed or such public disclosure was made, and all business so stated, proposed and filed shall be considered at the annual meeting so long as such business relates to a proper subject matter for shareholder action. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least 30 days before the meeting, such proposal shall be laid over for action at an adjourned, special or annual meeting of the shareholders taking place 30 days or more thereafter. A shareholder’s notice to the secretary shall set forth as to each matter the shareholder proposed to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and (b) the name and address of such shareholder and the class and number of shares of the Subsidiary Holding Company which are owned of record or beneficially by such shareholder. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.

Section 16. Informal Action by Shareholders. Any action required to be taken at a meeting of shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter thereof.

ARTICLE III. BOARD OF DIRECTORS

Section 1. General Powers. The business and affairs of the Subsidiary Holding Company shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board from among its members and, when present, the chairman of the board shall preside at its meetings. If the chairman of the board is not present, the board shall select one of its members to preside at its meeting.

Section 2. Number and Term. The board of directors shall consist of eight members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually.

Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw following the annual meeting of shareholders. The board of

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directors may provide, by resolution, the time and place, for the holding of additional regular meetings without other notice than such resolution. Directors may participate in a meeting by means of a conference telephone or similar communications device through which all persons participating can hear each other at the same time. Participation by such means shall constitute presence in person for all purposes.

Section 4. Qualification. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the Subsidiary Holding Company unless the Subsidiary Holding Company is a wholly owned subsidiary of a holding company.

Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board or by one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by such persons.

Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear and speak to each other. Such participation shall constitute presence in person for all purposes.

Section 6. Notice. Written notice of any special meeting shall be given to each director at least 24 hours prior thereto when delivered personally or by telegram, or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed, when delivered to the telegraph company if sent by telegram or when the Subsidiary Holding Company receives notice of delivery if electronically transmitted. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.

Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III.

Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the OTS or by these bylaws.

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Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Subsidiary Holding Company addressed to the chairman of the board. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors.

Section 11. Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders.

Section 12. Compensation. Directors, as such, may receive a stated fee for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine.

Section 13. Presumption of Assent. A director of the Subsidiary Holding Company who is present at a meeting of the board of directors at which action on any Subsidiary Holding Company matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Subsidiary Holding Company within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.

Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed only for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the Charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.

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Section 15. Integrity of Directors. A person is not qualified to serve as a director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (2) is a person against who a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

Section 16. Age Limitation. No person 72 years of age shall be eligible for election, reelection, appointment, or reappointment to the board of the Subsidiary Holding Company. No director shall serve as such beyond the annual meeting of the Subsidiary Holding Company following the director becoming 72, except that a director serving on                     , 2004 may complete the term as director. This age limitation does not apply to an advisory director.

ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES

Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation.

Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the Charter or bylaws of the Subsidiary Holding Company, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease or other disposition of all or substantially all of the property and assets of the Subsidiary Holding Company otherwise than in the usual and regular course of its business; a voluntary dissolution of the Subsidiary Holding Company; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest.

Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee.

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Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day’s notice stating the place, date and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.

Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee.

Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors.

Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the Subsidiary Holding Company. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.

Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred.

Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committees composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the Subsidiary Holding Company and may prescribe the duties, constitution and procedures thereof.

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ARTICLE V. OFFICERS

Section 1. Positions. The officers of the Subsidiary Holding Company shall be a chief executive officer, a president, one or more vice presidents, a secretary and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Subsidiary Holding Company may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.

Section 2. Election and Term of Office. The officers of the Subsidiary Holding Company shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer’s death, resignation or removal in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contractual rights. The board of directors may authorize the Subsidiary Holding Company to enter into an employment contract with any officer in accordance with regulations of the OTS; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.

Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the Subsidiary Holding Company will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.

Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.

Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors.

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ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. Contracts. To the extent permitted by regulations of the OTS, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Subsidiary Holding Company to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Subsidiary Holding Company. Such authority may be general or confined to specific instances.

Section 2. Loans. No loans shall be contracted on behalf of the Subsidiary Holding Company and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.

Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Subsidiary Holding Company shall be signed by one or more officers, employees or agents of the Subsidiary Holding Company in such manner as shall from time to time be determined by the board of directors.

Section 4. Deposits. All funds of the Subsidiary Holding Company not otherwise employed shall be deposited from time to time to the credit of the Subsidiary Holding Company in any duly authorized depositories as the board of directors may select.

ARTICLE VII. CERTIFICATES FOR SHARES

AND THEIR TRANSFER

Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Subsidiary Holding Company shall be in such form as shall be determined by the board of directors and approved by the OTS. Such certificates shall be signed by the chief executive officer or by any other officer of the Subsidiary Holding Company authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the Subsidiary Holding Company itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Subsidiary Holding Company. All certificates surrendered to the Subsidiary Holding Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Subsidiary Holding Company as the board of directors may prescribe.

Section 2. Transfer of Shares. Transfer of shares of capital stock of the Subsidiary Holding Company shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish

11

proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the Subsidiary Holding Company. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Subsidiary Holding Company shall be deemed by the Subsidiary Holding Company to be the owner for all purposes.

ARTICLE VIII. FISCAL YEAR

The fiscal year of the Subsidiary Holding Company shall end on December 31 of each year. The appointment of accountants shall be subject to annual ratification by the shareholders.

ARTICLE IX. DIVIDENDS

Subject to the terms of the Subsidiary Holding Company’s Charter and the regulations and orders of the OTS, the board of directors may, from time to time, declare, and the Subsidiary Holding Company may pay, dividends on its outstanding shares of capital stock.

ARTICLE X. CORPORATE SEAL

The board of directors shall provide a Subsidiary Holding Company seal, which shall be two concentric circles between which shall be the name of the Subsidiary Holding Company. The year of incorporation or an emblem may appear in the center.

ARTICLE XI. INDEMNIFICATION

The Subsidiary Holding Company shall indemnify all officers, directors and employees of the Subsidiary Holding Company, and their heirs, executors and administrators, to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or proceeding in which they may be involved by reason of their having been a director or officer of the Subsidiary Holding Company, whether or not they continue to be a director or officer at the time of incurring such expenses or liabilities, such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

ARTICLE XII. AMENDMENTS

These bylaws may be amended in a manner consistent with regulations of the OTS and shall be effective after: (i) approval of the amendment by a majority vote of the authorized board of directors, or by a majority vote of the votes cast by the shareholders of the Subsidiary Holding Company at any legal meeting, and (ii) receipt of any applicable regulatory approval. When the Subsidiary Holding Company fails to meet its quorum requirements, solely due to vacancies on the board, then the affirmative vote of a majority of the sitting board will be required to amend the bylaws.

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EX-4.1

Exhibit 4.1

COMMON STOCK CERTIFICATE NO.	COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
	CUSIP ______________

SI FINANCIAL GROUP, INC.

ORGANIZED UNDER THE LAWS OF THE UNITED STATES

THIS CERTIFIES THAT	SPECIMEN
is the owner of:

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $0.01 PAR VALUE

PER SHARE OF SI FINANCIAL GROUP, INC.

a stock company organized under the laws of the United States.

The shares represented by this certificate are transferable only on the stock transfer books of SI Financial Group, Inc. (the “Company”) by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Charter of the and any amendments thereto (copies of which are on file with the Secretary of the Company), to all of which provisions the holder by acceptance hereof, assents. The shares evidenced by this certificate are not of an insurable type and are not insured by the Federal Deposit Insurance Corporation.

IN WITNESS WHEREOF, SI Financial Group, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.

Dated: [SEAL]

President and Chief Executive Officer Secretary

The shares represented by this Certificate are subject to a limitation contained in the Charter to the effect that in no event shall any person, other than SI Bancorp, MHC, directly or indirectly, offer to acquire or acquire the beneficial ownership of more than 10% of the outstanding shares of common stock. Shares beneficially owned in excess of this limitation shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares.

The Board of Directors of the Company is authorized by resolution(s), from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences and relative, participating, optional, or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Company will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.

The shares represented by this Certificate may not be cumulatively voted on any matter.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common	UNIF GIFTS MIN ACT - _________ custodian _______
	(Cust)                       (Minor)
TEN ENT - as tenants by the entireties	under Uniform Gifts to Minors Act
	____________________________
	(State)
JT TEN -   as joint tenants with right of survivorship and not as tenants in common

Additional abbreviations may also be used though not in the above list.

For value received ______________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE

___________________________________________________________________________________________________________

Please print or typewrite name and address including postal zip code of assignee.

_________________________________________________________shares of the common stock represented by this certificate and do hereby irrevocably constitute and appoint

____________________________________________________________________________________, attorney, to transfer the said stock on the books of the within-named bank with full power of substitution in the premises.

DATED _____________________
	NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever.

SIGNATURE GUARANTEED:
	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15

EX-5.1

Exhibit 5.1

June     , 2004

Board of Directors

SI Financial Group, Inc.

803 Main Street

Willimantic, Connecticut 06226

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as special counsel for SI Financial Group, Inc., a federally chartered stock holding company in organization (the “Company”), in connection with the registration statement on Form S-1 (the “Registration Statement”) initially filed on                     , 2004, by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”), and the regulations promulgated thereunder.

The Registration Statement relates to the proposed issuance by the Company of up to 4,496,500 shares of common stock, $0.01 par value per share, of the Company (“Common Stock”) in a subscription offering, a community offering and a syndicated community offering (the “Offerings”). The Registration Statement also relates to the proposed issuance by the Company of up to 224,825 shares of Common Stock to SI Financial Group Foundation, a privately-owned charitable foundation to be formed in connection with the transaction. The issuances are both pursuant to the Plan of Reorganization and Minority Stock Issuance, as amended and restated.

In the preparation of this opinion, we have examined originals or copies identified to our satisfaction of: (i) the Company’s proposed Charter; (ii) the Company’s proposed Bylaws; (iii) the Registration Statement, including the prospectus contained therein and the exhibits thereto; (iv) certain resolutions of the Incorporators of the Company relating to the issuance of the Common Stock being registered under the Registration Statement; (v) the Plan of Reorganization and Minority Stock Issuance, as amended and restated; (vi) the trust agreement for Savings Institute’s employee stock ownership plan (the “ESOP”) and the form of loan agreement between the Company and the ESOP; (vii) the form of stock certificate approved by the Incorporators of the Company to represent shares of Common Stock; and (viii) the gift instrument whereby shares of Common Stock will be contributed to SI Financial Group Foundation. We have also examined originals or copies of such documents, corporate records, certificates of public officials and other instruments, and have conducted such other investigations of law and fact, as we have deemed necessary or advisable for purposes of our opinion.

Board of Directors

SI Financial Group, Inc.

                    , 2004

Page 2

In our examination, we have assumed, without verification, the genuineness of all signatures, the authenticity of all documents and instruments submitted to us as originals, the conformity to the originals of all documents and instruments submitted to us as certified or conformed copies, the correctness of all certificates, and the accuracy and completeness of all records, documents, instruments and materials made available to us by the Company.

Our opinion is limited to the matters set forth herein, and we express no opinion other than as expressly set forth herein. In rendering the opinion set forth below, we do not express any opinion concerning law other than federal law. Our opinion is expressed as of the date hereof and is based on laws currently in effect. Accordingly, the conclusions set forth in this opinion are subject to change in the event that any laws should change or be enacted in the future. We are under no obligation to update this opinion or to otherwise communicate with you in the event of any such change.

For purposes of this opinion, we have assumed that, prior to the issuance of any shares of Common Stock, the Registration Statement, as finally amended, will have become effective under the Act.

Based upon and subject to the foregoing, it is our opinion that, upon the due adoption by the Incorporators of the Company (or authorized committee thereof) of a resolution fixing the number of shares of Common Stock to be sold in the Offerings and contributed to SI Financial Group Foundation, such shares when issued and sold, or contributed in the case of SI Financial Group Foundation, in the manner described in the Registration Statement, or in the accordance with the gift instrument in the case of SI Financial Group Foundation, in each case will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the heading “Legal and Tax Opinions” in the prospectus, which is part of the Registration Statement as such may be amended or supplemented, or incorporated by reference in any Registration Statement covering additional shares of Common Stock to be issued or sold under the Plan of Reorganization and Minority Stock Issuance, as amended and restated, that is filed pursuant to Rule 462(b) of the Act. In giving such consent, we do not hereby admit that we are experts or are otherwise within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

MULDOON MURPHY FAUCETTE & AGUGGIA LLP

EX-8.1

Exhibit 8.1

                    , 2004

Board of Directors

SI Financial Group, Inc.

803 Main Street

Willimantic, Connecticut 06226

Dear Board Members:

You have asked our opinion regarding certain federal income tax consequences of the proposed minority stock issuance (the “Offering”) by SI Financial Group, Inc., a federally chartered mid-tier holding company (the “Company”), pursuant to a Plan of Reorganization and Minority Stock Issuance adopted by the Board of Directors on December 10, 2003, as amended and restated on June 8, 2004 (the “Plan”). All other capitalized terms used but not defined in this letter shall have the meanings assigned to them in the Plan.

In connection with the opinions expressed below, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan, the Prospectus, and of such corporate records of the parties to the Offering as we have deemed appropriate. We have also relied, without independent verification, upon the representations of the Company included in a Certificate of Representations dated                     , 2004. We have assumed that such representations are true and that the parties to the Offering will act in accordance with the Plan. We express no opinion concerning the effects, if any, of variations from the foregoing.

In issuing the opinions set forth below, we have referred solely to existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury Regulations thereunder, current administrative rulings, notices, procedures and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions are subject to change at any time. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof.

Based on and subject to the foregoing, it is our opinion that for federal income tax purposes, under current tax law:

(1) the Company will recognize no gain or loss upon its receipt of 100% of the common stock of Savings Institute Bank and Trust Company (the “Bank”) from SI Bancorp, MHC (the “MHC”); and

Board of Directors

SI Financial Group, Inc.

                    , 2004

Page 2

(2) the MHC will recognize no gain or loss upon its transfer of 100% of the common stock of the Bank to the Company.

(3) it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of the Company to be issued to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members is zero (the “Subscription Right”) and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the issuance to them of the Subscription Rights (Section 356(a) of the Code) or upon the exercise of the Subscription Rights (Rev. Rul. 56-572, 1956-2 C.B. 182);

(4) it is more likely than not that the tax basis to the holders of shares of common stock purchased in the offering pursuant to the exercise of the Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the Offering (Section 1012 of the Code); and

(5) the holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of the purchase (Section 1223(6) of the Code).

The opinions set forth in 3 and 4 above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. The Internal Revenue Service will not issue rulings on whether subscription rights have a market value. We are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value. The subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase the Company’s common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock. We believe that it is more likely than not (i.e., that there is a more than a 50% likelihood) that the subscription rights have no market value for federal income tax purposes.

This opinion is given solely for the benefit of the parties to the Plan, the shareholders of the Bank and Eligible Account Holders, Supplemental Eligible Account Holders and other investors who purchase pursuant to the Plan, and may not be relied upon by any other party or entity or referred to in any document without our express written consent.

Board of Directors

SI Financial Group, Inc.

                    , 2004

Page 3

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the heading “Legal and Tax Opinions” in the Prospectus, which is part of the Registration Statement as such may be amended or supplemented, or incorporated by reference in any Registration Statement covering additional shares of common stock to be issued or sold under the Plan that is filed pursuant to Rule 462(b) of the Act. In giving such consent, we do not hereby admit that we are experts or are otherwise within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

MULDOON MURPHY FAUCETTE & AGUGGIA LLP

EX-10.1

Exhibit 10.1

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN

Effective as of January 1, 2004

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN

CERTIFICATION

I, Rheo A. Brouillard, President and Chief Executive Officer of the Savings Institute Bank and Trust Company hereby certify that the attached Savings Institute Bank and Trust Company Employee Stock Ownership Plan, effective January 1, 2004, was adopted at a duly held meeting of the Board of Directors of the Bank.

ATTEST:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
	By:
	Rheo A. Brouillard             President and Chief Executive Officer
	Date:

Savings Institute Bank and Trust Company

Employee Stock Ownership Plan

Table of Contents

Section 1 - Introduction	1
Section 2 - Definitions	2
Section 3 - Eligibility and Participation	10
Section 4 - Contributions	12
Section 5 - Plan Accounting	15
Section 6 - Vesting and Forfeitures	22
Section 7 - Distributions	25
Section 8 - Voting of Company Stock and Tender Offers	30
Section 9 - The Committee and Plan Administration	31
Section 10 - Rules Governing Benefit Claims	35
Section 11 - The Trust	36
Section 12 - Adoption, Amendment and Termination	37
Section 13 - General Provisions	39
Section 14 - Top-Heavy Provisions	41

SECTION 1

Introduction

Section 1.01 Nature of the Plan.

Effective as of January 1, 2004 (the “Effective Date”), Savings Institute Bank and Trust Company (the “Bank”) hereby establishes the Savings Institute Bank and Trust Company Employee Stock Ownership Plan (the “Plan”) to enable Eligible Employees (as defined in Section 2.01(o) of the Plan) to acquire stock ownership interests in SI Financial Group, Inc. (the “Company”), the holding company of the Bank. The Bank intends this Plan to be a tax-qualified stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and an employee stock ownership plan within the meaning of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Sections 409 and 4975(e)(7) of the Code. The Plan is designed to invest primarily in the common stock of the Company, which stock constitutes “qualifying employer securities” within the meaning of Section 407(d)(5) of ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and Trust Agreement (as defined in Section 2.01(mm) of the Plan) shall be interpreted and applied in a manner consistent with the Bank’s intent for it to be a tax-qualified plan designed to invest primarily in qualifying employer securities.

The Plan reflects certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). The provisions related to EGTRRA are intended as good faith compliance with EGTRRA and the guidance issued thereunder. To the extent any provision of the Plan was operated according to an effective date earlier than as required by law, then such date shall be the effective date with respect to that provision of the Plan.

Section 1.02 Employers and Affiliates.

The Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan) that, with the consent of the Bank, adopt the Plan pursuant to the provisions of Section 12.01 of the Plan are collectively referred to as the “Employers” and individually as an “Employer.” The Plan shall be treated as a single plan with respect to all participating Employers.

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SECTION 2

Definitions

Section 2.01 Definitions.

In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:

(a) “Account” or “Accounts” mean a Participant’s or Beneficiary’s Company Stock Account and/or his Other Investments Account, as the context so requires.

(b) “Acquisition Loan” means a loan or other extension of credit, including an installment obligation to a “party in interest” (as defined in Section 3(14) of ERISA) incurred by the Trustee in connection with the purchase of Company Stock.

(c) “Affiliate” means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code; provided, however, that, where the context so requires, the term “Affiliate” shall be construed to give full effect to the provisions of Sections 409(l)(4) and 415(h) of the Code.

(d) “Bank” means Savings Institute Bank and Trust Company, and any entity that succeeds to the business of the Savings Institute Bank and Trust Company and adopts this Plan in accordance with the provisions of Section 12.02 of the Plan, or by written agreement assumes the obligations of the Plan.

(e) “Beneficiary” means the person(s) entitled to receive benefits under the Plan following a Participant’s death, pursuant to Section 7.03 of the Plan.

(f) “Change in Control” means any one of the following events occurs:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation;

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(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities;

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

Notwithstanding anything in this Plan to the contrary, in no event shall the conversion of the Bank from the mutual to stock form (including, without limitation, the formation of a stock holding company), or the reorganization of the Bank into the mutual holding company form of organization, constitute a “Change in Control” for purposes of this Plan.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means the individual(s) responsible for the administration of the Plan in accordance with Section 9 of the Plan.

(i) “Company” means SI Financial Group, Inc. and any entity which succeeds to the business of SI Financial Group, Inc.

(j) “Company Stock” means shares of the voting common stock or preferred stock, meeting the requirements of Section 409 of the Code and Section 407(d)(5) of ERISA, issued by the Company or its Affiliates.

(k) “Company Stock Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund invested in Company Stock.

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(l) “Compensation” means:

(i) an Employee’s total salary, wages and other compensation paid during the Plan Year by the Employer that is currently includable in gross income for federal tax purposes, excluding fringe benefits, reimbursements or other expense allowances. Compensation shall include the amounts of any Employer contributions made pursuant to a salary reduction agreement entered into by the Participant and not includible in the gross income of the employee under Sections 125, 132(f), 402(e)(8), 402(h), 403(b) or 457 of the Code.

(ii) Notwithstanding the above, Compensation shall not include contributions made by the Employer to any other pension, deferred compensation, welfare or other employee benefit plan [amounts realized from the exercise of a non-qualified stock option or the sale of a qualified stock option], and other amounts which receive special tax benefits. Compensation shall also not include any form of severance payments, whether for past, present or future services, or otherwise paid to any Employee subsequent to the Employee’s termination of employment with the Employer. This subsection (ii) shall not apply to a former Employee’s final regular paycheck that may be received by the Employee in the normal course of business, after the Employee’s termination of employment.

A Participant’s Compensation shall not exceed $200,000 (as periodically adjusted pursuant to Section 401(a)(17) of the Code). If the Plan Year for which a Participant’s Compensation is measured is less than twelve (12) calendar months, then the amount of Compensation taken into account for such Plan Year shall be the adjusted amount for such Plan Year, as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code, multiplied by a fraction, the numerator of which is the number of months taken into account for such Plan Year and the denominator of which is twelve (12). In determining the dollar limitation hereunder, Compensation received from an Affiliate shall be recognized as Compensation.

(m) “Disability” means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Act. The Disability of a Participant shall be conclusively determined by the Plan Administrator.

(n) “Effective Date” means January 1, 2004.

(o) “Eligible Employee” means any Employee who is not precluded from participating in the Plan by reason of the provisions of Section 3.02 of the Plan.

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(p) “Employee” means any person who is actually performing services for the Employer or an Affiliate in a common-law, employer-employee relationship as determined under Sections 31.3121(d)-1, 31.3306(i)-1, or 31.3401(c)-1 of the Treasury Regulations and any “Leased Employee” as defined in Section 3.02(b) of this Plan.

(q) “Employer” or “Employers” means the Bank and any of its Affiliates that adopt the Plan in accordance with the provisions of Section 12.01 of the Plan, and any entity which succeeds to the business of the Bank or its Affiliates and which adopts the Plan in accordance with the provisions of Section 12.02 of the Plan, or by written agreement assumes the obligations under the Plan.

(r) “Entry Date” means the first day of the month coinciding with or next following the date the Employee satisfies the requirements under Section 3.01 of the Plan.

(s) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(u) “Financed Shares” means shares of Company Stock acquired by the Trustee with the proceeds of an Acquisition Loan, which shall constitute “qualifying employer securities” under Section 409(l) of the Code and any shares of Company Stock received upon conversion or exchange of such shares.

(v) “Highly Compensated Employee” means an Employee who, for a particular Plan Year, satisfies one of the following conditions:

(i) was a “5-percent owner” (as defined in Section 414(q)(2) of the Code) during the year or the preceding year, or

(ii) for the preceding year, had “compensation” (as defined in Section 414(q)(4) of the Code) from the Bank and its Affiliates exceeding $90,000 (as periodically adjusted pursuant to Section 414(q)(1) of the Code).

(w) “Hours of Service” means:

(i) Each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer during the applicable computation period.

(ii) Each hour for which an Employee is paid, or entitled to payment, for a period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

5

Notwithstanding the preceding sentence, no credit shall be given to the Employee for:

(A) more than 501 hours under this clause (ii) because of any single continuous period in which the Employee performs no duties (whether or not such period occurs in a single computation period);

(B) an hour for which the Employee is directly or indirectly paid, or entitled to payment, because of a period in which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s or workmen’s compensation, unemployment, or disability insurance laws; or

(C) an hour or a payment which solely reimburses the Employee for medical or medically-related expenses incurred by the Employee.

(iii) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer; provided, however, that hours credited under either clause (i) or (ii) above shall not also be credited under this clause (iii). Crediting of hours for back pay awarded or agreed to with respect to periods described in clause (ii) above will be subject to the limitations set forth in that clause.

The crediting of Hours of Service shall be determined by the Committee in accordance with the rules set forth in Section 2530.200b-2 of the regulations prescribed by the Department of Labor, which rules shall be consistently applied with respect to all Employees within the same job classification. If an Employer finds it impracticable to count actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 45 Hours of Service for each weekly period in which he has at least one Hour of Service. However, an Employee shall be credited with Hours of Service only for his normal working hours during a paid absence. Hours of Service shall be credited for employment with an Affiliate.

For purposes of determining whether an Employee has incurred a One Year Break in Service and for vesting and participation purposes, if an Employee begins a maternity/paternity leave of absence described in Section 411(a)(6)(E)(i) of the Code, his Hours of Service shall include the Hours of Service that would have been credited to him if he had not been so absent (or 45 Hours of Service for each week of such absence if the actual Hours of Service cannot be determined). An Employee shall be credited for such Hours of Service (up to a maximum of 501 Hours of Service) in the Plan Year in which his absence begins (if such crediting will prevent him from incurring a One Year Break in Service in such Plan Year) or, in all other cases, in the following Plan Year. An absence from employment for maternity or paternity reasons means an absence:

(i) by reason of pregnancy of the Employee,

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(ii) by reason of the birth of a child of the Employee,

(iii) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or

(iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

(x) “Loan Suspense Account” means that portion of the Trust Fund consisting of Company Stock acquired with an Acquisition Loan which has not yet been allocated to the Participants’ Accounts.

(y) “Normal Retirement Age” means age 65.

(z) “Normal Retirement Date” means the first day of the month coincident with or next following the Participant’s attainment of Normal Retirement Age.

(aa) “One Year Break in Service” means a twelve (12) consecutive month period during which the Participant does not complete more than 500 Hours of Service.

(bb) “Other Investments Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund, other than Company Stock.

(cc) “Participant” means any Eligible Employee who has become a Participant in accordance with Section 3.01 of the Plan or any other person with an Account balance under the Plan.

(dd) “Plan” means this Savings Institute Bank and Trust Company Employee Stock Ownership Plan, as amended from time to time.

(ee) “Plan Year” means the calendar year.

(ff) “Postponed Retirement Date” means the first day of the month coincident with or next following a Participant’s date of actual retirement which occurs after his Normal Retirement Date.

(gg) “Recognized Absence” means a period for which:

(i) an Employer grants an Employee a leave of absence for a limited period of time, but only if an Employer grants such leaves of absence on a nondiscriminatory basis to all Eligible Employees; or

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(ii) an Employee is temporarily laid off by an Employer because of a change in the business conditions of the Employer; or

(iii) an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 and the Uniformed Services Employment and Reemployment Rights Act of 1994.

(hh) “Retirement Date” means a Participant’s Normal or Postponed Retirement Date, whichever is applicable.

(ii) “Service” means employment with the Bank or an Affiliate.

(jj) “Termination of Service” means the earlier of (a) the date on which an Employee’s Service is terminated by reason of his resignation, retirement, discharge, death or Disability or (b) the first anniversary of the date on which such Employee’s service is terminated for disability of a short-term nature or any other reason. Service in the Armed Forces of the United States shall not constitute a Termination of Service but shall be considered to be a period of employment by the Employer provided (i) such military service is caused by war or other emergency or the Employee is required to serve under the laws of conscription in time of peace, (ii) the Employee returns to employment with the Employer within six (6) months following discharge from such military service and (iii) such Employee is reemployed by the Employer at a time when the Employee had a right to reemployment at his former position or substantially similar position upon separation from such military duty in accordance with seniority rights as protected under the laws of the United States. A leave of absence granted to an Employee by the Employer shall not constitute a Termination of Service provided that the Participant returns to the active service of the Employer at the expiration of any such period for which leave has been granted. Notwithstanding the foregoing, an Employee who is absent from service with the Employer beyond the first anniversary of the first date of his absence for maternity or paternity reasons set forth in Section 2.01 of the Plan shall incur a Termination of Service for purposes of the Plan on the second anniversary of the date of such absence.

(kk) “Treasury Regulations” mean the regulations promulgated by the Department of the Treasury under the Code.

(ll) “Trust” means the Savings Institute Bank and Trust Company Employee Stock Ownership Plan Trust created in connection with the establishment of the Plan.

(mm) “Trust Agreement” means the trust agreement establishing the Trust.

(nn) “Trust Fund” means the assets held in the Trust for the benefit of Participants and their Beneficiaries.

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(oo) “Trustee” means the trustee or trustees from time to time in office under the Trust Agreement.

(pp) “Valuation Date” means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Trust Fund and adjust Participants’ Accounts accordingly.

(qq) “Valuation Period” means the period following a Valuation Date and ending with the next Valuation Date.

(rr) “Year of Service” shall mean a Plan Year in which an Employee is credited with at least 1,000 Hours of Service.

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SECTION 3

Eligibility and Participation

Section 3.01 Participation.

(a) All Eligible Employees who are employed by an Employer on the date the Company first issues common stock pursuant to its reorganization from a mutual savings and loan association to a mutual holding company (the “Reorganization Date”) shall enter the Plan and become Participants on the earlier of the Effective Date or the date on which the Eligible Employee first performs an Hour of Service for an Employer. [CONFIRM]

(b) An Eligible Employee who is employed by an Employer after the Reorganization Date shall become a Participant in the Plan upon satisfying the following requirements:

(i) The Eligible Employee is at least 21 years of age; and

(ii) The Eligible Employee has been employed by the Employer for ninety (90) days.

(c) An Eligible Employee who has satisfied the eligibility requirements of Section 3.01(b) shall enter the Plan and become a Participant on the earlier of the Effective Date or the Entry Date coincident with or next following the date he satisfies such requirements.

Section 3.02 Certain Employees Ineligible.

The following Employees are ineligible to participate in the Plan:

(a) Employees covered by a collective bargaining agreement between the Employer and the Employee’s collective bargaining representative if:

(i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative, and

(ii) the collective bargaining agreement does not expressly provide that Employees of such unit be covered under the Plan;

(b) “Leased Employees” who, pursuant to an agreement between the Employer and any other person, including a leasing organization, have performed services for the Employer (or for the Employer and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of a least one (1) year, and such services are performed under the primary direction and control of the Employer;

(c) Employees who are nonresident aliens and who receive no earned income from an Employer which constitutes income from sources within the United States; and

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(d) Employees of an Affiliate of the Bank that has not adopted the Plan pursuant to Sections 12.01 or 12.02 of the Plan.

Section 3.03 Transfer to and from Eligible Employment.

(a) If an Employee ineligible to participate in the Plan by reason of Section 3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter the Plan as of the later of:

(i) the first Entry Date after the date of transfer, or

(ii) the first Entry Date on which he could have become a Participant pursuant to Section 3.01 of the Plan if his prior employment with the Employer or Affiliate had been as an Eligible Employee.

(b) If a Participant transfers to an employment position that makes him ineligible to participate in the Plan as of the date of such transfer, he shall cease active participation in the Plan as of such date and his transfer shall be treated for all purposes under the Plan in the same manner as any other termination of Service.

Section 3.04 Participation after Reemployment.

(a) If an Employee incurs a One Year Break in Service prior to satisfying the eligibility requirements of Section 3.01 of the Plan, Service prior to such One Year Break in Service shall be disregarded and the Employee must satisfy the eligibility requirements of Section 3.01 as a new Employee.

(b) If an Employee incurs a One Year Break in Service after satisfying the eligibility requirements of Section 3.01 of the Plan and again performs an Hour of Service, the Employee shall receive credit for Service prior to his One Year Break in Service and shall be eligible to participate in the Plan immediately upon reemployment, provided the Employee is not excluded from participation under the provisions of Section 3.02 of the Plan.

Section 3.05 Participation Not Guarantee of Employment.

Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of the Bank or any of its Affiliates nor any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the Plan.

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SECTION 4

Contributions

Section 4.01 Employer Contributions.

(a) Discretionary Contributions. Each Plan Year, each Employer, in its discretion, may make a contribution to the Trust. Each Employer making a contribution for any Plan Year under this Section 4.01(a) will contribute to the Trustee cash equal to, or Company Stock or other property having an aggregate fair market value equal to, such amount as the Board of Directors of the Employer shall determine by resolution. Notwithstanding the Employer’s discretion with respect to the medium of contribution, an Employer shall not make a contribution in any medium which would make such contribution a prohibited transaction (for which no exemption is provided) under Section 406 of ERISA or Section 4975 of the Code.

(b) Employer Contributions for Acquisition Loans. Each Plan Year, the Employers shall, subject to any regulatory prohibitions, contribute an amount of cash sufficient to enable the Trustee to discharge any indebtedness incurred with respect to an Acquisition Loan pursuant to the terms of the Acquisition Loan. The Employers’ obligation to make contributions under this Section 4.01(b) shall be reduced to the extent of any investment earnings attributable to such contributions and any cash dividends paid with respect to Company Stock held by the Trustee in the Loan Suspense Account. If there is more than one Acquisition Loan, the Employers shall designate the one to which any contribution pursuant to this Section 4.01(b) is to be applied.

Section 4.02 Limitations on Contributions.

In no event shall an Employer’s contribution(s) made under Section 4.01 of the Plan for any Plan Year exceed the lesser of:

(a) The maximum amount deductible under Section 404 of the Code by that Employer as an expense for Federal income tax purposes; and

(b) The maximum amount which can be credited for that Plan Year in accordance with the allocation limitation provisions of Section 5.05 of the Plan.

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Section 4.03 Acquisition Loans.

The Trustee may incur Acquisition Loans from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, shall not be payable in demand, except in the event of default, and shall be primarily for the benefit of Participants and Beneficiaries of the Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed Shares so acquired and any other Plan assets which are permissible securities within the provisions of Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or Trust may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any other Trust assets. Any pledge of Financed Shares must provide for the release of shares so pledged on a basis equal to the principal and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), paid by the Trustee on the Acquisition Loan. The released Financed Shares shall be allocated to Participants’ Accounts in accordance with the provisions of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of principal and interest on any Acquisition Loan shall be made by the Trustee only from the Employer contributions paid in cash to enable the Trustee to repay such loan in accordance with Section 4.01(b) of the Plan, from earnings attributable to such contributions, and any cash dividends received by the Trustee on Financed Shares acquired with the proceeds of the Acquisition Loan (including contributions, earnings and dividends received during or prior to the year of repayment less such payments in prior years), whether or not allocated. Financed Shares shall initially be credited to the Loan Suspense Account and shall be transferred for allocation to the Company Stock Accounts of Participants only as payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account for allocation to Participants’ Company Stock Account for each Plan Year shall be based on the ratio that the payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan for that Plan Year bears to the sum of the payments of principal and interest on the Acquisition Loan for that Plan Year plus the total remaining payment of principal and interest projected (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan over the duration of the Acquisition Loan repayment period, subject to the provisions of Section 5.05 of the Plan.

Section 4.04 Conditions as to Contributions.

In addition to the provisions of Section 12.03 of the Plan for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the Employer originally made such contribution, or within one year after its nondeductibility has been finally determined.

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However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust in order that the balance credited to each Participant Account is not less than it would have been if the contribution had never been made by the Employer.

Section 4.05 Employee Contributions.

Employee contributions are neither required nor permitted under the Plan.

Section 4.06 Rollover Contributions.

Rollover contributions to the Plan of assets from other tax-qualified retirement plans are not permitted under the Plan.

Section 4.07 Trustee-to-Trustee Transfers.

Trustee-to-trustee transfers of assets from other tax-qualified retirement plans are not permitted under the Plan.

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SECTION 5

Plan Accounting

Section 5.01 Accounting for Allocations.

The Committee shall establish the Accounts (and sub-accounts, if deemed necessary) for each Participant, and the accounting procedures for the purpose of making allocations to Participants’ Accounts as provided for in this Section 5. The Committee shall maintain adequate records of the cost basis of shares of Company Stock allocated to each Participant’s Company Stock Account. The Committee also shall keep separate records of Financed Shares attributable to each Acquisition Loan and of contributions made by the Employers (and any earnings thereon) made for the purpose of enabling the Trustee to repay any Acquisition Loan. From time to time, the Committee may modify its accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants, in accordance with the provisions of this Section 5 and the applicable requirements of the Code and ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the responsibility for maintaining Accounts and records.

Section 5.02 Maintenance of Participants’ Company Stock Accounts.

As of each Valuation Date, the Committee shall adjust the Company Stock Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Company Stock Account all distributions and payments made to him that have not been previously charged;

(b) Next, credit to each Participant’s Company Stock Account the shares of Company Stock, if any, that have been purchased with amounts from his Other Investments Account, and adjust such Other Investments Account in accordance with the provisions of Section 5.03 of the Plan;

(c) Next, credit to each Participant’s Company Stock Account the shares of Company Stock representing contributions made by the Employers in the form of Company Stock and the number of Financed Shares released from the Loan Suspense Account under Section 4.03 of the Plan that are to be allocated and credited as of that date in accordance with the provisions of Section 5.04 of the Plan; and

(d) Finally, credit to each Participant’s Company Stock Account the shares of Company Stock released from the Loan Suspense Account that are to be allocated in accordance with the provisions of Section 5.09 of the Plan.

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Section 5.03 Maintenance of Participants’ Other Investments Accounts.

Except as otherwise provided for under Section 5.08 of the Plan, as of each Valuation Date, the Committee shall adjust the Other Investments Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Other Investments Account all distributions and payments made to him that have not previously been charged;

(b) Next, if Company Stock is purchased with assets from a Participant’s Other Investments Account, the Participant’s Other Investments Account shall be charged accordingly;

(c) Next, subject to the dividend provisions of Section 5.09 of the Plan, credit to the Other Investments Account of each Participant any cash dividends paid to the Trustee on shares of Company Stock held in that Participant’s Company Stock Account (as of the record date for such cash dividends) and dividends paid on shares of Company Stock held in the Loan Suspense Account that have not been used to repay any Acquisition Loan. Subject to the provisions of Section 5.09 of the Plan, cash dividends that have not been used to repay an Acquisition Loan and have been credited to a Participant’s Other Investments Account shall be applied by the Trustee to purchase shares of Company Stock, which shares shall then be credited to the Company Stock Account of such Participant. The Participant’s Other Investments Account shall then be charged by the amount of cash used to purchase such Company Stock. In addition, any earnings on:

(i) Other Investments Accounts will be allocated to Participants’ Other Investments Accounts, pro rata, based on such Other Investments Account balances as of the first day of the Valuation Period, and

(ii) the Loan Suspense Account, other than dividends used to repay the Acquisition Loan, will be allocated to Participants’ Other Investments Accounts, pro rata, based on their Other Investments Account balances as of the first day of the Valuation Period;

(d) Next, allocate and credit the Employer contributions made pursuant to Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan, in accordance with Section 5.04 of the Plan. Such amount shall then be used to repay any Acquisition Loan and such Participant’s Other Investments Account shall be charged accordingly; and

(e) Finally, allocate and credit the Employer contributions (other than amounts contributed to repay an Acquisition Loan) that are made in cash (or property other than Company Stock) for the Plan Year to the Other Investments Account of each Participant in accordance with Section 5.04 of the Plan.

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Section 5.04 Allocation and Crediting of Employer Contributions.

(a) Except as otherwise provided for in Sections 5.08 and 5.09 of the Plan, as of the Valuation Date for each Plan Year:

(i) Company Stock released from the Loan Suspense Account for that year and shares of Company Stock contributed directly to the Plan shall be allocated and credited to each Active Participant’s (as defined in paragraph (b) of this Section 5.04) Company Stock Account based on the ratio that each Active Participant’s Compensation bears to the aggregate Compensation of all Active Participants for the Plan Year, and then

(ii) The cash contributions not used to repay an Acquisition Loan and any other property contributed for that year shall be allocated and credited to each Active Participant’s Other Investments Account based on the ratio determined by comparing each Active Participant’s Compensation while a Participant to the aggregate Compensation of all Active Participants for the Plan Year.

(b) For purposes of this Section 5.04, the term “Active Participant” means those Eligible Employees who:

(i) are employed on the last day of the Plan Year [and have completed 1,000 Hours of Service during the Plan Year]; or

(ii) terminated employment during the Plan Year by reason of death, Disability, or attainment of their Normal or Postponed Retirement Date.

Section 5.05 Limitations on Allocations.

(a) In General. Subject to the provisions of this Section 5.05, Section 415 of the Code shall be incorporated by reference into the terms of the Plan. No allocation shall be made under Section 5.04 of the Plan that would result in a violation of Section 415 of the Code.

(b) Code Section 415 Compensation. For purposes of this Section 5.05, Compensation shall be adjusted to reflect the general rule of Section 1.415-2(d) of the Treasury Regulations.

(c) Limitation Year. The “limitation year” (within the meaning of Section 415 of the Code) shall be the calendar year.

(d) Multiple Defined Contribution Plans. In any case where a Participant also participates in another defined contribution plan of the Bank or its Affiliates, the appropriate committee of such other plan shall first reduce the after-tax contributions under any such plan, shall then reduce any elective deferrals under any such plan subject to Section

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401(k) of the Code, shall then reduce all other contributions under any other such plan and, if necessary, shall then reduce contributions under this Plan.

(e) Excess Allocations. If, after applying the allocation provisions under Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would otherwise result in a violation of Section 415 of the Code, the Committee shall allocate and reallocate employer contributions to other Participants in the Plan for the limitation year or, if such allocation and reallocation causes the limitations of Section 415 of the Code to be exceeded, shall hold excess amounts in an unallocated suspense account for allocation in a subsequent Plan Year in accordance with Section 1.415-6(b)(6)(i) of the Treasury Regulations. Such suspense account, if permitted, will be credited before any allocation of contributions for subsequent limitation years.

(f) Allocations Pursuant to Section 5.08. For purposes of this Section 5.05, no amount credited to any Participant’s Account pursuant to Section 5.08 of the Plan shall be counted as an “annual addition” for purposes of Section 415 of the Code. In the event any amount cannot be allocated to Affected Participants (as defined in Section 5.08 of the Plan) under the Plan pursuant to Section 5.08 of the Plan in the year of a Change in Control, the amount which may not be so allocated in the year of the Change in Control shall be treated in accordance with paragraph (e) of this Section 5.05.

Section 5.06 Other Limitations.

Aside from the limitations set forth in Section 5.05 of the Plan, in no event shall more than one-third of the Employer contributions to the Plan (including Matching Contributions) be allocated to the Accounts of Highly Compensated Employees. In order to ensure that such allocations are not made, the Committee shall, beginning with the Participants whose Compensation exceeds the limit then in effect under Section 401(a)(17) of the Code, reduce the amount of Compensation of such Highly Compensated Employees on a pro-rata basis per individual that would otherwise be taken into account for purposes of allocating benefits under Section 5.04 of the Plan. If, in order to satisfy this Section 5.06, any such Participant’s Compensation must be reduced to an amount that is lower than the Compensation amount of the next highest paid (based on such Participant’s Compensation) Highly Compensated Employee (the “breakpoint amount”), then, for purposes of allocating benefits under Section 5.04 of the Plan, the Compensation of all concerned Participants shall be reduced to an amount not to exceed such breakpoint amount.

Section 5.07 Limitations as to Certain Section 1042 Transactions.

To the extent that a shareholder of Company Stock sells qualifying Company Stock to the Plan and elects (with the consent of the Bank) nonrecognition of gain under Section 1042 of the Code, no portion of the Company Stock purchased in such nonrecognition transaction (or other dividends or other income attributable thereto) may accrue or be allocated during the nonallocation period (the ten (10) year period beginning on the later of the date of the sale of the

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qualified Company Stock, or the date of the Plan allocation attributable to the final payment of an Acquisition Loan incurred in connection with such sale) for the benefit of:

(a) the selling shareholder;

(b) the spouse, brothers or sisters (whether by the whole or half blood), ancestors or lineal descendants of the selling shareholder or descendant referred to in (a) above; or

(c) any other person who owns, after application of Section 318(a) of the Code, more than twenty-five percent (25%) of:

(i) any class of outstanding stock of the Company or any Affiliate, or

(ii) the total value of any class of outstanding stock of the Company or any Affiliate.

For purposes of this Section 5.07, Section 318(a) of the Code shall be applied without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the Code.

Section 5.08 Allocations Upon Termination Prior to Satisfaction of Acquisition Loan.

(a) Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Plan shall terminate as of the effective date of the Change in Control and, as soon as practicable thereafter, the Trustee shall repay in full any outstanding Acquisition Loan. In connection with such repayment, the Trustee shall: (i) apply cash, if any, received by the Plan in connection with the transaction constituting a Change in Control, with respect to the unallocated shares of Company Stock acquired with the proceeds of the Acquisition Loan, and (ii) to the extent additionally required to effect the repayment of the Acquisition Loan, obtain cash through the sale of any stock or security received by the Plan in connection with such transaction, with respect to such unallocated shares of Company Stock. After repayment of the Acquisition Loan, all remaining shares of Company Stock held in the Loan Suspense Account, all other stock or securities, and any cash proceeds from the sale or other disposition of any shares of Company Stock held in the Loan Suspense Account, shall be allocated among the Accounts of all Participants who were employed by an Employer on the date immediately preceding the effective date of the Change in Control. Such allocations of shares or cash proceeds shall be credited as earnings for purposes of Section 5.05 of the Plan and Section 415 of the Code, as of the effective date of the Change in Control, to the Accounts of each Participant who is either in active Service with an Employer, or is on a Recognized Absence, on the date immediately preceding the effective date of the Change of Control (each an “Affected Participant”), in proportion to the opening balances in their Company Stock Accounts as of the first day of the current Valuation Period. As of the effective date of a Change in Control, all Participant Accounts shall be fully vested and nonforfeitable.

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(b) In the event of a termination of the Plan in connection with a Change in Control, this Section 5.08 shall have no force and effect unless the price paid for the Company Stock in connection with a Change in Control is greater than the average basis of the unallocated Company Stock held in the Loan Suspense Account as of the date of the Change in Control.

Section 5.09 Dividends.

(a) Stock Dividends. Dividends on Company Stock which are received by the Trustee in the form of additional Company Stock shall be retained in the portion of the Trust Fund consisting of Company Stock, and shall be allocated among the Participants’ Accounts and the Loan Suspense Account in accordance with their holdings of the Company Stock on which the dividends have been paid.

(b) Cash Dividends on Allocated Shares. Dividends on Company Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Bank, either:

(i) be credited to Participants’ Accounts in accordance with Section 5.03 of the Plan and invested as part of the Trust Fund;

(ii) be distributed immediately to the Participants;

(iii) be distributed to the Participants within ninety (90) days of the close of the Plan Year in which paid; or

(iv) be used to repay principal and interest on the Acquisition Loan used to acquire Company Stock on which the dividends were paid.

In addition to the alternatives specified in the preceding paragraph regarding the treatment of cash dividends paid with respect to shares of Company Stock credited to Participants’ Accounts, if authorized by the Committee for the Plan Year, a Participant may elect that cash dividends paid on Company Stock credited to the Participant’s Account shall either be:

(i) paid to the Plan, reinvested in Company Stock and credited to the Participant’s Account;

(ii) distributed in cash to the Participant; or

(iii) distributed to the Participant within ninety (90) days of the close of the Plan Year in which paid.

Dividends subject to an election under this paragraph (and any Company Stock acquired therewith pursuant to a Participant’s election) shall at all times be fully vested. To the extent the

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Committee authorizes elections pursuant to this paragraph, the Committee shall establish policies and procedures relating to Participant elections and, if applicable, the reinvestment of cash dividends in Company Stock, which are consistent with guidance issued under Section 404(k) of the Code.

(c) Cash Dividends on Unallocated Shares. Dividends on Company Stock held in the Loan Suspense Account which are received by the Trustee in the form of cash shall be applied as soon as practicable to payments of principal and interest under the Acquisition Loan incurred with the purchase of Company Stock.

(d) Financed Shares. Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to such Company Stock shall be allocated under Sections 5.03 and 5.04 of the Plan as follows:

(i) First, Financed Shares with a fair market value at least equal to the dividends paid with respect to the Company Stock allocated to Participants’ Accounts shall be allocated among and credited to the Accounts of such Participants, pro rata, according to the number of shares of Company Stock held in such accounts on the date such dividend is declared by the Company; and

(ii) Then, any remaining Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to Company Stock held in the Loan Suspense Account shall be allocated among and credited to the Accounts of all Participants, pro rata, according to each Participant’s Compensation.

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SECTION 6

Vesting and Forfeitures

Section 6.01 Deferred Vesting in Accounts.

(a) A Participant shall vest in his Accounts in accordance with the following schedule:

Years of Service	Vested Percentage
Two (2)	25	%
Three (3)	50	%
Four (4)	75	%
Five (5)	100	%

(b) For purposes of determining a Participant’s Years of Service under this Section 6.01, employment with the Bank or an Affiliate shall be deemed employment with the Employer. For purposes of determining a Participant’s vested percentage in his Accounts, all Years of Service shall be included, beginning with the Employee’s initial service with the Employer.

Section 6.02 Immediate Vesting in Certain Situations.

(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become fully vested in his Accounts upon the earlier of:

(i) termination of the Plan or upon the permanent and complete discontinuance of contributions by the Employer to the Plan; provided, however, that in the event of a partial termination of the Plan, the interest of each Participant shall fully vest only with respect to that part of the Plan which is terminated;

(ii) Termination of Service on or after the Participant’s Normal or Postponed Retirement Date;

(iii) a Change in Control; or

(iv) Termination of Service by reason of death or Disability.

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Section 6.03 Treatment of Forfeitures.

(a) If a Participant who is not fully vested in his Accounts terminates employment, that portion of his Accounts in which he is not vested shall be forfeited upon the earlier of:

(i) the date the Participant receives a distribution of his entire vested benefits under the Plan, or

(ii) the date at which the Participant incurs five (5) consecutive One Year Breaks in Service.

(b) If a Participant who has terminated employment and has received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer prior to incurring five (5) consecutive One Year Breaks in Service, he shall have the portion of his Accounts which was previously forfeited restored to his Accounts, provided he repays to the Trustee within five (5) years of his subsequent employment date an amount equal to the previous distribution. The amount restored to the Participant’s Account shall be credited to his Account as of the last day of the Plan Year in which the Participant repays the distributed amount to the Trustee and the restored amount shall come from other Employees’ forfeitures and, if such forfeitures are insufficient, from a special contribution by the Employer for that year. If a Participant’s employment terminates prior to his Account having become vested, such Participant shall be deemed to have received a distribution of his entire vested interest as of the Valuation Date next following his termination of employment.

(c) If a Participant who has terminated employment but has not received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer subsequent to incurring five (5) consecutive One Year Breaks in Service, any undistributed balance of his Accounts from his prior participation which was not forfeited shall be maintained as a fully vested subaccount within his Account.

(d) If a portion of a Participant’s Account is forfeited, assets other than Company Stock must be forfeited before any Company Stock may be forfeited.

(e) Forfeitures shall be reallocated among the other Participants in the Plan.

Section 6.04 Accounting for Forfeitures.

A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the Plan, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 5 as of the last day of the Plan Year in which the forfeiture becomes certain.

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Section 6.05 Vesting Upon Reemployment.

If a Participant incurs a One Year Break in Service and again performs an Hour of Service, such Participant shall receive credit, for purposes of Section 6.01 of the Plan, for his Years of Service prior to his One Year Break in Service.

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SECTION 7

Distributions

Section 7.01 Distribution of Benefit Upon a Termination of Employment.

(a) A Participant whose employment terminates for any reason shall receive the entire vested portion of his Accounts in a single payment on a date selected by the Committee; provided, however, that such date shall be on or before the 60th day after the end of the Plan Year in which the Participant’s employment terminated. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment. Subject to the provisions of Section 7.05 of the Plan, if the Committee so provides, a Participant may elect that his benefits be distributed to him in the form of either Company Stock, cash, or some combination thereof.

(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited to a Participant’s Accounts exceeds, at the time such benefit was distributable, $5,000, his benefits shall not be paid before the latest of his 65th birthday or the tenth anniversary of the year in which he commenced participation in the Plan, unless he elects an early payment date in a written election filed with the Committee. Such an election is not valid unless it is made after the Participant has received the required notice under Section 1.411(a)-11(c) of the Treasury Regulations that provides a general description of the material features of a lump sum distribution and the Participant’s right to defer receipt of his benefits under the Plan. The notice shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. Written consent of the Participant to the distribution generally may not be made within 30 days of the date the Participant receives the notice and shall not be made more than 90 days from the date the Participant receives the notice. However, a distribution may be made less than 30 days after the notice provided under Section 1.411(a)-11(c) of the Treasury Regulations is given, if:

(i) the Committee clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and if applicable, a particular distribution option), and

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

A Participant may modify such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee.

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Section 7.02 Minimum Distribution Requirements.

With respect to all Participants, other than those who are “5% owners” (as defined in Section 416 of the Code), benefits shall be paid on the required beginning date which is no later than the April 1st of the later of:

(i) the calendar year following the calendar year in which the Participant attains age 70-1/2, or

(ii) the calendar year in which the Participant retires.

With respect to all Participants who are 5% owners within the meaning of Section 416 of the Code, such Participants’ benefits shall be paid no later than the April 1st of the calendar year following the calendar year in which the Participant attains age 70-1/2.

Section 7.03 Benefits on a Participant’s Death.

(a) If a Participant dies before his benefits are paid pursuant to Section 7.01 of the Plan, the balance credited to his Accounts shall be paid to his Beneficiary in a single distribution on or before the 60th day after the end of the Plan Year in which the Participant died. If the Participant has not named a Beneficiary or his named Beneficiary should not survive him, then the balance in his Accounts shall be paid to his estate. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment.

(b) If a married Participant dies before his benefit payments begin, then, unless he has specifically elected otherwise, the Committee shall cause the balance in his Accounts to be paid to his spouse, as Beneficiary. A married Participant may name an individual other than his spouse as Beneficiary provided that such election is accompanied by the spouse’s written consent which must:

(i) acknowledge the effect of the election;

(ii) explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the spouse’s further consent or that it may be changed without such consent; and

(iii) must be witnessed by the Committee, its representative, or a notary public.

This requirement shall not apply if the Participant establishes to the Committee’s satisfaction that the spouse may not be located.

(c) The Committee shall, from time to time, take whatever steps it deems appropriate to keep informed of each Participant’s marital status. Each Employer shall provide the

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Committee with the most reliable information in the Employer’s possession regarding its Participants’ marital status, and the Committee may, in its discretion, require a notarized affidavit from any Participant as to his marital status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant as to the Participant’s marital status.

Section 7.04 Delay in Benefit Determination.

If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to this Section 7, the benefits shall in any event be paid within 60 days after they can first be determined.

Section 7.05 Options to Receive and Sell Company Stock.

(a) Unless ownership of virtually all Company Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Company Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Accounts in the form of Company Stock. In that event, the Committee shall apply the Participant’s vested interest in his Other Investments Account to purchase sufficient Company Stock to make the required distribution.

(b) Any Participant who receives Company Stock pursuant to this Section 7.05, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code, shall have the right to require the Employer which issued the Company Stock to purchase the Company Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall be exercisable by written notice to the Committee during the first 60 days after the Company Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Company Stock’s current fair market value. If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Company Stock. However, the put right shall not apply to the extent that the Company Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations.

(c) With respect to a put right, the Employer or the Trustee, as the case may be, may elect to pay for the Company Stock in equal periodic installments, not less frequently than

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annually, over a period not longer than five (5) years from the 30th day after the put right is exercised pursuant to paragraph (b) of this Section 7.05, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

(d) Nothing contained in this Section 7.05 shall be deemed to obligate any Employer to register any Company Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Company Stock. The put right described in this Section 7.05 may only be exercised by a person described in paragraph (b) of this Section 7.05, and may not be transferred with any Company Stock to any other person. As to all Company Stock purchased by the Plan in exchange for any Acquisition Loan, the put right must be nonterminable. The put right for Company Stock acquired through an Acquisition Loan shall continue with respect to such Company Stock after the Acquisition Loan is repaid or the Plan ceases to be an employee stock ownership plan. Except as provided above, in accordance with the provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Company Stock acquired with the proceeds of an Acquisition Loan may be subject to any put, call or other option or buy-sell or similar arrangement while held by, and when distributed from, the Plan, whether or not the Plan is then an employee stock ownership plan.

Section 7.06 Restrictions on Disposition of Company Stock.

Except in the case of Company Stock which is traded on an established market, a Participant who receives Company Stock pursuant to this Section 7, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, divorce or separation from the Participant, or a rollover distribution described in Section 402(c) of the Code, shall, prior to any sale or other transfer of the Company Stock to any other person, first offer the Company Stock to the issuing Employer and to the Plan at its current fair market value. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee may accept the offer within 14 days after it is delivered. Any Company Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 7.06, as applicable, as well as any other restrictions upon the transfer of the Company Stock imposed by federal and state securities laws and regulations.

Section 7.07 Direct Transfer of Eligible Plan Distributions.

(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee (as defined below) may elect to have any portion of an eligible rollover distribution (as defined below) paid directly to an eligible retirement plan (as defined below) specified by the distributee in a direct rollover (as defined below). A “distributee” includes a Participant or former Participant. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s

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or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. For purposes of this Section 7.07 a “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

(b) To effect such a direct transfer, the distributee must notify the Committee that a direct rollover is desired and provide to the Committee sufficient information regarding the eligible retirement plan to which the payment is to be made. Such notice shall be made in such form and at such time as the Committee may prescribe. Upon receipt of such notice, the Committee shall direct the Trustee to make a trustee-to-trustee transfer of the eligible rollover distribution to the eligible retirement plan so specified.

(c) For purposes of this Section 7.07, an “eligible rollover distribution” shall have the meaning set forth in Section 402(c)(4) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not inconsistent with the above references, an eligible rollover distribution shall mean any distribution of all or any portion of the Participant’s Account, except that such term shall not include any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made (i) for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and a designated Beneficiary, or (ii) for a period of ten years or more. Further, the term “eligible rollover distribution” shall not include any distribution required to be made under Section 401(a)(9) of the Code or, the portion of any distribution that is not includible in gross income (determined without regard to the exclusions for net unrealized appreciation with respect to Company Stock). To the extent applicable under the Plan, “eligible rollover distributions” shall also not include any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code.

(d) For purposes of this Section 7.07, an “eligible retirement plan” shall have the meaning set forth in Section 402(c)(8) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not consistent with the above references, an eligible retirement plan shall mean: (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the Code, (iii) an annuity or annuity plan described in Section 403(a) or Section 403(b) of the Code, (iv) a qualified trust described in Section 401(a) of the Code, or (v) a governmental plan under Section 457 of the Code that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan means an individual retirement account or individual retirement annuity.

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SECTION 8

Voting of Company Stock and Tender Offers

Section 8.01 Voting of Company Stock.

(a) In General. The Trustee shall generally vote all shares of Company Stock held in the Trust in accordance with the provisions of this Section 8.01.

(b) Allocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions.

(c) Uninstructed and Unallocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts but for which no written instructions have been received by the Trustee regarding voting shall be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Shares of unallocated Company Stock shall also be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Notwithstanding the preceding two sentences, all shares of Company Stock which have been allocated to Participants’ Accounts and for which the Trustee has not timely received written instructions regarding voting and all unallocated shares of Company Stock must be voted by the Trustee in a manner determined by the Trustee to be solely in the best interests of the Participants and Beneficiaries.

(d) Voting Prior to Allocation. In the event no shares of Company Stock have been allocated to Participants’ Accounts at the time Company Stock is to be voted, each Participant shall be deemed to have one share of Company Stock allocated to his Accounts for the sole purpose of providing the Trustee with voting instructions.

(e) Procedure and Confidentiality. Whenever such voting rights are to be exercised, the Employers, the Committee, and the Trustee shall see that all Participants and Beneficiaries are provided with the same notices and other materials as are provided to other holders of the Company Stock, and are provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Company Stock allocated to their Accounts or deemed allocated to their Accounts for purposes of voting. The instructions of the Participants with respect to the voting of shares of Company Stock shall be confidential.

Section 8.02 Tender Offers.

In the event of a tender offer, Company Stock shall be tendered by the Trustee in the same manner set forth in Section 8.01 of the Plan regarding the voting of Company Stock.

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SECTION 9

The Committee and Plan Administration

Section 9.01 Identity of the Committee.

The Committee shall consist of three or more individuals selected by the Bank. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon ten (10) days’ written notice to such individual and any individual may resign from the Committee at any time without reason upon ten (10) days’ written notice to the Bank. The Bank shall notify the Trustee of any change in membership of the Committee.

Section 9.02 Authority of Committee.

(a) The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically:

(i) allocated to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement;

(ii) delegated in writing to other persons by the Bank, the Employers, the Committee, or the Trustee; or

(iii) allocated to other parties by operation of law.

(b) The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan.

(c) The Committee shall have full investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided for in the Trust Agreement.

(d) In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay such individuals reasonable compensation and expenses for their services rendered with respect to the operation or administration of the Plan, to the extent such payments are not otherwise prohibited by law.

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Section 9.03 Duties of Committee.

(a) The Committee shall keep whatever records may be necessary in connection with the maintenance of the Plan and shall furnish to the Employers whatever reports may be required from time to time by the Employers. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports and returns required with respect to the Plan under ERISA, the Code and other applicable laws and regulations.

(b) The Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Company Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Company Stock and the creation and satisfaction of any Acquisition Loan to the extent such responsibilities are not set forth in the Trust Agreement.

(c) The Committee shall at all times act consistently with the Bank’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Company Stock. Subject to the direction of the Committee with respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan as to Participants’ rights under certain circumstances to have their Accounts invested in Company Stock or in assets other than Company Stock, the Committee shall determine, in its sole discretion, the extent to which assets of the Trust shall be used to repay any Acquisition Loan, to purchase Company Stock, or to invest in other assets selected by the Committee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in Company Stock or investments other than Company Stock shall restrict the Committee from changing any holdings of the Trust Fund, whether the changes involve an increase or a decrease in the Company Stock or other assets credited to Participants’ Accounts. In determining the proper extent of the Trust Fund’s investment in Company Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable compensation and expenses to the extent such payments are not prohibited by law.

(d) If the valuation of any Company Stock is not established by reported trading on a generally recognized public market, then the Committee shall have the exclusive authority and responsibility to determine the value of the Company Stock for all purposes under the Plan. Such value shall be determined as of each Valuation Date and on any other date as of which the Trustee purchases or sells Company Stock in a manner consistent with Section 4975 of the Code and the Treasury Regulations issued thereunder. The Committee shall use generally accepted methods of valuing stock of similar corporations for purposes of arm’s length business and investment transactions, and in this connection the Committee shall obtain, and shall be protected in relying upon, the

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valuation of Company Stock as determined by an independent appraiser (as defined in Section 401(a)(28)(c) of the Code).

Section 9.04 Compliance with ERISA and the Code.

The Committee shall perform all acts necessary to ensure the Plan’s compliance with ERISA and the Code. Each individual member of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA and the Code.

Section 9.05 Action by Committee.

All actions of the Committee shall be governed by the affirmative vote of a majority of the total number of Committee members. The members of the Committee may meet informally and may take any action without meeting as a group.

Section 9.06 Execution of Documents.

Any instrument to be executed by the Committee may be signed by any member of the Committee.

Section 9.07 Adoption of Rules.

The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper operation, administration and interpretation of the Plan.

Section 9.08 Responsibilities to Participants.

The Committee shall determine which Employees qualify to participate in the Plan. The Committee shall furnish to each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information that may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA or the Code (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Section 7, and the Committee shall provide for the payment of benefits in the proper form and amount from the Trust. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with the terms of the Plan, applicable law, and the best interests of the individuals concerned.

Section 9.09 Alternative Payees in Event of Incapacity.

If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, a custodian for him under the Uniform Transfers to Minors

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Act, or the person having actual custody of him, or, in the case of an incompetent, to his spouse, his legal guardian, or the person having actual custody of him. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 9.09, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

Section 9.10 Indemnification by Employers.

Except as separately agreed upon in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employers, jointly and severally, to the fullest extent permitted by law, against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon the Committee or such individual in connection with any claim made against the Committee or such individual, or in which the Committee or such individual may be involved by reason of being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

Section 9.11 Abstention by Interested Member.

Any member of the Committee who is also a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits under the Plan, unless an abstention would render the Committee incapable of acting on the matter.

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SECTION 10

Rules Governing Benefit Claims

Section 10.01 Claim for Benefits.

Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the 30th day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Section 7 of the Plan.

Section 10.02 Notification by Committee.

Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

(a) each specific reason for the denial;

(b) specific references to the pertinent Plan provisions on which the denial is based;

(c) a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

(d) an explanation of the claims review procedures set forth in Section 10.03 of the Plan.

Section 10.03 Claims Review Procedure.

Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee’s determination. In connection with his appeal, the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the

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Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

SECTION 11

The Trust

Section 11.01 Creation of Trust Fund.

All amounts received under the Plan from an Employer and investments shall be held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement. The benefits described in this Plan shall be payable only from the assets of the Trust Fund. Neither the Bank, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, nor the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

Section 11.02 Company Stock and Other Investments.

The Trust Fund held by the Trustee shall be divided into Company Stock and investments other than Company Stock. The Trustee shall have no investment responsibility for the portion of the Trust Fund consisting of Company Stock, but shall accept any Employer contributions made in the form of Company Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Company Stock in accordance with the instructions of the Committee.

Section 11.03 Acquisition of Company Stock.

From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Company Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Company Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may direct the Trustee to finance the acquisition of Company Stock through an Acquisition Loan subject to the provisions of Section 4.03 of the Plan.

Section 11.04 Participants’ Option to Diversify.

The Committee shall establish a procedure under which each Participant may, during the first five years of a certain six-year period, elect to have up to 25 percent of the value of his Accounts committed to alternative investment options within an “Investment Fund.” For the sixth year in this period, the Participant may elect to have up to 50 percent of the value of his Accounts committed to other investments. The six-year period shall begin with the Plan Year following the first Plan Year in which the Participant has both reached age 55 and completed 10 years of participation in the Plan; a Participant’s election to diversify his Accounts must be made within the 90-day period immediately following the last day of each of the six Plan Years. The Committee shall see that the Investment Fund includes a sufficient number of investment options

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to comply with Section 401(a)(28)(B) of the Code. The Committee may, in its discretion, permit a transfer of a portion of the Participant’s Accounts to the Savings Institute Bank and Trust Company Profit Sharing and 401(k) Plan in order to satisfy this Section 11.04, provided such investments comply with Section 401(a)(28)(B) of the Code and such transfer is not otherwise prohibited under the Code or ERISA. The Trustee shall comply with any investment directions received from Participants in accordance with the procedures adopted from time to time by the Committee under this Section 11.04.

SECTION 12

Adoption, Amendment and Termination

Section 12.01 Adoption of Plan by Other Employers.

With the consent of the Bank, any entity may become a participating Employer under the Plan by:

(a) taking such action as shall be necessary to adopt the Plan;

(b) becoming a party to the Trust Agreement establishing the Trust Fund; and

(c) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

Section 12.02 Adoption of Plan by Successor.

In the event that any Employer shall be reorganized by way of merger, consolidation, transfer of assets or otherwise, so that an entity other than an Employer shall succeed to all or substantially all of the Employer’s business, the successor entity may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the Trust Agreement. Contributions by the Employer shall be automatically suspended from the effective date of any such reorganization until the date upon which the substitution of the successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, the successor entity shall not have elected to become a party to the Plan, or if the Employer shall adopt a plan of complete liquidation other than in connection with a reorganization, the Plan shall be automatically terminated with respect to Employees of the Employer as of the close of business on the 90th day following the effective date of the reorganization, or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be.

Section 12.03 Plan Adoption Subject to Qualification.

Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust

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and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code, the Plan may be amended retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure qualification under Section 401(a) of the Code. If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification, and the Plan, as amended, is held by the Internal Revenue Service not to qualify under Section 401(a) of the Code, the amendment may be modified retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure approval of the amendment under Section 401(a) of the Code.

Section 12.04 Right to Amend or Terminate.

(a) The Bank intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of all Employers.

(b) No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, or shall divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Except as is required for purposes of compliance with the Code or ERISA, neither the provisions of Section 5.04 relating to the crediting of contributions, forfeitures and shares of Company Stock released from the Loan Suspense Account, nor any other provision of the Plan relating to the allocation of benefits to Participants, may be amended more frequently than once every six months. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan and the Committee’s instructions.

(c) In the event of a Change in Control, the Plan shall be terminated and allocations made to Participants in accordance with the provisions of Section 5.08 of the Plan.

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SECTION 13

General Provisions

Section 13.01 Nonassignability of Benefits.

The interests of Participants and other persons entitled to benefits under the Plan shall not be subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or transferred. The prohibitions set forth in this Section 13.01 shall also apply to any judgment, decree, or order (including approval of a property or settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child, or other dependent of a Participant pursuant to a domestic relations order, unless such judgment, decree or order is determined to be a “qualified domestic relations order” as defined in Section 414(p) of the Code.

Section 13.02 Limit of Employer Liability.

The liability of the Employers with respect to Participants and other persons entitled to benefits under the Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4 of the Plan.

Section 13.03 Plan Expenses.

All expenses incurred by the Committee or the Trustee in connection with administering the Plan and Trust shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer.

Section 13.04 Nondiversion of Assets.

Except as provided in Sections 5.05 and 12.03 of the Plan, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

Section 13.05 Separability of Provisions.

If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

Section 13.06 Service of Process.

The agent for the service of process upon the Plan shall be the Chairman of the Board of the Bank and the Trustee, or such other person as may be designated from time to time by the Bank.

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Section 13.07 Governing Law.

The Plan is established under, and its validity, construction and effect shall be governed by the laws of the State of Connecticut to the extent those laws are not preempted by federal law, including the provisions of ERISA.

Section 13.08 Special Rules for Persons Subject to Section 16(b) Requirements.

Notwithstanding anything herein to the contrary, any former Participant who is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, who becomes eligible to again participate in the Plan, may not become a Participant prior to the date that is six months from the date such former Participant terminated participation in the Plan. In addition, any person subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934 Act receiving a distribution of Company Stock from the Plan must hold such Company Stock for a period of six months, commencing with the date of distribution. However, this restriction will not apply to Company Stock distributions made in connection with death, retirement, Disability or termination of employment, or made pursuant to the terms of a qualified domestic relations order.

Section 13.09 Military Service.

Notwithstanding any other provision of this Plan to the contrary, contributions, benefits and Service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

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SECTION 14

Top-Heavy Provisions

Section 14.01 Top-Heavy Provisions.

If, as of the last day of the first Plan Year, or thereafter, if as of the day next preceding the beginning of any Plan Year (the “Determination Date”), the Plan is a “top-heavy plan” (determined in accordance with the provisions of Section 416(g) of the Code), that is, the aggregate present value of the accrued benefits and account balances of all “Key Employees” (within the meaning of Section 416(i) of the Code, and for this purpose using the definition of Compensation, as modified under Section 5.05(b) of the Plan) and their Beneficiaries, exceeds sixty percent (60%) of the aggregate present value of the accrued benefits and account balances of all employees and their beneficiaries, the provision specified in this Section 14 will automatically become effective as of the first day of the Plan Year. This calculation shall be made in accordance with Section 416(g) of the Code, taking into consideration plans which are considered part of the Aggregation Group. The term “Aggregation Group” shall include each plan of the Bank or any of its Affiliates that includes a Key Employee and each plan of the Bank or any of its Affiliates that allows the Plan to meet the requirements of Section 401(a)(4) of the Code or Section 410 of the Code and may include any other plan of the Bank or any of its Affiliates, if the Aggregation Group would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code.

Section 14.02 Plan Modifications Upon Becoming Top-Heavy.

(a) Minimum Accruals. Section 5.04 of the Plan will be modified to provide that the aggregate amount of Employer contributions allocated in each Plan Year to the Accounts of each Participant who is a non-Key Employee (as defined under Section 416(i)(1) of the Code), and who is employed by an Employer as of the last day of the Plan Year, may not be less than the lesser of:

(i) three percent of his Compensation for the Plan Year; and

(ii) a percentage of his Compensation equal to the largest percentage obtained by dividing the sum of the amount credited to the Accounts of any Key Employee by that Key Employee’s Compensation.

If a Participant’s vested interest in his Accounts is to be determined in a year during which the Plan is a top-heavy plan, then it shall be based on the following schedule:

Years of Service	Vested Percentage
Fewer than 3 years	0%
3 or more years	100%

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The preceding provisions will remain in effect for the period in which the Plan is top-heavy. If, for any particular year thereafter, the Plan is no longer top-heavy, the provisions contained in this Section 14.02 shall cease to apply, except that any previously vested portion of any Account balance shall remain nonforfeitable.

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TRUST AGREEMENT

BETWEEN

SAVINGS INSTITUTE BANK AND TRUST COMPANY

AND

FOR THE

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

CONTENTS

		Page No.
Section 1	Creation of Trust	1
Section 2	Investment of Trust Fund and Administrative Powers of the Trustee	2
Section 3	Compensation and Indemnification of Trustee and Payment of Expenses and Taxes	7
Section 4	Records and Valuation	9
Section 5	Instructions from Committee	10
Section 6	Change of Trustee	11
Section 7	Miscellaneous	11

-i-

This TRUST AGREEMENT dated                     , 2004 BETWEEN, Savings Institute Bank and Trust Company with its administrative office at 803 Main Street, Willimantic, CT (hereinafter called the “Company”), and                      with its administrative office at                      (hereinafter called the “Trustee”).

W I T N E S S E T H T H A T:

WHEREAS, the Company has approved and adopted an employee stock ownership plan for the benefit of its employees, the Savings Institute Bank and Trust Company Employee Stock Ownership Plan (hereinafter called the “Plan”); and

WHEREAS, the Company has authorized the execution of this Trust Agreement and has appointed                      as Trustee of the Trust Fund created pursuant to the Plan; and

WHEREAS,                      has agreed to act as Trustee and to hold and administer the assets of the Plan in accordance with the terms of this Trust Agreement.

NOW, THEREFORE, the Company and the Trustee agree as follows:

Section 1. Creation of Trust

1.1 Trustee                                          shall serve as Trustee of the Trust Fund created in accordance with and in furtherance of the Plan, and shall serve as Trustee until their removal or resignation in accordance with Section 6.

1.2 Trust Fund The Trustee hereby agrees to accept contributions from the Employer as defined in the Plan and amounts transferred from other qualified retirement plans from time to time in accordance with the terms of the Plan. All such property and contributions, together with income thereon and increments thereto, shall constitute the “Trust Fund” to be held in accordance with the terms of the Trust Agreement.

1.3 Incorporation of Plan An instrument entitled “Savings Institute Bank and Trust Company Employee Stock Ownership Plan” is incorporated herein by reference, and this Trust Agreement shall be interpreted consistently with that Plan. All words and phrases defined in that Plan shall have the same meaning when used in this Trust Agreement.

1.4 Name The name of this trust shall be “Savings Institute Bank and Trust Company Employee Stock Ownership Plan Trust.”

1.5 Nondiversion of Assets In no event shall any part of the corpus or income of the Trust Fund be used for, or diverted to, purposes other than for the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan, except

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to the extent that assets may be returned to the Employer in accordance with the Plan where the Plan fails to qualify initially under Section 401(a) of the Internal Revenue Code (the “Code”), or where they are attributable to contributions made by mistake of fact or in excess of the deductibility allowed under the Code.

Section 2. Investment of Trust Fund and Administrative Powers of the Trustee

2.1 Company Stock and Other Investments The basic investment policy of the Plan shall be to invest primarily in Company Stock of the Employer for the exclusive benefit of the Participants and their Beneficiaries. The Committee shall have full and complete investment authority and responsibility with respect to the purchase, retention, sale, exchange, and pledge of Company Stock and the payment of Stock Obligations, and the Trustee shall not deal in any way with Company Stock except in accordance with their obligations pursuant to this Trust Agreement and the written instructions of the Committee. The Trustee shall invest, or keep invested, all or a portion of the Trust Fund in Company Stock, and shall pay Stock Obligations out of assets of the Trust Fund, as instructed from time to time by the Committee. The Trustee shall invest any balance of the Trust Fund (the “Investment Fund”) in such other property as the Committee, in its sole discretion, shall deem advisable, subject to any delegation of such investment responsibility pursuant to Section 2.2. Nothing contained herein shall provide investment discretion authority or any like kind responsibility in regard to the assets of the Trust Fund.

In connection with instructions to acquire Company Stock, the Trustee may purchase newly issued or outstanding Company Stock from the Employer or any other holders of Company Stock, including Participants, Beneficiaries, and Plan fiduciaries. All purchases and sales of Stock shall be made by the Trustee at fair market value as determined by the Committee in good faith and in accordance with any applicable requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Such purchases may be made with assets of the Trust Fund, with funds borrowed for this purpose (with or without guarantees of repayment to the lender by the Employer), or by any combination of the foregoing.

Notwithstanding any other provision of this Trust Agreement or the Plan, neither the Committee nor the Trustee shall make any purchase, sale, exchange, investment, pledge, valuation, or loan, or take any other action involving those assets for which they are responsible which (i) is inconsistent with the policy of the Plan and Trust, (ii) is inconsistent with the prudence and diversification requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA (to the extent such requirements apply to an employee stock ownership plan and trust), (iii) is prohibited by Section 406 or 407 of ERISA, or (iv) would impair the qualification of the Plan or the exemption of the Trust under Sections 401 and 501, respectively, of the Code.

2.2 Delegation of Investment Responsibility The Committee may, by written notice and in accordance with the Plan, direct the Trustee to segregate any portion or all of the Investment Fund into one or more separate accounts for each of which full investment responsibility will be

2

delegated to an investment manager appointed in such notice pursuant to Section 402(c)(3) of ERISA (hereinafter a “Manager”). For any separate account where the Trustee is to maintain custody of the assets, the Trustee and the Manager shall agree upon procedures for the transmittal of investment instructions from the Manager to the Trustee, and the Trustee may provide the Manager with such documents as may be necessary to authorize the Manager to effect transactions directly on behalf of the segregated account.

Further, the Committee may, by written notice and in accordance with the Plan, direct the Trustee to segregate any portion or all of the Investment Fund into one or more separate accounts for each of which full investment responsibility will be delegated to an insurance company through one or more group annuity contracts, deposit administration contracts, or similar contracts, which may provide for investments in any commingled separate accounts established under such contracts. An insurance company shall be a Manager with respect to any amounts held under such a contract except to the extent the insurer’s assets are not deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA. The allocation of amounts held under such a contract among the insurer’s general account and one or more individual or commingled separate accounts shall be determined by the Committee except as otherwise agreed by the Committee and the insurer.

Any Manager shall have all of the powers given to the Trustee pursuant to Section 2.3 with respect to the portion of the Trust Fund committed to its investment discretion and control. The Trustee shall be responsible for the safekeeping of any assets which remain in their custody, but in no event shall the Trustee be under any duty to question or make any inquiry or suggestion regarding the action or inaction of a Manager or an insurer or the advisability of acquiring, retaining, or disposing of any asset of a segregated account. The Employer shall indemnify and hold the Trustee harmless from any and all costs, damages, expenses, and liabilities which the Trustee may incur by reason of any action taken or omitted to be taken by the Trustee upon directions from the Committee, a Manager, or an insurer pursuant to this Section 2.2.

2.3 Trustee Powers In addition to and not by way of limitation upon the fiduciary powers granted to it by law, the Trustee shall have the following specific powers, subject to the limitations set forth in Section 2.1:

2.3-1 to receive, hold, manage, invest and reinvest the money or other property which constitutes the Trust Fund, without distinction between principal and income;

2.3-2 to hold funds uninvested temporarily, provided it is a period of time that is not unreasonable, without liability for interest thereon, and to deposit funds in one or more savings or similar accounts with any banks and savings and loan associations which are insured by an instrumentality of the federal government, including the Trustee if it is such an institution;

2.3-3 at the direction of the Committee, to invest or reinvest the whole or any portion of the money or other property which constitutes the Trust Fund in such common or preferred

3

stocks, investment trust shares, mutual funds, commingled trust funds, partnership interests, bonds, notes, or other evidences of indebtedness, and real and personal property as the Trustee in their absolute judgment and discretion may deem to be for the best interests of the Trust Fund, regardless of nondiversification to the extent that such nondiversification is clearly prudent, and regardless of whether any such investment or property is authorized by law regarding the investment of trust funds, of a wasting asset nature, temporarily nonincome producing, or within or without the United States;

2.3-4 to invest in common and preferred stocks, bonds, notes, or other obligations of any corporation or business enterprise in which an Employer or its owners may own an interest;

2.3-5 at the direction of the Committee, to exchange any investment or property, real or personal, for other investments or properties at such time and upon such terms as the Trustee shall deem proper;

2.3-6 at the direction of the Committee, to sell, transfer, convey or otherwise dispose of any investment or property, real or personal, for cash or on credit, in such manner and upon such terms and conditions as the Trustee shall deem advisable, and no person dealing with the Trustee shall be under any duty to inquire as to the validity, expediency, or propriety of any such sale or as to the application of the purchase money paid to the Trustee;

2.3-7 to hold any investment or property in the name of the Trustee, with or without the designation of any fiduciary capacity, or in the name of a nominee, or unregistered, or in such other form that title may pass by delivery; provided, however, that the Trustee’s records always show that such investment or property belongs to the Trust Fund and the Trustee shall not be relieved hereby of its responsibility to maintain safe custody of such investment or property;

2.3-8 to organize one or more corporations to hold, manage, or liquidate any property, including real estate, owned or acquired by the Trust Fund if in the sole discretion of the Trustee the organization of such corporation or corporations is for the best interests of the Trust and the Plan Participants and Beneficiaries;

2.3-9 to extend the time for payment of, to modify, to renew, or to release security from any mortgage, note or other evidence of indebtedness, or to take advantage of or waive any default; to foreclose mortgages and bid on property under foreclosure or to take title to property by conveyance in lieu of foreclosure, either with or without the payment of additional consideration;

2.3-10 to vote in person or by proxy all stocks and other securities having voting privileges; to exercise or refrain from exercising any option or privilege with respect to stocks and other securities, including any right or privilege to subscribe for or otherwise to acquire stocks and other securities; or to sell any such right or privilege; to assent to and join in any plan of refinance, merger, consolidation, reorganization or liquidation of any corporation or other

4

enterprise in which this Trust may have an interest, to deposit stocks and other securities with any committee formed to effectuate the same, to pay any expense incidental thereto, to exchange stocks and other securities for those which may be issued pursuant to any such plan, and to retain as an investment the stocks and other securities received by the Trustee; and to deposit any investment in a voting trust; notwithstanding the preceding, Participants and Beneficiaries shall be entitled to direct the manner in which stock allocated to their respective accounts are to be voted on all matters. All stock which has been allocated to Participants’ Accounts for which the Trustee has received no written direction and all unallocated Employer securities will be voted by the Trustee in direct proportion to any Participant’s directions received and solely in the interest of the Participants and Beneficiaries. Whenever such voting rights are to be exercised, the Employer, the Committee and the Trustee shall see that all Participants and Beneficiaries are provided with adequate opportunity to deliver their instructions to the Trustee regarding voting of stock allocated to their accounts. The instructions of the Participants with respect to the voting of allocated shares hereunder shall be confidential;

2.3-11 to abandon any property, real or personal, which the Trustee shall consider to be worthless or not of sufficient value to warrant its keeping or protecting; to abstain from the payment of taxes, water rents, assessments, repairs, maintenance, and upkeep of any such property; to permit any such property to be lost by tax sale or other proceedings, and to convey any such property for a nominal consideration or without consideration;

2.3-12 to borrow money from the Employer or from others (including the Trustee), and to enter into installment contracts, for the purchase of Stock upon such terms and conditions and at such reasonable rates of interest as the Committee may deem to be advisable, to issue its promissory notes as Trustee to evidence such debt, to secure the payment of such notes by pledging any property of the Trust Fund, and to authorize the holders of any such notes to pledge them to secure obligations of the holders and in connection therewith to repledge any assets of the Trust as security therefor; provided that, with respect to any extension of credit to the Trust involving, as a lender or guarantor, the Employer or other “disqualified person” within the meaning of Section 4975(e)(2) of the Code —

(a) each loan or installment contract is primarily for the benefit of Participants and Beneficiaries of the Plan;

(b) any interest on a loan or installment contract does not exceed a reasonable rate;

(c) the proceeds of any loan shall be used only to acquire Stock, to repay the loan, or to repay a previous loan meeting these conditions, and the subject of any installment contract shall be only the Trust’s purchase of Stock;

(d) any collateral pledged to a creditor by the Trustee shall consist only of qualifying employer securities as that term is defined under Section 4975(e)(8) of the Code and the creditor shall have no recourse against the Trust Fund except with respect to the collateral (although the creditor may have recourse against an Employer as guarantor);

5

(e) payments with respect to a loan or installment contract shall be made only from those amounts contributed by the Employer to the Trust Fund, from amounts earned on such contributions, and from cash dividends received on unallocated Stock held by the Trust as collateral for such an obligation; and

(f) upon the payment of any portion of balance due on a loan or upon any installment payment, a proportionate part of any qualified employer securities originally pledged as collateral for such indebtedness shall be released from encumbrance in accordance with Section 4.2 of the Plan and the Committee shall at least annually advise the Trustee of the number of shares of Stock so released and the proper allocation of such shares under the terms of the Plan;

2.3-13 to manage and operate any real property which shall at any time constitute an asset of the Trust Fund; to make repairs, alterations, and improvements thereto; to insure such property against loss by fire or other casualty; to lease or grant options for the sale of such property, which lease or option may be for a period of time which may extend beyond the life of this Trust; and to take any other action or enter into any other contract respecting such property which is consistent with the best interests of the Trust;

2.3-14 to pay any and all reasonable and normal expenses incurred in connection with the exercise of any power, right, authority or discretion granted herein, and, upon prior notice to the Company, to employ and compensate agents, investment counsel, custodians, actuaries, attorneys, and accountants in such connection;

2.3-15 to employ and consult with any legal counsel, who also may be counsel to an Employer or the Administrator, with respect to the meaning or construction of this Trust Agreement, the extent of the Trustee’s obligations and duties hereunder, and whether the Trustee should take or decline to take a particular action hereunder, and the Trustee shall be fully protected with respect to any action taken or omitted by such Trustee in good faith pursuant to such advice;

2.3-16 to defend any action or proceeding instituted against the Trust Fund, to institute any action on behalf of the Trust Fund, and to compromise or submit to arbitration any dispute concerning the Trust Fund;

2.3-17 to make, execute, acknowledge and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in part, in a single trust with all or any portion of any other trust fund, assigning an undivided interest to each such commingled trust fund, provided that such commingled trust is itself exempt from taxation pursuant to Section 501(a) of the Code, or its successor Section; and provided further that the

6

trust agreement governing such commingled trust shall be deemed incorporated by reference in the Plan;

2.3-19 where two or more trusts governed by this Trust Agreement have an undivided interest in any property, to credit the income from such property to such trusts in proportion to their undivided interests, and when non pro rata distributions of property or money are made from such trusts, to make appropriate adjustments to the undivided fractional interests of such trusts;

2.3-20 to invest all or any portion of the Trust Fund in one or more group annuity contracts, deposit administration contracts, and other such contracts with insurance companies, including any commingled separate accounts established under such contracts;

2.3-21 generally, with respect to all cash, stocks and other securities, and property, both real and personal, received or held in the Trust Fund by the Trustee, to exercise all the same rights and powers as are or may be lawfully exercised by persons owning cash, or stocks and other securities, or such property in their own right; and to do all other acts, whether or not expressly authorized, which it may deem necessary or proper for the protection of the Trust Fund; and

2.3-22 whenever more than two persons shall qualify to act as co-Trustee, to exercise and perform every power (including discretionary powers), authority or duty by the concurrence of a majority of them the same effect as if all had joined therein, except that the unanimous vote of such persons shall be necessary to determine the number (one or more) and identity of persons who may sign checks, make withdrawals from financial institutions, have access to safe deposit boxes, or direct the sale of trust assets and the disposition of the proceeds.

2.4 Brokerage If permitted in writing by the Committee the Trustee shall have the power and authority, to be exercised in their sole discretion at any time and from time to time, to issue and place orders for the purchase or sale of securities with qualified brokers and dealers. Such orders may be placed with such qualified brokers and/or dealers who also provide investment information or other research or statistical services to the Trustee in its capacity as a fiduciary or investment manager for other clients.

Section 3. Compensation and Indemnification of Trustee and Payment of Expenses and Taxes

3.1 Fees and Expenses from Fund In consideration for rendering services pursuant to this Trust Agreement the Trustee shall be paid fees in accordance with the Trustee’s fee schedule as in effect from time to time. Fee changes resulting in fee increases shall be effective upon not less than 30 days’ notice to the Company. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable attorneys’ fees, incurred in the administration of the Trust created hereby. Fees and expenses shall be allocated to Participants’ Accounts, if any,

7

unless paid directly by the Employer. All compensation and expenses of the Trustee shall be paid out of the Trust Fund or by the Employer as specified in the Plan. If and to the extent the Trust Fund shall not be sufficient, such compensation and expenses shall be paid by the Employer upon demand. If payment is due but not paid by the Employer, such amount shall be paid from the assets of the Trust Fund. The Trustee is hereby empowered to withdraw all such compensation and expenses which are 60 days past due from the Trust Fund, and, in furtherance thereof, liquidate any assets of the Trust Fund, without further authorization or direction from or by any person. Notwithstanding the foregoing, in the event any officer or director of Savings Institute Bank and Trust Company serves as trustee of the Plan, no compensation shall be paid to the officer or director in exchange for his or her services as trustee.

3.2 Indemnification Notwithstanding any other provision of this Trust Agreement, any individual designated as a trustee hereunder shall be indemnified and held harmless by the Employer to the fullest extent permitted by law against any and all costs, damages, expenses and liabilities including, but not limited to attorneys’ fees and disbursements reasonably incurred by or imposed upon such individual in connection with any claim made against him or in which he may be involved by reason of his being, or having been, a trustee hereunder, to the extent such amounts are not satisfied by insurance maintained by the Employer, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken. Further, any corporate trustee and its officers, directors and agents may be indemnified and held harmless by the Employer to the fullest extent permitted by law against any and all costs, damages, expenses and liabilities including, but not limited to, attorneys’ fees and disbursements reasonably incurred by or imposed upon such persons and/or corporation in connection with any claim made against it or them or in which such persons and/or corporation may be involved by reason of its being, or having been, a trustee hereunder as may be agreed between the Employer and such trustee, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken.

3.3 Expenses All expenses of administering the Trust and the Plan, whether incurred by the Trustee or the Committee, shall be paid by the Trustee from the Trust Fund to the extent such expenses shall not have been assumed by the Employer.

3.4 Taxes All taxes that may be levied or assessed upon or in respect of the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the Committee of any proposed or final assessments of taxes and may assume that any such taxes are lawfully levied or assessed unless the Committee advises it in writing to the contrary within fifteen days after receiving the above notice from the Trustee. In such case, the Trustee, if requested by the Committee in writing, shall contest the validity of such taxes in any manner deemed appropriate by the Committee; the Employer may itself contest the validity of any such taxes, in which case the Committee shall so notify the Trustee and the Trustee shall have no responsibility or liability respecting such contest. If either party to this Agreement contests any such proposed levy or

8

assessments, the other party shall provide such information and cooperation as the party conducting the contest shall reasonably request.

Section 4. Records and Valuation

4.1 Records The Trustee, and any investment manager appointed pursuant to Section 2.2, shall maintain accurate and detailed records and accounts of all investments, receipts, disbursements and other transactions made by it with respect to the Trust Fund, and all accounts, books and records relating thereto shall be open at all reasonable time to inspection and audit by the Committee and the Employer.

4.2 Valuation From time to time upon the request of the Committee, but at least annually as of the last day of each Plan Year, the Trustee shall prepare a balance sheet of the Investment Fund in accordance with the Plan and shall deliver copies of the balance sheet to the Committee and the Employer.

4.3 Discharge of Trustee Ninety days after the filing of any balance sheet under Section 4.2 or any accounting under Section 6, the Trustee shall be forever released and discharged from any liability or accountability other than for gross negligence or wilful misconduct on the part of the Trustee to anyone with respect to the transactions shown or reflected in such balance sheet or accounting, except with respect to any acts or transactions as to which the Committee, within such ninety-day period, files written objections with the Trustee. The written approval of the Committee of any balance sheet or accounting so filed by the Trustee, or the Committee’s failure to file written objections within ninety days, shall be a settlement of such balance sheet or accounting as against all persons, and shall forever release and discharge the Trustee from any liability of accountability to anyone with respect to the transactions shown or reflected in such balance sheet or accounting other than liability arising out of the Trustee’s gross negligence or wilful misconduct. If a statement of objections is filed by the Committee and the Committee is satisfied that its objections should be withdrawn or if the balance sheet or accounting is adjusted to its satisfaction, the Committee shall indicate its approval of the balance sheet or accounting in a written statement filed with the Trustee and the Trustee shall be forever released and discharged from any liability of accountability to anyone in accordance with the immediately preceding sentence. If an objection is not settled by the Committee and the Trustee, the Trustee may start a proceeding for a judicial settlement of the balance sheet or accounting in any court of competent jurisdictions; the only parties that need be joined in such a proceeding are the Trustee, the Committee, the Employer and any other parties whose participation is required by law.

4.4 Right to Judicial Settlement Nothing in this Agreement shall prevent the Trustee from having its account settled by a court of competent jurisdiction at any time. The only parties that need be joined in any such proceeding are the Employer, the Committee, the Trustee and any other parties whose participation is required by law.

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Section 5. Instructions from Committee.

5.1 Certification of Members of the Committee. From time to time the Company shall certify to the Trustee in writing the names of the individuals comprising the Committee and shall furnish to the Trustee specimens of their signatures and the signatures of their agents, if any. The Trustee shall be entitled to presume that the identities of such individuals and their agents are unchanged until it receives a certification from the Company notifying it of any changes.

5.2 Instructions to Trustee.

(a) The Trustee shall pay benefits and administrative expenses under the Plan only when it receives (and in accordance with) written instructions of the Committee indicating the amount of the payment and the name and address of the recipient in accordance with the terms of the Plan. The Trustee need not inquire into whether any payment the Committee instructs the Trustee to make is consistent with the terms of the Plan or applicable law or otherwise proper. Any payment made by the Trustee in accordance with such instructions shall be a complete discharge and acquittance to the Trustee. If the Committee advises the Trustee that benefits have become payable with respect to a Participant’s interest in the Trust Fund but does not instruct the Trustee as to the manner of payment, the Trustee shall hold the Participant’s interest in the Trust until the Trustee receives written instructions from the Committee as to the manner of payment. The Trustee shall not pay benefits from the Trust Fund without such instructions, even though it may be informed from other sources, including, without limitation, a Participant or Beneficiary, that benefits are payable under the Plan. The Trustee shall have no responsibility to determine when, to whom or in what amount benefits and expenses are payable under the Plan. Further, the Trustee shall have no power, authority or duty to interpret the Plan or inquire into the decisions or determinations of the Committee, or to question the instructions given to it by the Committee. If the Committee so directs, the Trustee shall segregate amounts payable with respect to the interest in the Plan of any Participant and administer them separately from the rest of the Trust Fund in accordance with the Committee’s instructions.

(b) The Trustee may require the Committee to certify in writing that any payment of benefits or expenses it instructs the Trustee to make pursuant to Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or (ii) one which the Committee is authorized by the Plan and any other applicable instruments to direct and/or (iii) made for the exclusive purpose of providing benefits to Participants and Beneficiaries, or defraying reasonable expenses of Plan administration and/or (iv) not made to a party in interest (within the meaning of ERISA Section 3(14)), and/or (v) not a prohibited transaction (within the meaning of Code Section 4975 and ERISA Section 406). If the Trustee requests, instructions to pay benefits shall be made by the

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Committee on forms prepared by the Trustee to include any or all of the above representations. The Trustee shall be fully protected in relying on the truth of any such representation by the Committee and shall have no duty to investigate whether such representations are correct or to see to the application of any amounts paid to and received by the recipient.

5.3 Plan Change In the event of an amendment, merger, division, or termination of the Plan, the Trustee shall continue to disburse funds and to take other proper actions in accordance with the instructions of the Committee.

Section 6. Change of Trustee

The Company may at any time remove any person or entity serving as a Trustee hereunder by giving to such person or entity written notice of removal and, if applicable, the name and address of the successor trustee. Any person or entity serving as a Trustee hereunder may resign at any time by giving written notice to the Company. Any such removal or resignation shall take effect within 30 days after notice has been given by the Trustee or by the Company, as the case may be. Within those 30 days, the removed or resigned Trustee shall transfer, pay over and deliver any portion of the Trust Fund in its possession or control (less an appropriate reserve for any unpaid fees, expenses, and liabilities) and all pertinent records to the successor or remaining trustee; provided, however, that any assets which are invested in a collective fund or in some other manner which prevents their immediate transfer shall be transferred and delivered to the successor trustee as soon as may be practicable. Thereafter, the removed or resigned Trustee shall have no liability for the Trust Fund or for its administration by the successor or remaining trustee, but shall render an accounting to the Committee of its administration of the Trust Fund through the date on which its Trusteeship shall have been terminated. The Company may also, upon 30 days’ notice to each person currently serving as a trustee, appoint one or more persons to serve as co-Trustee hereunder.

Section 7. Miscellaneous

7.1 Right to Amend This Trust Agreement may be amended from time to time by an instrument executed by the Company; provided, however, that any amendment affecting the powers, duties or liabilities of the Trustee must be approved by the Trustee, and provided, further, that no amendment may divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities for benefits. Any amendment shall apply to the Trust Fund as constituted at the time of the amendment as well as to that portion of the Trust Fund which is subsequently acquired.

7.2 Compliance with ERISA In the exercise of its powers and the performance of its duties, the Trustee shall act in good faith and in accordance with the applicable requirements under ERISA. Except as may be otherwise required by ERISA, the Trustee shall not be required to furnish any bond in any jurisdiction for the performance of their duties and, if a bond is required despite this provision, no surety shall be required on it.

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7.3 Nonresponsibility for Funding The Trustee shall be under no duty to enforce the payment of any contributions and shall not be responsible for the adequacy of the Trust Fund to satisfy any obligations for benefits, expenses, and liabilities under the Plan.

7.4 Reports The Trustees shall file any report which they are required by law to file with any governmental authority with respect to this Trust, and the Committee shall furnish to the Trustee whatever information is necessary to prepare the report.

7.5 Dealings with the Trustee Persons dealing with the Trustee, including, but not limited to, banks, brokers, dealers, and insurers, shall be under no obligation to inquire concerning the validity of anything which the Trustee purports to do, nor need any person see to the proper application of any money paid or any property transferred upon the order of the Trustee or to inquire into the Trustee’s authority as to any transaction.

7.6 Limitation Upon Responsibilities The Trustee shall have no responsibilities with respect to the Plan or Trust other than those specifically enumerated or explicitly allocated to it under this Trust Agreement or the provisions of ERISA. All other responsibilities are retained and shall be performed by one or more of the Employer, the Committee, and such advisors or agents as they choose to engage.

The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees and shall not be answerable for the conduct of the same if chosen with reasonable care and shall be entitled to advice of counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney for the Trustee or attorney for the Committee), approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or non-action in good faith in reliance upon such opinion or advice.

The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained.

The Trustee shall not be liable for other than their gross negligence or willful misconduct. Except in the case of gross negligence or wilful misconduct on the part of the Trustee, the Trustee in its corporate capacity shall not be liable for claims of any persons in any manner regarding the Plan; such claims shall be limited to the Trust Fund. Unless the Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of the

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Committee or any other fiduciary, knowing such act or omission to be a breach of fiduciary responsibility, the Trustee shall be under no liability for any loss of any kind which may result by reason of such act or omission.

Before taking any action hereunder at the request or direction of the Committee, the Trustee may require that indemnity in form and amount satisfactory to the Trustee be furnished for the reimbursement of any and all costs and expenses to which they may be put including, without limitation, reasonable attorneys’ fees and to protect them against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken.

No provision of this Trust Agreement shall require the Trustee to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to them.

7.7 Qualification of the Plan and Trust The Trustee shall be fully protected in assuming that the Plan and Trust meet the requirements of Code Sections 401 and 501, respectively, and all the applicable provisions of ERISA, unless they are advised to the contrary in writing by the Committee or a governmental agency.

7.8 Party in Interest Information The Employer shall provide the Trustee with such information concerning the relationship between any person or organization and the Plan as the Trustee reasonably requests in order to determine whether such person or organization is a party in interest with respect to the Plan within the meaning of ERISA Section 3(14).

7.9 Disputes If a dispute arises as to the payment of any funds or delivery of any assets by the Trustee, the Trustee may withhold such payment or delivery until the dispute is determined by a court of competent jurisdiction or finally settled in writing by the parties concerned.

7.10 Successor Trustee This Trust Agreement shall apply to any person who shall be appointed to succeed the person currently appointed as the Trustee; and any reference herein to the Trustee shall be deemed to include any one or more individuals or corporations or any combination thereof who or which have at any time acted as a co-trustee or as the sole trustee.

7.11 Governing State Law This Trust Agreement shall be interpreted in accordance with the laws of the State of Connecticut to the extent those laws may be applicable under the provisions of ERISA.

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IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement as of the day and year first above written.

ATTEST:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
	By:
		For the Entire Board of Directors
ATTEST:	, as TRUSTEE

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EX-10.2

Exhibit 10.2

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of the             day of                 , 2004, by and between the SAVINGS INSTITUTE BANK AND TRUST COMPANY EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Borrower”), a trust forming part of the Savings Institute Bank and Trust Company Employee Stock Ownership Plan (“ESOP”); and SI FINANCIAL GROUP, INC. (“Lender”), a corporation organized and existing under the laws of the United States of America.

W I T N E S S E T H

WHEREAS, the Borrower is authorized to purchase shares of common stock of SI Financial Group, Inc. (“Common Stock”), either directly from SI Financial Group, Inc. or in open market purchases in an amount not to exceed                          shares of Common Stock.

WHEREAS, the Borrower is authorized to borrow funds from the Lender for the purpose of financing authorized purchases of Common Stock; and

WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose.

NOW, THEREFORE, the parties agree hereto as follows:

ARTICLE I

DEFINITIONS

The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context:

Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal or local law or regulation.

Code means the Internal Revenue Code of 1986, as amended (including the corresponding provisions of any succeeding law).

Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirements of notice or lapse of time.

ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law).

Event of Default means an event or condition described in Article 5.

Loan means the loan described in section 2.1

Loan Documents means, collectively, the Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents.

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Pledge Agreement means the agreement described in section 2.8(a).

Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(c).

Promissory Note means the promissory note described in section 2.3.

Register means the register described in section 2.9.

ARTICLE II

THE LOAN; PRINCIPAL AMOUNT;

INTEREST; SECURITY; INDEMNIFICATION

Section 2.1 The Loan; Principal Amount.

(a) The Lender hereby agrees to lend to the Borrower such amount, and at such time, as shall be determined under this Section 2.1; provided, however, that in no event shall the aggregate amount lent under this Loan Agreement from time to time exceed the greater of (i) $                    or (ii) the aggregate amount paid by the Borrower to purchase up to                     shares of Common Stock.

(b) Subject to the limitations of Section 2.1(a), the Borrower shall determine the amounts borrowed under this Agreement, and the time at which such borrowings are effected. Each such determination shall be evidenced in a writing which shall set forth the amount to be borrowed and the date on which the Lender shall disburse such amount, and such writing shall be furnished to the Lender by notice from the Borrower. The Lender shall disburse to the Borrower the amount specified in each such notice on the date specified therein or, if later, as promptly as practicable following the Lender’s receipt of such notice; provided, however, that the Lender shall have no obligation to disburse funds pursuant to this Agreement following the occurrence of a Default or an Event of Default until such time as such Default or Event of Default shall have been cured.

(c) For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of:

(i)     the aggregate amount disbursed by the Lender pursuant to section 2.1(b) on or before such date; over

(ii)    the aggregate amount of any repayments of such amounts made before such date.

The Lender shall maintain on the Register a record of, and shall record in the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount.

Section 2.2 Interest.

(a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing with the first disbursement of funds under this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of              percent (            %) per annum. Interest payable under this Agreement shall be computed on the basis of a year of

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365 days and actual days elapsed (including the first day but excluding the last) occurring during the period to which the computation relates.

(b) Accrued interest on the Principal Amount shall be payable by the Borrower on the dates set forth in Schedule I to the Promissory Note. All interest on the Principal Amount shall be paid by the Borrower in immediately available funds.

(c) Anything in the Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Section 2.3 Promissory Note.

The Loan shall be evidenced by the Promissory Note of the Borrower attached hereto as an exhibit payable to the order of the lender in the Principal Amount and otherwise duly completed.

Section 2.4 Payment of Trust Loan.

The Principal Amount of the Loan shall be repaid in accordance with Schedule I to the Promissory Note on the dates specified therein until fully paid.

Section 2.5 Prepayment.

The Borrower shall be entitled to prepay the Loan in whole or in part, at any time and from time to time; provided, however, that the Borrower shall give notice to the Lender of any such prepayment; and provided, further, that any partial prepayment of the Loan shall be in an amount not less than $1,000. Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all accrued interest through the date of such prepayment; (c) made without premium or penalty; and (d) applied on the inverse order of the maturity of the installment thereof unless the Lender and the Borrower agree to apply such prepayments in some other order.

Section 2.6 Method of Payments.

(a) All payments of principal, interest, other charges (including indemnities) and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and when paid, such payment shall include interest to the day on which payment is in fact made.

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(b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, the Borrower shall not be obligated to make any payment, repayment or prepayment on the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower to engage in any “prohibited transaction” as such term is defined in the section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the basis of an opinion of counsel, and any opinion of such counsel. The Borrower may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such opinion of counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on the Borrower to consult with counsel. Any obligation of the Borrower to make any payment, repayment or prepayment on the Promissory Note or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance).

Section 2.7 Use of Proceeds of Loan.

The entire proceeds of the Loan shall be used solely for acquiring shares of Common Stock, and for no other purpose whatsoever.

Section 2.8 Security.

(a) In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall:

(i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, the Common Stock purchased with the Principal Amount, by the execution and delivery to the lender of the Pledge Agreement attached hereto as an exhibit; and

(ii) execute and deliver, or cause to be executed and delivered, such other agreement, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement.

(b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or repayment of the Principal Amount is made, a number of shares of Common Stock held as Collateral determined pursuant to the applicable provisions of the ESOP.

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Section 2.9 Registration of the Promissory Note.

(a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation.

(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrender. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BORROWER

The Borrower hereby represents and warrants to the Lender as follows:

Section 3.1 Power, Authority, Consents.

The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action.

Section 3.2 Due Execution, Validity, Enforceability.

Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, has been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms.

Section 3.3 Properties, Priority of Liens.

The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien.

Section 3.4 No Defaults, Compliance with Laws.

The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgement to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected.

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Section 3.5 Purchase of Common Stock.

Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable title to all of the Common Stock so purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provisions of law or conflicts with or results in a breach of or creates (with or without the giving of notice of lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state, or local governmental authority, agency, or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery, or performance of the Loan Documents and the transaction contemplated therein or in connection therewith, including without limitation, with respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.

Section 3.6 ESOP; Contributions.

As of the effective date of the ESOP sponsor’s conversion, the ESOP and the Borrower will be duly created, organized and maintained by the ESOP sponsor in compliance with all applicable laws, regulations and rulings. The ESOP will qualify as an “employee stock ownership plan” as defined in section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code.

Section 3.7 Trustee.

The trustee of the ESOP has been duly appointed by the ESOP sponsor.

Section 3.8 Compliance with Laws; Actions.

Neither the execution and delivery by the Borrower of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Borrower is a party, to which the Borrower is bound or to which the Borrower is subject, which violation or event of default would have a material adverse effect on the Borrower. There is no action or proceeding pending or threatened against either the ESOP or the Borrower before any court or administrative agency.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE LENDER

The Lender hereby represents and warrants to the Borrower as follows:

Section 4.1 Power, Authority, Consents.

The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement.

Section 4.2 Due Execution, Validity, Enforceability.

This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender, and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms.

ARTICLE V

EVENTS OF DEFAULT

Section 5.1 Events of Default under Loan Agreement.

Each of the following events shall constitute an “Event of Default” hereunder:

(a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note when due, or failure to make any payment of interest on the Promissory Note not later than five (5) Business Days after the date when due.

(b) Failure by the Borrower to perform or observe any term, condition or covenant of this Loan Agreement or of any of the other Loan Documents, including, without limitation, the Promissory Note and the Pledge Agreement.

(c) Any representation or warranty made in writing to the Lender in any of the Loan Documents, or any certificate, statement or report made or delivered in compliance with this Loan Agreement, shall have been false or misleading in any material respect when made or delivered.

Section 5.2 Lender’s Rights upon Event of Default.

If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower’s assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any

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acceleration of the Loan); (ii) the Borrower’s assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all rights of the Lender to the Common Stock purchased with the proceeds of the Loan covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement.

ARTICLE VI

MISCELLANEOUS PROVISIONS

Section 6.1 Payments Due to the Lender.

If any amount is payable by the Borrower to the Lender pursuant to any indemnity obligation contained herein, then the Borrower shall pay, at the time or times provided therefor, any such amount and shall indemnify the Lender against and hold it harmless from any loss or damage resulting from or arising out of the nonpayment or delay in payment of any such amount. If any amounts as to which the Borrower has so indemnified the Lender hereunder shall be assessed or levied against the Lender, the Lender may notify the Borrower and make immediate payment thereof, together with interest or penalties in connection therewith, and shall thereupon be entitled to and shall receive immediate reimbursement therefor from the Borrower, together with interest on each such amount as provided for in section 2.2(c). Notwithstanding any other provision contained in this Loan Agreement, the covenants and agreements of the Borrower contained in this section 6.1 shall survive: (a) payment of the Promissory Note and (b) termination of this Loan Agreement.

Section 6.2 Payments.

All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note “Paid” and return it to the Borrower.

Section 6.3 Survival.

All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note.

Section 6.4 Modifications, Consents and Waivers; Entire Agreement.

No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof.

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Section 6.5 Remedies Cumulative.

Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations.

Section 6.6 Further Assurances; Compliance with Covenants.

At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan.

Section 6.7 Notices.

Except as otherwise specifically provided for herein, all notice, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or telecopier addressed as follows:

(a) If to the Borrower:

Savings Institute Bank and Trust Company

Employee Stock Ownership Plan Trust

c/o                                                              

(b) If to the Lender:

SI Financial Group, Inc.

803 Main Street

Willimantic, CT 06226

Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or telecopier, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed.

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Section 6.8 Counterparts.

This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document.

Section 6.9 Construction; Governing Law.

The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement of an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the laws of the State of Connecticut.

Section 6.10 Severability.

Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provisions in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement are independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement.

Section 6.11 Binding Effect: No Assignment or Delegation.

This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void.

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IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed as of the date first written above.

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer

SI FINANCIAL GROUP, INC.

By:

        Rheo A. Brouillard

        President and Chief Executive Officer

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PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (“Pledge Agreement”) is made as of the              day of                     , 2004, by and between the SAVINGS INSTITUTE BANK AND TRUST COMPANY EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Pledgor”), and SI FINANCIAL GROUP, INC. (“Pledgee”).

W I T N E S S E T H

WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of a Loan Agreement (“Loan Agreement”), by and between the Pledgor and the Pledgee;

NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows:

Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement:

Collateral shall mean the Pledged Shares and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares and rights.

ESOP shall mean the Savings Institute Bank and Trust Company Employee Stock Ownership Plan.

Event of Default shall mean an event so defined in the Loan Agreement.

Liabilities shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note.

Pledged Shares shall mean all the Shares of Common Stock of the Pledgee purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement, but excluding any such shares previously released pursuant to section 4.

Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee, a security interest in, and lien upon, the Collateral.

Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows:

(a) the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under, any agreement binding upon the Pledgor;

(b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan

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Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others;

(c) this Pledge Agreement is the legal, valid, binding and enforceable obligation of the Pledgor in accordance with its terms;

(d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and

(e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral.

Section 4. Eligible Collateral.

(a) As used herein the term “Eligible Collateral” shall mean the amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 13 of this Pledge Agreement.

(b) The Pledged Shares shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulations Section 54.4975-7(b)(8), as the same may be from time to time amended or supplemented, and the applicable provisions of the ESOP. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral in the name of the Pledgee or its nominee, without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Eligible Collateral to make payment to the Pledgee of any amounts due or due to become due thereunder, (ii) release or exchange all or any part of the Eligible Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Eligible Collateral.

Section 5. Delivery.

(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement (i) either (A) certificates for the Pledged Shares, each certificate duly signed in blank by the Pledgor or accompanied by a stock transfer power duly signed in blank by the Pledgor and each such certificate accompanied by all required documentary or stock transfer tax stamps or (B) if the Trustee does not yet have possession of the Pledged Shares, an assignment by the Pledgor of all the Pledgor’s rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by the Pledgor with respect to the Pledged Shares.

(b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge

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Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral.

Section 6. Events of Default.

(a) If a Default or Event Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to the Eligible Collateral, from time to time, any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Connecticut or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsement, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys’ fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in section 1 hereof.

(b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel if necessary in order to avoid violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale’s being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction.

Section 7. Payment in Full. Upon the payment in full of all outstanding Liabilities, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to the Pledge Agreement.

Section 8. No Waiver. No failure or delay in the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights to the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such rights or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee.

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Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

Section 10. Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut applicable to agreements to be performed wholly within the State of Connecticut.

Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered personally or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid as follows:

(a)	If to the Pledgee:
	SI Financial Group, Inc.
	803 Main Street
	Willimantic, CT 06226
(b)	If to the Pledgor:
	Savings Institute Bank and Trust Company
	Employee Stock Ownership Plan Trust
	c/o

or at such other address as either of the parties may designate by written notice to the other party. If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made, and, if delivered by mail, the date on which such notice, request, instruction, or document is deposited in the mail shall be the date of delivery. Each notice, request, instruction or document shall bear the date on which it is delivered.

Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision herein shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the “Code”), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the Treasury Regulations and as described in Department of Labor Regulation section 2550.408b-3.

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IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written.

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer

SI FINANCIAL GROUP, INC.

By:

Rheo A. Brouillard

President and Chief Executive Officer

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PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, SAVINGS INSTITUTE BANK AND TRUST COMPANY EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the “Borrower”), hereby promises to pay to the order of SI FINANCIAL GROUP, INC. (the “Lender”) up to $             payable in accordance with the Loan Agreement made and entered into between the Borrower and the Lender of even date herewith (“Loan Agreement”) pursuant to which this Promissory Note is issued.

The Principal Amount of this Promissory Note shall be payable in accordance with the schedule attached hereto (“Schedule I”).

This Promissory Note shall bear interest at the rate per annum set forth or established under the Loan Agreement, such interest to be payable in accordance with Schedule I.

Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates on interest which may be charged or collected by the Lender. Any such payments on interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds.

Failure to make any payments of principal on this Promissory Note when due, or failure to make any payment of interest on this Promissory Note not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of accrued interest on this Promissory Note shall immediately become due and payable in accordance with the terms of the Loan Agreement.

This Promissory Note is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof.

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer

EX-10.3

Exhibit 10.3

SAVINGS INSTITUTE

PROFIT SHARING AND 401(K) SAVINGS PLAN

TABLE OF CONTENTS

ARTICLE I	1
INTRODUCTION	1
ARTICLE II	1
DEFINITIONS	1
ARTICLE III	8
ELIGIBILITY AND PARTICIPATION	8
ARTICLE IV	10
CONTRIBUTIONS	10
Employer Contribution	10
Salary Deferrals	10
Salary Deferral Limitations	14
Employer’s Matching Contribution	17
Matching Contribution Limitations	18
Multiple Use Provision	21
Employer’s Discretionary Contribution	22
ARTICLE V	22
ALLOCATION OF CONTRIBUTIONS	22
Establishment of Accounts	22
Allocations	23
Limitations on Allocations	25
PAYMENT OF BENEFITS	29
Retirement, Death or Disability	29
Other Terminations	29
Form of Payment	31
Timing of Distribution	31
Beneficiary	33

ARTICLE VII	34
ADMINISTRATION	34
Designation of Administrator	34
Administrator’s Duties and Responsibilities	34
Payment of Expenses	35
Valuation and Statements	35
Claims Procedure	35
Employer’s Duties and Responsibilities	36
Amendment, Termination, and Mergers	36
Exercise of Discretion	38
Fiduciary Liability	38
Indemnification by Employer	38
ARTICLE VIII	39
TRUSTEE	39
Basic Responsibilities Of The Trustee	39
Investment Powers and Duties of The Trustee	39
Other Powers of The Trustee	40
Duties of The Trustee Regarding Payments	42
Trustee’s Compensation and Expenses and Taxes	43
Annual Report of the Trustee	43
Audit	44
Resignation, Removal and Succession of Trustee	45
Direct Rollover From Plan	45
Rollovers	47
Participant Loans	47
Directed Investments	49
ARTICLE IX	50
TOP HEAVY	50
Minimum Benefits	50
Definitions	50
ARTICLE X	53
MISCELLANEOUS	53

SAVINGS INSTITUTE PROFIT SHARING

AND 401(K) SAVINGS PLAN

This Agreement is made and entered into by and between Savings Institute (“the Employer”) and Savings Institute Trust Department (the “Trustee”).

ARTICLE I

INTRODUCTION

1.01 This Plan and Trust was originally adopted by the Employer effective January 1, 1990 (the “Effective Date”), for the exclusive benefit of the Participants and their Beneficiaries. The Plan was subsequently amended and restated in its entirety, effective January 1, 1997.

1.02 The Plan is a Profit Sharing Plan and is intended to qualify under the provisions of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.

1.03 The Trust is intended to be exempt from taxation under the provisions of Section 501(a) of the Internal Revenue Code of 1986.

1.04 This Plan and Trust shall hereafter be called the Savings Institute Profit Sharing and 401(k) Savings Plan (“the Plan”).

1.05 The Employer, effective for Plan Years beginning after December 31, 1996, or as otherwise provided hereunder, hereby amends and restates the Plan and Trust to comply with the General Agreement Tariffs and Trades Act of 1994 (GATT), the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), the Small Business Job Protection Act of 1996 (SBJPA), the Taxpayer Relief Act of 1997 (TRA 97), and other recently enacted laws, as well as the other requirements of the Code and ERISA, both as amended.

ARTICLE II

DEFINITIONS

2.01 “Administrator” shall mean the person designated by the Employer pursuant to Section 7.01 to administer the Plan on behalf of the Employer. The Administrator shall be the Plan’s “named fiduciary” and shall have the authority and responsibilities set forth in Article VII.

2.02 “Anniversary Date” shall mean December 31 of each Plan Year.

2.03 “Beneficiary” shall mean the person or entity determined in accordance with Section 6.05.

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2.04 “Break in Service” shall mean a Plan Year during which a Participant has not completed more than 500 Hours of Service with the Employer.

(a) A Participant shall not incur a Break in Service as a result of an authorized leave of absence provided the Participant returns to the employ of the Employer within thirty (30) days after the termination of such authorized leave of absence, unless such return is prevented by the Participant’s retirement, death or Disability.

(b) A Participant shall not incur a Break in Service as a result of a leave of absence covered by the Family and Medical Leave Act of 1993 provided the Participant returns to the employ of the Employer within thirty (30) days after the termination of such authorized leave of absence, unless such return is prevented by the Participant’s retirement, death or Disability.

(c) A Participant who is reemployed by the Employer in the period during which his right to reemployment after the completion of qualified military service (as defined in Code Section 414(u)(5)) is protected by federal law, shall not incur a Break in Service as a result of such qualified military service. This subsection shall be effective as of the later of (1) the Effective Date, or (2) December 12, 1994.

(d) A Participant shall not incur a Break in Service as a result of a certified maternity or paternity leave of absence from work of the Employer provided such leave is as a result of the Participant’s pregnancy, the birth of the Participant’s child, the placement of a child with the Participant in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. Not more than 501 Hours of Service shall be credited for such absence and may be credited, if necessary to prevent a Break in Service, in the Plan Year the absence begins, or in the immediately following Plan Year.

(e) A Participant shall be credited with the Hours of Service that the Participant would otherwise have been regularly credited but for any authorized absence provided by this Section, or in any case in which such Hours of Service cannot be reasonably ascertained, with 8 Hours of Service for each day of such absence.

2.05 “Code” shall mean the Internal Revenue Code of 1986, as amended.

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2.06 “Compensation” shall mean a Participant’s total salary, wages and other compensation paid during the Plan Year by the Employer that is currently includable in gross income for federal income tax purposes, excluding fringe benefits, reimbursements or other expense allowances.

(a) Compensation shall not include any form of severance payments, whether for past, present or future services, or otherwise, paid to any Employee subsequent to the Employee’s termination of employment with the Employer. This subsection (a) shall not apply to a former Employee’s final regular paycheck that may be received by the Employee in the normal course of business, after the Employee’s termination of employment.

(b) Compensation shall not include amounts contributed by the Employer under this Plan or, (with the exception of salary reductions made pursuant to Section 4.02, if applicable), any other qualified plan of deferred compensation.

(c) For purposes of this Plan, the maximum amount of Compensation that may be taken into account in any Plan Year shall not exceed the dollar limitation contained in Section 401(a)(17) of the Code in effect for the beginning of the Plan Year.

For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account under the Plan shall not exceed $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any period not exceeding 12 months, over that Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. If Compensation for any prior determination period is taken into account in determining a Participant’s benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the applicable annual compensation limit in effect for that prior determination period. For any short Plan Year, the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins, multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12).

(d) Compensation shall include salary reduction amounts contributed by a Participant to plans maintained pursuant to Code Sections 125, 132(f), 401(e)(8), 402(h), 403(b), or 457.

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(e) Compensation with respect to a partner of the Employer or a self-employed individual (as defined in Code Section 401(c)(1)(B)) shall mean the Earned Income derived from the Employer. For purposes of the Plan, Earned Income” shall mean the net earnings from self-employment in the trade or business with respect to which the Plan is established, for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a qualified plan to the extent deductible under Code Section 404. Net earnings shall be determined with regard to the deduction allowed to the taxpayer by Code Section 164(f) for taxable years beginning after December 31, 1989.

2.07 “Disability” shall mean a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Act. The Disability of a Participant shall be conclusively determined by the Administrator.

2.08 [RESERVED]

2.09 “Employee” shall mean any person who is employed, and classified, by the Employer as a common law employee and any person who has Earned Income (as defined in Section 2.06(e)) derived from the Employer, as well as an Owner-Employee, which for purposes of this Plan shall mean an individual who is a sole proprietor, or who is a partner owning more than 10 percent of either the capital or profits interest of the Employer. Employee shall not include independent contractors. To the extent required by Code Section 414(n), and the regulations promulgated thereunder, “Employee” shall also include “Leased Employees.”

2.10 “Employer” shall mean Savings Institute, a corporation organized and existing under the laws of the State of Connecticut, any successor which shall maintain this Plan (including a holding company), and any Affiliated Employer. For purposes of the Plan, an “Affiliated Employer” shall mean any member of a controlled group of corporations which includes the Employer, or entities under common control with the Employer, or an affiliated service group which includes the Employer, as defined in Sections 414(b), 414(c) and 414(m) of the Code, respectively or any other entity required to be aggregated with the Employer pursuant to Code Section 414(o). Employees of Affiliated Employers shall not be eligible to participate in this Plan, unless such Affiliated Employer has specifically adopted this Plan in writing, by executing a Participation Agreement with the Employer and Trustees.

2.11 “Employer’s Discretionary Contribution” shall have the meaning set forth in Section 4.07.

2.12 “Employer’s Matching Contribution” shall have the meaning set forth in Section 4.04.

2.13 “Entry Date” shall have the meaning set forth in Section 3.02.

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2.14 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

2.15 “Forfeiture” shall have the meaning set forth in Section 6.02(c) and shall include any amounts treated as a Forfeiture pursuant to Sections 4.04 and 4.05(d)(ii).

2.16 “Highly Compensated Participant” shall mean Highly Compensated Active Employees and Highly Compensated Former Employees. A Highly Compensated Active Employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year, received Compensation from the Employer in excess of $80,000 (as adjusted pursuant to Code Section 415(d)). For the 1997, 1998, 1999, 2000, 2001 and subsequent Plan Years, the application of the foregoing sentence shall be limited to Employees who are members of the Top-Paid Group for such year. An Employee is in the Top-Paid Group of Employees for any Plan Year if such Employee is in the group consisting of the top 20 percent of the Employees when ranked on the basis of Section 415 Compensation (as defined in Section 5.03(d)(iii)) paid during the Plan Year, excluding, however, (a) Employees who have not completed 6 months of service, (b) Employees who normally work less than 17.5 hours per week, (c) Employees who normally work not more than 6 months during the Plan Year, (d) Employees who have not attained age 21, and (e) except as otherwise provided by regulations promulgated by the Secretary of the Treasury or his delegate, Employees who are included in a unit of Employees covered by a collective bargaining agreement between employee representatives and the Employer. The term Highly Compensated Employee also includes Employees who are 5 percent owners at any time during the look-back year or determination year. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. A Highly Compensated Former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a Highly Compensated Active Employee for either the separation year or any determination year ending on or after the Employee’s 55th birthday. The determination of who is a Highly Compensated Employee will be made in accordance with Code Section 414(q) and the regulations promulgated thereunder.

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2.17 “Hour of Service” shall mean

(a) (1) each hour for which an Employee is paid or entitled to payment by the Employer for the performance of duties during the applicable computation period; (2) except as provided in subsection (b), each hour for which an Employee is paid or entitled to payment by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, lay-off, jury duty, military duty or leave of absence; (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages.

(b) Notwithstanding subsection (a)(2) above, (i) no more than 501 Hours of Service will be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

(c) For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

(d) The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.

(e) Hours of Service under this Section shall be determined in accordance with the terms of the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act of 1994.

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2.18 “Leased Employee” shall mean any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under the primary direction or control of the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: (a) if such employee is covered by a money purchase pension plan providing: (i) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts that are contributed by the Employer pursuant to a salary reduction agreement and that are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b), (ii) immediate participation, and (iii) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient’s non-highly compensated work force.

2.19 “Limitation Year” shall have the meaning set forth in Section 5.03(a).

2.20 “Normal Retirement Date” shall mean the first day of the month coinciding with or next following the Participant’s Normal Retirement Age, which is 65. A Participant’s Combined Account shall be nonforfeitable upon attaining his Normal Retirement Age.

2.21 “Participant” shall mean any Employee who has satisfied the requirements of Section 3.01, entered the Plan in accordance with Section 3.02, and has not ceased to be a Participant in accordance with Section 3.03.

2.22 “Participant’s Combined Account” shall have the meaning set forth in Section 5.02(f).

2.23 “Participant’s Deferred Compensation” shall have the meaning set forth in Section 4.02(a).

2.24 “Participant’s Discretionary Contribution Account” shall have the meaning set forth in Section 4.07.

2.25 “Participant’s Salary Deferral Account” shall have the meaning set forth in Section 4.02(c).

2.26 “Participant’s Salary Deferral Contribution” shall have the meaning set forth in Section 4.02(c).

2.27 “Plan Year” shall mean the fiscal year of the Employer which is the twelve (12) month period commencing on January 1 of each year and ending on December 31 of each such year. For years prior to the effective date of the Plan, the corresponding twelve (12) month period shall be the Plan Year.

2.28 “Trust Fund” shall mean all the assets held under the trust created hereunder.

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2.29 “Year of Service” shall have the meanings set forth in subsection (a) and (b).

(a) For purposes of eligibility for participation, “Year of Service” shall mean the completion of a twelve (12) consecutive months computation period during which an Employee is credited with at least 1000 Hours of Service. The initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The computation period shall shift to the Plan Year that includes the anniversary of the date on which the Employee first performed an Hour of Service. Any Employee who receives credit for a Year of Service in each of the initial and succeeding computation period shall be credited with a total of two (2) Years of Service.

(b) For purposes of vesting and for purposes of receiving an allocation pursuant to Article V, “Year of Service” shall mean a Plan Year during which an Employee is credited with at least 1000 Hours of Service.

Wherever used in this Plan, the singular or plural word and the masculine or feminine word shall be interpreted, as appropriate, to include the other word.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01 (a) Except as provided in subsection (b) and (c), every Employee who has completed a Year of Service and attained age twenty-one (21) shall become a Participant in this Plan on the applicable Entry Date.

(b) [RESERVED]

(c) Leased Employees (as defined in Section 2.18) and non-resident aliens shall not be eligible to participate in this Plan.

(d) Notwithstanding subsections (b) and (c) to the contrary, for purposes of vesting, “Years of Service” shall also include Years of Service during any period the Participant was not eligible to participate in the Plan by reason of subsections (b) and (c).

(e) Notwithstanding any provision to the contrary, any Employee who was a Participant in this Plan prior to the effective date of any amendment to the Plan shall continue to participate in the Plan.

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(f) An Eligible Employee may, with the consent of the Employer, which consent shall be granted or withheld on a nondiscriminatory basis, elect, (on a form provided by the Administrator) not to participate in the Plan. Such election shall be communicated to the Employer and Administrator prior to the beginning of the Plan Year for which it shall be effective (or prior to the Participant’s Entry Date). Said election to waive participation shall continue in effect until the beginning of the Plan Year following communication to the Employer and Administration of a revocation of such election by the Eligible Employee.

3.02 (a) Except as provided in subsection (b), “Entry Date” shall mean the Effective Date, and the January 1, April 1, July 1 and October 1 of the Plan Year coinciding with or next following the completion of the requirements of Section 3.01.

(b) If the Employee has separated from the service of the Employer after completion of the requirements of Section 3.01 but prior to the Employee’s Entry Date as determined under subsection (a), then such Employee’s Entry Date shall be his date of rehire.

3.03 A Participant whose employment with the Employer has terminated shall cease to be a Participant as of the date he has incurred a Break in Service. If such Participant shall become subsequently reemployed by the Employer, the rehired Participant shall again become a Participant in accordance with the following:

(a) If the Participant had a vested benefit at the time of his termination the rehired Participant shall again become a Participant as of the date he again performs an Hour of Service.

(b) If the Participant did not have a vested benefit at the time of his termination, the rehired Participant shall again become a Participant as of the date he again performs an Hour of Service, unless the period of consecutive Breaks in Service is equal to or greater than five (5) or, if greater, the aggregate number of his Years of Service before the period of consecutive breaks in Service then such rehired Participant shall be treated as a new Employee who must again satisfy the requirements of Section 3.01.

3.04 Reclassified Employees. Unless necessary to satisfy the requirements of Code Sections 401(a)(4) or 410(b), any person who is retroactively reclassified (by a court or administrative agency) as a common law employee of the Employer, but who was not originally on the Employer’s payroll records as a common law employee, shall only be eligible to participate in the Plan prospectively from the date of such reclassification, provided such reclassified Employee has satisfied the requirements of Section 3.01.

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ARTICLE IV

CONTRIBUTIONS

4.01 Employer Contribution. Each Plan Year the Employer shall make contributions to the Plan in amounts as provided in this Article.

(a) Deductibility Limit. Except as necessary to provide the minimum benefits required pursuant to Article IX the contributions made pursuant to this Section shall not exceed the maximum amount allowable as a deduction to the Employer under Code Section 404.

(b) Form of Contributions. Any contributions made pursuant to Section 4.01 shall be made in cash. Plan assets will be valued at their then fair market value.

(c) Timing of Contributions. Except as may be required by Section 4.02(c), all contributions shall be made to the Trustee not later than the due date of the Employer’s federal income tax return for that year, including extensions of time.

(d) No Participant Contribution Required. No Participant shall be required to make contributions to the Plan.

(e) Return of Contributions.

(i) Mistaken Contribution. If the Employer shall make a contribution pursuant to Section 4.01 which was, all or in part, based upon a mistake of fact, then upon written request of the Employer or Administrator the mistaken contribution, or if less, its current value shall be returned to the Employer by the Trustee within one year after the payment of the contribution.

(ii) Nondeductible Contribution. If the Employer shall make a contribution pursuant to Section 4.01 and a deduction therefore under Section 404 of the Code is disallowed, then upon written request of the Employer or Administrator the nondeductible contribution, or if less, its current value shall be returned to the Employer by the Trustee within one year after the disallowance of the deduction.

4.02 Salary Deferrals.

(a) Election. Subject to the provisions of Section 4.03, a Participant may elect, by salary reduction agreement provided by the Administrator, to have the Employer contribute to the Plan, on the Participant’s behalf, up to the maximum amount of his Compensation as is permitted by law, which amount shall be deemed the Participant’s Deferred Compensation.

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A Participant’s Deferred Compensation during any calendar year may not exceed the dollar limitation contained in Section 402(g) of the Code in effect for such calendar year. For purposes of this subsection, a Participant’s Deferred Compensation shall include the cumulative deferrals of the Participant under any plans (in which the Participant participates) described in Code Section 402(g)(3), or the regulations promulgated thereunder, any salary reduction simplified employee pension described in Code Section 408(k)(6), any SIMPLE IRA plan described in Code Section 408(p), any eligible deferred compensation plan under Code Section 457, any plan described in Code Section 501(c)(18), and any employer contributions made on behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. In the event that this dollar limitation is exceeded, the Participant shall allocate the excess between the applicable plans and notify the Administrator by March 1st of the following calendar year of any excess deferrals that have been allocated to this Plan. The Administrator shall direct the Trustee to attempt to distribute such excess amount, and any income allocable to such amount, to the Participant not later than April 15th of the following calendar year.

(b) Payroll Authorization. Any Participant making the election provided in subsection (a), must authorize, by said salary reduction agreement, the Employer to deduct from the Participant’s pay an amount equal to his Participant’s Deferred Compensation. The Administrator shall adopt a policy that shall set forth how a Participant may change his election under subsection (a) and the amount of his payroll deduction under this subsection (b). A Participant shall be allowed to make or modify such election as of any Entry Date and may revoke such election at any time during the Plan Year upon 30 days written notice to the Administrator.

(c) Contribution. Each payroll period the Employer shall make the deductions authorized by subsection (b). The Employer shall, within 15 business days after the end of the month following such deduction, make a contribution to the Plan equal to the portion of the Participant’s Deferred Compensation deducted during that payroll period. Such contribution shall be deemed the Participant’s Salary Deferral Contribution and shall be allocated to the Participant’s Salary Deferral Account.

(d) Distribution Restrictions. Except as otherwise provided in this subsection, any amounts held in the Participant’s Salary Deferral Account may not be distributed prior to the Participant’s retirement, death, Disability or termination of employment with the Employer unless the Participant has attained age fifty-nine and one-half or as otherwise permitted by Code Section 401(k)(2)(B), or the regulations promulgated thereunder.

At the election of the Participant, and provided the Participant’s spouse, if applicable, has consented thereto in the manner provided in Section 6.05(b), the Administrator shall direct the Trustee to distribute to any Participant, or his Beneficiaries, all or a portion of the Participant’s Salary Deferral Account (but not any of the earnings on the Participant’s Salary Deferral Contributions except that earnings credited to a Participant’s Salary Deferral Account as of the end of the last Plan Year ending before July 1, 1989 may be distributed), valued as of the last Anniversary Date, in the case of proven financial hardship, except that any amounts allocated

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to the Participant’s Salary Deferral Account pursuant to Section 4.03(d) shall not be distributable in the case of proven financial hardship.

For purposes of this paragraph, a distribution constitutes a hardship only if the distribution is made on account of an immediate and heavy financial need of the Participant and is necessary to satisfy the financial need. The determination that a distribution constitutes a hardship shall be conclusively determined by the Administrator in a uniform, nondiscriminatory and objective manner.

A distribution is deemed to be on account of an immediate and heavy financial need of the Participant if the distribution is for:

(i) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, the Participant’s spouse, or any dependents of the Participant (as defined in Code Section 152) or is necessary for these persons to obtain medical care described in Code Section 213(d);

(ii) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);

(iii) Payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, or the Participant’s spouse, children, or dependents (as defined in Code Section 152); or

(iv) Payments that are necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence; or

(v) Funeral expenses for a member of the Participant’s family.

A distribution is deemed necessary to satisfy an immediate and heavy financial need of the Participant if all of the following requirements are satisfied:

(i) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution.

(ii) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer.

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(iii) The Plan and all other plans maintained by the Employer limit the Participant’s elective contributions for the next taxable year to the applicable limit under Code Section 402(g) for that year minus the Participant’s elective contribution for the year of the hardship distribution.

(iv) The Participant is prohibited, under the terms of the Plan or an otherwise legally enforceable agreement, from making elective contributions and employee contributions to the Plan and all other plans maintained by the Employer for at least 12 months after receipt of the hardship distribution. For this purpose the phrase “all other plans maintained by the Employer” means all qualified and nonqualified plans of deferred compensation maintained by the Employer. The phrase includes a stock option, stock purchase, or similar plan, or a cash or deferred arrangement that is part of a cafeteria plan within the meaning of Code Section 125. However, it does not include the mandatory employee contribution portion of a defined benefit plan. It also does not include a health or welfare benefit plan, including one that is part of a cafeteria plan within the meaning of Code Section 125.

In addition, a distribution generally may be treated as necessary to satisfy a financial need if the Employer relies upon the Participant’s written representation, unless the Employer has actual knowledge to the contrary, that the need cannot reasonably be relieved:

(i) Through reimbursement or compensation by insurance or otherwise;

(ii) By liquidation of the Participant’s assets;

(iii) By cessation of elective contribution or employee contributions under the Plan; or

(iv) By other distributions or nontaxable (at the time of the loan) loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need. A need cannot reasonably be relieved by one of the actions listed above if the effect would be to increase the amount of the need.

For the purposes of this paragraph, the Participant’s resources are deemed to include those assets of the Participant’s spouse and minor children that are reasonably available to the Participant.

(e) Vesting. A Participant’s Salary Deferral Account shall always be nonforfeitable.

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4.03 Salary Deferral Limitations.

(a) For each Plan Year, the “actual deferral percentage” of all eligible Highly Compensated Participants (for the Plan Year) shall not exceed the greater of subparts (i) or (ii), below.

(i) The “actual deferral percentage” of all Employees who were eligible non-Highly Compensated Participants for the preceding Plan Year multiplied by 1.25; or

(ii) The “actual deferral percentage” of all Employees who were eligible non-Highly Compensated Participants for the preceding Plan Year multiplied by 2.0, provided, however, that the “actual deferral percentage” of all Highly Compensated Participants does not exceed the “actual deferral percentage” of all non-Highly Compensated Participants, by more than two (2) percentage points.

(iii) In the event that a Highly Compensated Participant shall be eligible to make salary deferrals pursuant to Section 4.02, and to receive Matching Contributions pursuant to Section 4.04, the Administrator shall make the reductions, if any, required by Section 4.06.

(iv) If permitted by Section 4.03(f), the “actual deferral percentage” of all eligible non-Highly Compensated Participants shall be determined using the preceding Plan Year’s average “actual deferral percentage” for such Participants, as provided by Code Section 401(k)(3), and the regulations promulgated thereunder (the “Prior Year ADP Testing Method”).

(b) The “actual deferral percentage”, for a specified group of Participants, shall be the average of the ratios (calculated separately for each Participant in such group), of

(i) The amount of the Participant’s Salary Deferral Contribution (without regard for distributions made pursuant to Section 4.02(a)) plus any amounts treated as a Participant’s Salary Deferral Contribution pursuant to Section 4.03(d)(ii) for such Plan Year, to

(ii) The Participant’s Compensation for such Plan Year.

(iii) For purposes of this Section, such ratios and “actual deferral percentages” for each group shall be calculated to the nearest one-hundredth of one percent of the Participant’s Compensation.

(iv) If the Prior Year ADP Testing Method is applicable to the first Plan Year, the actual deferral percentage of non-Highly Compensated Participants for the preceding year shall be three percent (3%).

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(c) If the Administrator shall determine that the limitations of subsection (a) may be exceeded for the Plan Year, then, to the extent necessary to satisfy the requirements of subsection (a), the Administrator may reduce the future Participant Salary Deferral Contributions of all or some of the Participants in the Highly Compensated Participant group.

(d) If the Administrator shall determine that the limitations of subsection (a) have been exceeded for the Plan Year, then, to the extent necessary to satisfy the requirements of subsection (a):

(i) The Employer may make a contribution to the Plan, which contribution shall be allocated to the Participant Salary Deferral Account of each non-Highly Compensated Participant, in proportion to the total Participant Salary Deferral Contributions of all non-Highly Compensated Participants; or

(ii) The Employer may make a contribution to the Plan, which contribution shall be allocated to the Participant Salary Deferral Account of each non-Highly Compensated Participant, who was employed by the Employer on the Anniversary Date, beginning with the non-Highly Compensated Participant with the least amount of Compensation for the Plan Year, in an amount up to the maximum permitted by Sections 4.02(a) and 5.03; or

(iii) The Administrator, with the written consent of the Employer, may proportionately deem a portion of the Employer Matching Contribution or Employer Discretionary Contribution of all non-Highly Compensated Participants, as a Participant’s Salary Deferral Contribution, which amount shall be allocated to the Participant’s Salary Deferral Account of each such non-Highly Compensated Participant and be subject to the provisions of Section 4.02; or

(iv) The Administrator shall determine the portion and amount of the excess contribution for the Plan Year that is allocable to each Highly Compensated Participant. In order to determine the dollar amount of the excess contribution, the Administrator shall determine the dollar amount which would be necessary to reduce the “salary deferral contribution” of the Highly Compensated Employee” with the highest actual deferral percentage to cause his “salary deferral contribution” to equal the “salary deferral contribution” of the Highly Compensated Employee with the next highest “salary deferral contribution.” This process is repeated until the dollar amount of the excess contribution has been determined. In accordance with Code Section 401(k)(8)(C) and the regulations promulgated thereunder, the Administrator shall direct the Trustee to distribute (after the close of the Plan Year) the total dollar amount of the excess contribution (and any income allocable to such amount in

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accordance with the method normally used to allocate income of the Plan to Participants’ accounts) for such Plan Year to the High Compensated Participant who had the greatest amount of Participant Salary Deferral Contribution for such Plan Year, until his dollar amount is equal to the Highly Compensated Participant with the next greatest Participant Salary Deferral Contribution. This process is repeated until the total amount of the excess contribution has been distributed. The amount of any excess contribution to be distributed to any Participant pursuant to this subpart (iii) shall be reduced by any excess deferral previously distributed to such Participant for the Plan Year pursuant to Section 4.02(a). The Trustee shall attempt to distribute said excess contribution on or before the 15th day of the third month following the end of the Plan Year, but in no event shall the distribution be made later than the close of the following Plan Year; or

(v) Any combination of the above actions may be taken.

(e) For purposes of this Section 4.03:

(i) All cash or deferred arrangements included in this Plan are treated as a single cash or deferred arrangement.

(ii) Plans that are aggregated for purposes of Code Section 410(b) are treated as a single plan.

(iii) The rules of these subparagraphs (i) and (ii) shall not apply unless the plans to be aggregated have the same Plan Year and they shall not apply to a plan or portion of a plan described in Code Section 409 or 4975(e).

(iv) The Participant’s Deferred Compensation may not be taken into account for purposes of determining whether any other contribution under any plan satisfy the requirements of Code Section 401(a).

(f) The Plan shall be tested under the Prior Year ADP Testing Method for the following Plan Years: 2002 and subsequent years.

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4.04 Employer’s Matching Contribution.

(a) Each Plan Year the Employer shall make a matching contribution equal to fifty percent (50%) of the Participant’s Salary Deferral Contribution. Such matching contribution shall be deemed the Employer’s Matching Contribution and shall be allocated to the Participant’s Matching Contribution Account. The Participant’s Matching Contribution shall be determined on a payroll by payroll basis.

(b) The Employer shall limit the maximum percentage that may be allocated as an Employer’s Matching Contribution to any Participant’s Matching Contribution Account to three percent (3%) of Compensation.

(c) Any Participant actively employed during the Plan Year shall be eligible to sharing in the allocations made pursuant to this Section 4.04 for the Plan Year.

(d) [RESERVED]

(e) In the event the Employer has made (during the Plan Year) an Employer’s Matching Contribution to the Plan on behalf of a Participant for such Plan Year (notwithstanding the provisions of subsections (c) and (d), then such Employer’s Matching Contribution shall remain in the Participant’s Matching Contribution Account of such Participant and shall become nonforfeitable in accordance with the provisions of Article VI.

(f) In the event that the Plan would otherwise fail to satisfy the requirements of the ratio percentage test set forth in Code Section 410(b)(1)(B), and the regulations promulgated thereunder (the “Ratio Percentage Test”), then, Participants who are otherwise not eligible for a contribution under this Section as a result of their failure to satisfy the requirements of subsections (c) or (d), shall nonetheless be eligible for a contribution under this Section as follows:

(i) Contributions under this subsection shall be given to one Participant at a time, adding only the smallest number of Participants that allows the Plan to satisfy the Ratio Percentage Test.

(ii) First, Participants who were employed by the Employer as of the Anniversary Date (beginning with the Participant with the greatest number of Hours of Service during the Plan Year, in descending order) shall be given a contribution, until the Ratio Percentage Test has been satisfied. If two or more Participants have the same number of Hours of Service, then the Participant with the highest Compensation shall receive an allocation first.

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(iii) Second, if the Ratio Percentage Test is still not satisfied, then Terminated Participants who were credited with at least 501 Hours of Service during the Plan Year (beginning with the Participants with the least amount of Compensation during the Plan Year, in ascending order) shall be given a contribution, until the Ratio Percentage Test has been satisfied. If two or more Participants have the same Compensation, then the Participant with the fewest number of Hours of Service shall receive an allocation first.

(iv) All individuals in similar circumstances shall be given equal treatment.

4.05 Matching Contribution Limitations.

(a) For each Plan Year, the “matching contribution percentage” of all eligible Highly Compensated Participants (for the Plan Year) shall not exceed the greater of subparts (i) or (ii), below.

(i) The “matching contribution percentage” of all Employees who were eligible non-Highly Compensated Participants for the preceding Plan Year multiplied by 1.25; or

(ii) The “matching contribution percentage” of all Employees who were eligible non-Highly Compensated Participants for the preceding Plan Year multiplied by 2.0, provided, however, that the “matching contribution percentage” of all Highly Compensated Participants does not exceed the “matching contribution percentage” of all non-Highly Compensated Participants, by more than two (2) percentage points.

(iii) In the event that a Highly Compensated Participant shall be eligible to make salary deferrals pursuant to Section 4.02, and to receive Matching Contributions pursuant to Section 4.04, the Administrator shall make the reductions, if any, required by Section 4.06.

(iv) If permitted by Section 4.05(g), the “matching contribution percentage” of all eligible non-Highly Compensated Participants shall be determined using the preceding Plan Year’s average “matching contribution percentage” for such Participants, as provided by Code Section 401(m)(2), and the regulations promulgated thereunder (the “Prior Year ACP Testing Method”).

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(b) The “matching contribution percentage”, for a specified group of Participants, shall be the average of the ratios (calculated separately for each Participant in such group), of

(i) The amount of the Employer’s Matching Contribution and Participants’ Voluntary Contributions (if applicable) allocated to each Participant’s Matching Contribution Account (without regard for distributions made pursuant to Section 4.03(a)) and Participants’ Voluntary Contribution Account (if applicable), respectively, for such Plan Year, to

(ii) The Participant’s Compensation for such Plan Year.

(iii) For purposes of this Section, such ratios and actual “matching contribution percentages” for each group shall be calculated to the nearest one-hundredth of one percent of the Participant’s Compensation.

(iv) If the Prior Year ACP Testing Method is applicable to the first Plan Year, the matching contribution percentage of Non-High Compensated Participants for the preceding year shall be three percent (3%).

To the extent permitted by regulations promulgated under the Code, the Administrator may elect to take into account elective deferrals (as defined in Code Section 402(g)(3)(A) and qualified nonelective contributions (as defined in Code Section 401(m)(4)(C)) under this Plan or any other plan of the Employer.

(c) If the Administrator shall determine that the limitations of subsection (a) may be exceeded for the Plan Year, then, to the extent necessary to satisfy the requirements of subsection (a), the Administrator shall reduce the future Employer’s Matching Contributions and Participants’ Voluntary Contributions (if applicable) of all Participants in the Highly Compensated Participant group.

(d) If the Administrator shall determine that the limitations of subsection (a) have been exceeded for the Plan Year, then, to the extent necessary to satisfy the requirements of subsection (a):

(i) The Employer may make a contribution to the Plan, which contribution shall be allocated to the Participant’s Matching Contribution Account of each non-Highly Compensated Participant, who has made Salary Deferral Contributions during the Plan Year, in proportion to the total Participant Salary Deferral Contributions of all non-Highly Compensated Participants, which contributions shall always be nonforfeitable and subject to the restrictions set forth in Section 4.02(d); or

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(ii) The Employer may make a contribution to the Plan, which contribution shall be allocated to the Participant Matching Contribution Account of each non-Highly Compensated Participant, who has made Salary Deferral Contributions during the Plan Year, and who was employed by the Employer on the Anniversary Date, beginning with the non-Highly Compensated Participant with the least amount of Compensation for the Plan Year, in an amount up to the maximum permitted by Sections 4.04 and 5.03, which contributions shall always be nonforfeitable and subject to the restrictions set forth in Section 4.02(d);or

(iii) The Administrator may treat the excess matching contribution (and any income allocable to such amount in accordance with the method normally used to allocate income of the Plan to Participants’ accounts) as a Forfeiture and allocate the Forfeiture as provided by Section 5.02(e), except that any amount forfeited pursuant to this Section may not be allocated to Participants whose Employer Matching Contributions are reduced pursuant to this Section, and except that any Participant’s Matching Contributions that are vested may not be forfeited pursuant to this subpart (ii); or

(iv) The Administrator shall determine the portion and amount of the excess matching contribution for the Plan Year that is allocable to each Highly Compensated Participant. In order to determine the dollar amount of the excess matching contribution, the Administrator shall determine the dollar amount which would be necessary to reduce the “actual contribution percentage” of the Highly Compensated Employee” with the highest actual contribution percentage to cause his “actual contribution percentage” to equal the “actual contribution percentage” of the Highly Compensated Employee with the next highest “actual contribution percentage.” This process is repeated until the dollar amount of the excess matching contribution has been determined. In accordance with Code Section 401(m)(6)(C) and regulations promulgated thereunder, the Administrator shall direct the Trustee to distribute the vested portion of the excess matching contribution (and any income allocable to such amount) for such Plan Year to the Highly Compensated Participant who had the greatest amount of Participant Matching Contribution for such Plan Year, until his dollar amount is equal to the Highly Compensated Participant with the next greatest Participant Matching Contribution. This process is repeated until the vested portion of the excess matching contribution has been distributed. The non-vested portion of any excess matching contribution to a Highly Compensated Employee shall be forfeited and allocated as provided in Section 5.02(e). The Trustee shall attempt to distribute said excess matching contribution on or before the 15th day of the third month following the end of the Plan Year, but in no event shall the distribution be made later than the close of the following Plan Year; or

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(v) Any combination of the above actions may be taken.

(e) The determination of the amount of an excess matching contribution under this Section shall be made after the application of Sections 4.02(a) and 4.03 and the method of distributing such excess matching contribution shall comply with the requirements of Code Section 401(a)(4).

(f) For purposes of this Section 4.05:

(i) All cash or deferred arrangements included in this Plan are treated as a single cash or deferred arrangement.

(ii) Plans that are aggregated for purposes of Code Section 410(b) are treated as a single plan.

(iii) The rules of these subparagraphs (i) and (ii) shall not apply unless the plans to be aggregated have the same Plan Year and they shall not apply to a plan or portion of a plan described in Code Section 409 or 4975(e).

(iv) The Participant’s Deferred Compensation may not be taken into account for purposes of determining whether any other contribution under any plan satisfy the requirements of Code Section 401(a).

(g) The Plan shall be tested using the Prior Year ACP Testing Method for the following Plan Years: 2002 and subsequent years.

4.06 Multiple Use Provision.

(a) For each Plan Year, the sum of the “actual deferral percentage” and “matching contribution percentage” as determined under Sections 4.03(b) and 4.05(b), respectively, of all eligible Highly Compensated Participant may not exceed the greater of (i) or (ii) below.

(i) The greater of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants multiplied by 1.25 plus the lesser of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants multiplied by 2.0, provided, however, that this amount does not exceed the lesser of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants by more than two (2) percentage points.

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(ii) The lesser of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants multiplied by 1.25 plus the greater of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants multiplied by 2.0, provided, however, that this amount does not exceed the greater of the “actual deferral percentage” or “matching contribution percentage” of all eligible non-Highly Compensated Participants by more than two (2) percentage points.

(iii) The provisions of this Section 4.06(a) shall be deemed to have been satisfied if either the limitation set forth in Section 4.03(a)(i) was utilized to satisfy the requirements of Section 4.03, or the limitation set forth in Section 4.05(a)(i) was utilized to satisfy the requirements of Section 4.05.

(b) The limitations of subsection (a) shall be determined after application of the limitations set forth in Sections 4.03 and 4.05.

(c) If the Administrator shall determine that the limitations of subsection (a) have been exceeded for the Plan Year, then the Administrator shall take one or more (either alone or in combination) of the corrective actions set forth in Sections 4.03(d) and 4.05(d) no later than the last day of the following Plan Year.

4.07 Employer’s Discretionary Contribution. Each Plan Year the Employer may make a discretionary contribution to the Plan which contribution shall be deemed the Employer’s Discretionary Contribution and shall be allocated to the Participant’s Discretionary Contribution Account. Each Plan Year the Employer shall make a discretionary contribution to the Plan equal to the amount, if any, necessary to restore the Forfeited portions of a Participant’s Combined Account pursuant to Section 6.02(c).

ARTICLE V

ALLOCATION OF CONTRIBUTIONS

5.01 Establishment of Accounts. The Administrator shall establish and maintain the following accounts for each Participant:

(a) Participant’s Salary Deferral Account

(b) Participant’s Matching Contribution Account

(c) Participant’s Discretionary Contribution Account

(d) Participant’s Combined Account.

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5.02 Allocations.

(a) Participant’s Salary Deferral Contributions. Any Participant’s Salary Deferral Contributions made on behalf of a Participant during the Plan Year, shall be allocated by the Administrator, as of each Anniversary Date, to the applicable Participant’s Salary Deferral Account.

(b) Employer’s Matching Contributions. Any Employer’s Matching Contributions made on behalf of a Participant during the Plan Year, shall be allocated by the Administrator, as of each Anniversary Date, to the applicable Participant’s Matching Contribution Account.

(c) Employer Discretionary Contributions. Employer Discretionary Contributions made pursuant to Section 4.07 shall first be applied to restore the Forfeited portions of a Participant’s Combined Account pursuant to Section 6.02(c) and any remaining Employer Discretionary Contribution shall be allocated by the Administrator, as of each Anniversary Date, to the Participant’s Discretionary Contribution Account of each Participant in the same proportion that each such Participant’s Compensation bears to the total Compensation of all such Participants.

(d) Net earnings or losses of the Trust Fund. As of each Anniversary Date, the fair market value of all assets of the Trust Fund shall be determined by the Trustee. Net earnings or losses of the Trust Fund for the Plan Year shall then be determined by the Trustee as of each Anniversary Date. Net earnings or losses shall mean gross earnings less all expenses and taxes, and shall include any increases or decreases in the fair market value of the investments during the year. As of each Anniversary Date, the net earnings and losses for the Plan Year shall be allocated by the Administrator to the applicable Account of each Participant during the Plan Year in the same proportion that each such Participant’s account balance, as of the beginning of the Plan Year, bears to the total account balance of all such Participants, as of the beginning of the Plan Year. The allocations shall be adjusted, by a method determined by the Administrator, for contributions and withdrawals made during the Plan Year.

(e) Forfeitures. As of each Anniversary Date any amounts which became Forfeitures since the preceding Anniversary Date shall be applied as follows:

(i) First applied to restore the Forfeited portions of a Participant’s Combined Account pursuant to Section 6.02(c), and to pay any expenses of the Plan;

(ii) Any remaining Forfeitures from a Participant’s Discretionary Contribution Account or Participant’s Matching Contribution Account shall be used to reduce the Employer’s Discretionary Contribution provided for by Section 4.07, and the Matching Contribution provided for by Section 4.04 for the Plan Year in which such Forfeitures occur.

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(f) Participant’s Combined Account. The Participant’s Combined Account shall be the total of the Participant’s Salary Deferral Account, the Participant’s Matching Contribution Account, the Participants’ Rollover Account, Voluntary Contribution Account, and the Participant’s Discretionary Contribution Account.

(g) Participants whose employment is terminated as a result of their retirement, death or Disability shall share proportionately in the allocations made pursuant to this Section in the year of their termination regardless of whether the Participant is credited with a Year of Service during the Plan Year.

(h) Participants whose employment is terminated for a reason other than their retirement, death or Disability shall share in the allocations made pursuant to subsection (a) and (d) only, and shall not share in the allocations made pursuant to subsection (c) in the year of their termination.

(i) In the event that the Plan would otherwise fail to satisfy the requirements of the ratio percentage test set forth in Code Section 410(b)(1)(B), and the regulations promulgated thereunder (the “Ratio Percentage Test”), then, Participants who are otherwise not eligible for a contribution under this Section as a result of their failure to satisfy the requirements of subsections (c) or (h), shall nonetheless be eligible for a contribution under this Section as follows:

(i) Contributions under this subsection shall be given to one Participant at a time, adding only the smallest number of Participants that allows the Plan to satisfy the Ratio Percentage Test.

(ii) First, Participants who were employed by the Employer as of the Anniversary Date (beginning with the Participant with the greatest number of Hours of Service during the Plan Year, in descending order) shall be given a contribution, until the Ratio Percentage Test has been satisfied. If two or more Participants have the same number of Hours of Service, then the Participant with the highest Compensation shall receive an allocation first.

(iii) Second, if the Ratio Percentage Test is still not satisfied, then Terminated Participants who were credited with at least 501 Hours of Service during the Plan Year (beginning with the Participants with the least amount of Compensation during the Plan Year, in ascending order) shall be given a contribution, until the Ratio Percentage Test has been satisfied. If two or more Participants have the same Compensation, then the Participant with the fewest number of Hours of Service shall receive an allocation first.

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(iv) All individuals in similar circumstances shall be given equal treatment.

5.03 Limitations on Allocations.

(a) Basic Limitation. Notwithstanding Section 5.02, and except as provided in subsection (b), the amount of “Annual Additions” which may be made to a Participant’s Combined Account during any Limitation Year shall not exceed the lesser of:

(i) $30,000, or such amount as may be prescribed or permitted by law; or

(ii) Twenty-five percent (25%) of the Participant’s Compensation for such Limitation Year.

For purposes of this Plan, the Limitation Year shall be the Plan Year.

(b) Multiple Plans Limitation.

(i) If any Participant is also covered at any time under a defined benefit plan maintained by the Employer, the sum of the defined contribution fraction and defined benefit fraction shall not exceed 1.0. If the sum of these fractions for a Limitation Year shall exceed 1.0, the Employer shall adjust the numerator of the defined benefit fraction by limiting benefits thereunder so that the sum of both fractions shall not exceed 1.0 in any Limitation Year for such Participant.

(ii) For purposes of this Section, the defined benefit fraction shall be equal to a fraction, the numerator of which is the “Projected Annual Benefit” of the Participant under the plan, as of the close of the Limitation Year, and the denominator of which is the lesser of (A) the product of 1.25, multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the Limitation Year, or (B) the product of 1.4, multiplied by the amount which may be taken into account under Section 415(b)(1)(B) of the Code with respect to such Participant under the plan for the Limitation Year. The denominator shall be adjusted in accordance with Sections 415(b)(2)(B), (C), (D) and 415(b)(5) of the Code.

(iii) For purposes of this Section, the defined contribution fraction shall be equal to a fraction, the numerator of which is the sum of the “Annual Additions” to the Participant’s accounts as of the close of the Limitation Year, and the denominator of which is the sum of the lesser of the following amounts determined for such Limitation Year and for each prior year of service with the Employer (A) the product of 1.25, multiplied by the dollar limitation in effect under Section 415(c)(1)(A) of the Code for such Limitation Year (determined without regard to Section 415(c)(6) of

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the Code), or (B) the product of 1.4, multiplied by the amount which may be taken into account under Section 415(c)(1)(B) of the Code with respect to such Participant under such plan for such Limitation Year.

(iv) If this Plan shall become a Top Heavy Plan (as defined in Section 9.02(e)), then “1.0” shall be substituted for “1.25” in subsections (c)(ii) and (c)(iii).

(v) In applying the limitations of this Section, all defined contribution plans maintained by the Employer (whether or not terminated) shall be aggregated as one plan, and all defined benefit plans maintained by the Employer (whether or not terminated) shall be aggregated as one plan.

(vi) The provisions of this subsection (b)(i)-(iv) shall apply only to Limitation Years beginning on or before December 31, 1999.

(c) Excess Annual Additions Adjustment. If for any Participant there are any Annual Additions in excess of the amounts permitted by this Section, then such excess amount shall be disposed of as follows:

(i) Any voluntary contributions made by a Participant during the Limitation Year shall be returned to the Participant.

(ii) If the Participant is covered by the Plan at the end of the Limitation Year, the excess amount shall be used to reduce Employer contributions for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. Contributions made pursuant to Section 4.02 shall be reduced prior to reducing contributions under Section 4.06 hereof.

(iii) If any Participant is not covered by the Plan at the end of the Limitation Year, the excess amount shall be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year, if necessary.

(iv) If a suspense account is in existence at any time during the Limitation Year pursuant to this Section, it shall not participate in the allocation of net earnings or losses of the Trust Fund as provided in Section 5.02(d).

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(d) Definitions. For purposes of this Section:

(i) “Annual Additions” shall mean, for each Limitation Year, the sum allocated to the Participant’s Combined Account, of:

(A) Employer contributions. Employer contributions shall not include any amounts transferred to this Plan from any other qualified plan (rollovers), or any contributions made pursuant to Section 6.02(c) to restore the previously Forfeited portions of a Participant’s Combined Account.

(B) Employee contributions. Employee contributions shall include any mandatory employee contributions and any voluntary employee contributions but shall not include any amounts transferred to this Plan from any other qualified plan (rollovers), repayment of loans made to a Participant from the Plan, any repayment of previously distributed amounts pursuant to Section 6.02(c).

(C) Forfeitures, if such Forfeitures are allocated to a Participant’s Combined Account.

(D) Individual Medical Accounts. Amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer are treated as Annual Additions to a defined contribution plan. Also amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits, allocated to the separate account of a Key Employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer are treated as Annual Additions to a defined contribution plan;

(E) SEP. Allocations under a simplified employee pension; and

(F) Contributions do not fail to be Annual Additions merely because such contributions are excess deferrals under Section 4.02, or excess contributions under Section 4.03, or excess matching contributions under Section 4.05, whether or not distributed under the terms of this Plan.

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(ii) “Projected Annual Benefit” shall mean the Participant’s annual benefit (adjusted to the actuarial equivalent of a straight life annuity, if appropriate) under a defined benefit plan maintained by the Employer, assuming that the Participant will continue employment with the Employer until the later of his current age or the normal retirement age under the plan, and that the Participant’s Section 415 Compensation for the Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years.

(iii) “Section 415 Compensation” shall mean the Participant’s wages, salaries, fees for professional service and other amounts received for personal services actually rendered in the course of employment with the Employer, including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses, and any amounts described in Sections 104(a)(3), 105(a) and 105(h) of the Code to the extent includable in the Participant’s gross income, any amounts paid or reimbursed by the Employer for moving expenses incurred by the Participant to the extent that such amounts are not deductible by the Participant under Section 217 of the Code, the value of any non-qualified stock options granted to a Participant by the Employer to the extent that the value of the option is includable in the Participant’s gross income for the taxable year in which granted, and the amount includable in the Participant’s gross income upon making the election described in Section 83(b). Section 415 Compensation shall not include (A) any contributions made by the Employer to a plan of deferred compensation to the extent that before the application of the limitations of Section 415 of the Code to that plan, the contributions are not includable in the Participant’s gross income for the taxable year in which contributed, or any distributions from a plan of deferred compensation, regardless of whether such amounts are includable in the Participant’s gross income when distributed. However, any amounts received by a Participant pursuant to an unfunded non-qualified plan may be considered as compensation in the Limitation Year such amounts are includable in the Participant’s gross income; (B) any amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (C) any amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; (D) any other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the Participant’s gross income), or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code whether or not the contributions are excludable from the Participant’s gross income; and (E) any amount which exceed the limitation set forth in Section

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2.06(f). For limitation years beginning after December 31, 1991, for purposes of applying the limitations of this subsection, compensation for a limitation year is the compensation actually paid or made available during such limitation year.

Notwithstanding anything herein to the contrary, for Plan Years beginning on and after January 1, 1998, Section 415 Compensation shall include any elective deferrals (as defined in Code Section 401(g)(3)) and any amounts which are contributed or deferred by the Employer at the election of the Participant and which are not includable in the gross income of the Participant by reason of Code Sections 125, 132(f), 403(b) or 457.

ARTICLE VI

PAYMENT OF BENEFITS

6.01 Retirement, Death or Disability. A Participant, or his Beneficiary shall be entitled to distribution of the entire balance of his Participant’s Combined Account, determined as of the most recent Anniversary Date or other valuation date (adjusted for any subsequent contributions or distributions) upon:

(a) The Participant’s retirement on or after his Early (if applicable) or Normal Retirement Date;

(b) The Participant’s termination of employment as a result of his Disability; or

(c) The Participant’s death prior to his termination of employment. The Administrator may require acceptable proof of death and the Administrator’s determination of death shall be conclusive.

6.02 Other Terminations.

(a) If a Participant terminates his employment with the Employer prior to his Early (if applicable) or Normal Retirement Date, death or Disability he shall be entitled to distribution of the nonforfeitable percentage of his Participant’s Combined Account, determined as of the most recent Anniversary Date, or other valuation date.

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(b) A Participant’s Salary Deferral Account, and Participant’s Matching Contribution Account shall always be nonforfeitable. Effective March 21, 2000, except as otherwise required by Section 9.03, a Participant’s Discretionary Contribution Account shall become nonforfeitable in accordance with the following schedule:

Participant’s Completed Years of Service	Nonforfeitable Percentage
1	0%
2	0%
3	25%
4	50%
5	100%

(c) (i) The portion of the Participant’s Combined Account which is not nonforfeitable shall become a Forfeiture upon the earlier of:

(A) the date of distribution (as made in accordance with Section 6.04) or deemed distribution as provided in subpart (v) of the nonforfeitable portion of a Participant’s Combined Account, or

(B) the last day of the Plan Year in which the Participant incurs five (5) consecutive Breaks in Service.

(ii) Forfeitures, if any, shall be reallocated as provided in Section 5.02(e).

(iii) If a Participant without a nonforfeitable benefit shall return to the employ of the Employer after incurring a Break in Service and the period of consecutive Breaks in Service is less than five (5) or, if greater, the aggregate number of his Years of Service (as defined in Section 2.29(b)) before the period of consecutive Breaks in Service then the rehired Participant shall have the previously Forfeited portion of his Participant’s Combined Account (plus any earnings such account would have been credited with had the account not been Forfeited) restored.

(iv) If a Participant with a nonforfeitable benefit shall return to the employ of the Employer after incurring a Break in Service and the Participant repays to the Trustee, (within the earlier of five (5) years from his date of rehire or the date he would have incurred five (5) consecutive one year Breaks in Service), the amount of any distribution he received as a result of his previous participation then the rehired Participant shall have the previously Forfeited portion of his Participant’s Combined Account restored.

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(v) A terminated Participant without a nonforfeitable benefit shall be deemed to have received a distribution of zero dollars ($0.00) hereunder as of the date of his termination of employment.

(d) (i) Except as provided in subsection (d)(ii), for purposes of determining the nonforfeitable percentage of any amount restored to a Participant’s Combined Account pursuant to subsection (c) all Years of Service, whether prior to or subsequent to the Participant’s incurring a Break in Service, shall be counted, provided such Participant is credited with a Year of Service after the date of his reemployment.

(ii) If the Participant had a nonforfeitable interest in the Plan at the time of his termination and the period of consecutive Breaks in Service is greater than five (5) years, then such Participant, for purposes of this subsection (d) shall not receive credit for Years of Service subsequent to his termination of employment.

(e) The computation of a Participant’s nonforfeitable percentage of his Participant’s Combined Account shall not be reduced, directly or indirectly as the result of an amendment to this Section. In the event of an amendment to the vesting schedule set forth in this Section, a Participant with at least three (3) Years of Service may elect, during the election period, to have his nonforfeitable percentage determined under this Section without regard to such amendment. The Participant’s election period shall begin on the date such an amendment is adopted and shall end 60 days after the latest of (i) the adoption of the amendment, (ii) the effective date of the amendment, or (iii) the date the Participant receives written notice of such an amendment.

6.03 Form of Payment. Distributions shall be made in the form of a lump sum payment.

6.04 Timing of Distribution.

(a) The distributions required by Sections 6.01 and 6.02 shall be made as soon as administratively practicable following the Anniversary Date or other valuation date coinciding with or next following the Participant’s retirement, death, Disability or other termination of employment. Distributions shall require the Participant’s and his spouse’s written consent if the value of the Participant’s Combined Account exceeds $5,000 (or for distributions occurring in Plan Years beginning prior to August 6, 1997, exceeds, or ever exceeded $3,500).

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(b) Unless the Participant otherwise elects, the payment of benefits to the Participant shall be made not later than the 60th day after the latest of the close of the Plan Year in which:

(i) The date on which the Participant attains age 65 (or Normal Retirement Age, if earlier),

(ii) Occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan, or

(iii) The Participant terminates his service with the Employer.

For purposes of this subsection, a Participant’s and Spouse’s failure to consent to a distribution shall be treated as an election to delay the distribution.

(c) Minimum Required Distributions. All distributions shall be made in accordance with Code Section 401(a)(9) and the regulations promulgated thereunder. Specifically, notwithstanding any other provision to the contrary, the following shall apply.

(i) Non-5% Owners. Effective for Plan Years beginning after January 1, 1997, the Participant’s Combined Account of a Participant who is not a 5% owner (as defined in Code Section 416(i)), shall be distributed, not later than April 1^st of the calendar year following the later of:

(A) The calendar year in which he attains age seventy and one-half (70 ½), or

(B) For Participants who attain age seventy and one-half (70 ½) in or after the adoption date of this amendment, in the calendar year in which the Participant terminates his service with the Employer, and for a Participant who attained age 70 ½ between January 1, 1996 and the adoption date of this amendment, may file a written election with the Plan Administrator, prior to the date the distribution would have been received under subpart (A), to delay the distribution under this subsection (c) until the April 1^st of the calendar year following the calendar year in which the Participant terminates his service with the Employer.

(ii) 5% Owners. The Participant’s Combined Account of a Participant who is a 5% owner (as defined in Code Section 416(i)), shall be distributed, beginning not later than April 1^st of the calendar year following the calendar year in which he attains age seventy and one-half (70 ½), in accordance with Code Section 401(a)(9) and the regulations promulgated thereunder, over the life of the Participant or over the lives of the Participant and a designated beneficiary (or over the life expectancy of the Participant or over the life expectancy of the Participant and a designated beneficiary).

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(iii) TEFRA Election. A Participant who executed a valid “Section 242(b)(2) Election” by December 31, 1983, that has not been revoked or modified, may receive his distributions according to the terms of the Section 242(b)(2) Election, provided the spousal consent requirements of this Article are otherwise satisfied. A “Section 242(b)(2) Election” is an optional election provided by section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 that meets the guidelines of IRS Notice 83-23. Such election is not valid for any assets rolled over into this Plan, unless such roll over was not at the direction of the Participant. A Participant may revoke his election at any time, but once revoked, it cannot be reinstated and the provisions of this subparts (i) and (ii) above will govern the distributions as if the election had not been made. In the event that such a revocation results in distributions being required for prior years, such distributions must be distributed by the December 31^st following the calendar year in which the “Section 242(b)(2) Election was revoked.

(d) In the event that a Participant shall die before distribution of his Participant’s Combined Account begins, then the entire interest of the Participant shall be distributed within five (5) years after his date of death.

6.05 Beneficiary.

(a) The Beneficiary of the death benefit payable pursuant to Section 6.01 shall be the Participant’s spouse. If the Participant certifies that either (i) his spouse cannot reasonably be located, or (ii) he is not married, then he may designate, in writing on a form satisfactory to the Administrator, a Beneficiary other than his spouse.

(b) Notwithstanding subsection (a), a Participant may elect to waive his spouse as the Beneficiary of the death benefit provided his spouse consents thereto. Any such consent must be in writing, acknowledge the specific nonspouse beneficiary and the effect of the waiver, and be witnessed by a Plan representative or Notary Public. The Administrator shall provide each Participant written notice of his rights with regard to the Beneficiary of the death benefit. The designated nonspouse beneficiary may not be changed without again obtaining his spouse’s consent as provided herein unless the consent of the spouse expressly permits such changes by the Participant without any requirement of further consent by the spouse. Any consent by a spouse under this subsection shall be effective only with respect to such spouse.

(c) In the absence of any surviving designated Beneficiary or spouse, the Beneficiary shall be the Participant’s estate.

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ARTICLE VII

ADMINISTRATION

7.01 Designation of Administrator.

(a) The Employer shall have the authority to designate the Administrator. In the absence of such a designation, the Employer shall act as Administrator.

(b) If more than one person is appointed as Administrator, (i) the Employer may specify the responsibilities and authority of each Administrator, (ii) in the absence of such specification, the Administrators may allocate the responsibilities and authority among themselves, (iii) in the absence of any specification or allocation of responsibilities or authority the Administrators shall act by a majority vote, and (iv) an Administrator shall be liable only for acts or omissions regarding responsibilities allocated to him.

7.02 Administrator’s Duties and Responsibilities. The Administrator, who shall be responsible for supervision and control of the operation of the Plan, shall have all the powers necessary or appropriate to properly administer the Plan including, but not necessarily limited to, the duty, power and authority:

(a) To make pertinent rules, regulations and procedures regarding Plan administration.

(b) To delegate all or part of his duties. To the extent such delegation was prudent, the Administrator shall not be liable for the acts or omissions of such delegate.

(c) To file annual reports, summary plan descriptions or other documentation with the Department of the Treasury and the Department of Labor as may be necessary or appropriate under the law.

(d) To provide each Participant and Beneficiaries with a summary annual report and summary plan description as required by law.

(e) To designate the Plan’s agent for service of legal process.

(f) To conclusively determine the eligibility of each Employee to participate, or to continue to participate, in the Plan.

(g) To determine the amount and kind of benefits to which a Participant may be entitled and to authorize and direct the Trustee with respect to the distributions of benefits from the Plan.

(h) To obtain and maintain the Plan records.

(i) To interpret the provisions of the Plan.

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(j) To adopt any procedures necessary to carry out the provisions of the Plan.

(k) To compute the amount of any Employer contribution which should be made to the Trust Fund.

(l) To assist Participants regarding their rights, benefits and elections under the Plan.

(m) To appoint counsel, specialists, accountants, advisers, actuaries and other persons as the Administrator deems necessary or appropriate for the proper administration of the Plan.

(n) To obtain from the Employer and Trustee such information and data as the Administrator may reasonably request, which information and data the Employer and Trustee shall furnish in a timely manner.

(o) To rely upon information, data and advise which the Administrator has requested and obtained.

(p) To resign as Administrator, upon sixty (60) days (or at any time by mutual agreement with the Employer) written notice to the Employer.

7.03 Payment of Expenses. All expenses and fees of the Administrator, or counsel, specialists, advisers, accountants or actuaries appointed by the Administrator pursuant to Section 7.02(m) or the Employer pursuant to Section 7.06(c) shall be paid by the Trust Fund unless paid or advanced by the Employer.

7.04 Valuation and Statements. The Administrator shall, within a reasonable time after the end of each Plan Year, perform a valuation of the Plan and Trust, make the allocations required by Article V, and notify each Participant of the amount of Employer contributions allocated to his account for the Plan Year pursuant to Section 5.02(a), (b) and (c), the net earnings or losses of the Trust Fund allocated to his account for the Plan Year pursuant to Section 5.02(d) and the total value of his Participant’s Combined Account as of the Anniversary Date and the nonforfeitable percentage of his Participant’s Combined Account.

7.05 Claims Procedure.

(a) Claims for benefits under the Plan may be filed with the Administrator on forms supplied by the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan’s claims review procedure.

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(b) Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form supplied by the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator that are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

7.06 Employer’s Duties and Responsibilities. The Employer shall have all rights, powers, duties and responsibilities not specifically allocated to the Administrator or the Trustee hereunder, including, but not limited to, the duty, power and authority:

(a) To appoint and to remove an Investment Manager as to all or part of the assets of the Trust Fund provided such Investment Manager is either an investment adviser registered under the Investment Advisors Act of 1940, or a bank, or insurance company qualified to perform such services under the laws of the State where this document was executed.

(b) To establish a funding policy and method consistent with the objectives of this Plan, determining the Plan’s short and long-term financial needs, which shall be communicated to the Administrator and Trustee.

(c) To employ counsel, specialist, accountants, actuaries and other persons as the Employer deems necessary or appropriate for proper operation of the Plan.

(d) To appoint and remove the Administrator and Trustee whenever the Employer deems it necessary or appropriate for the proper administration of the Plan for the exclusive benefit of the Participants and their Beneficiaries.

(e) To make the contributions in accordance with Article IV.

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(f) To supply any information or data reasonably requested by the Administrator or Trustee to enable them to perform hereunder.

(g) To amend, terminate or merge the Plan as provided in Section 7.07.

7.07 Amendment, Termination, and Mergers.

(a) The Employer may amend this Plan in whole or in part at any time. No such amendment shall cause any reduction in the amount credited to the account of any Participant. Any amendment that affects the rights, duties or responsibilities of the Trustee and Administrator shall require the Trustee’s and Administrator’s written consent. Any such amendment shall become effective as provided therein upon its execution. For the purpose of this subsection, a Plan amendment that has the effect of eliminating an optional form of benefit (as provided in Treasury regulations) shall be treated as reducing the amount credited to the account of a Participant.

(b) The Employer shall also have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. A complete discontinuance of the Employer’s contributions to the Plan shall be deemed to constitute a termination. Upon any termination (full or partial) or complete discontinuance of contributions, all amounts credited to the affected Participant’s Combined Account shall become nonforfeitable and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. Upon such termination of the Plan, the Employer, by written notice to the Trustee and Administrator, may direct either:

(i) Complete distribution of the assets in the Trust Fund to the Participants, in cash or in kind, in one “qualified total distribution” (as such term is defined in the Code) as soon as the Trustee deems it to be in the best interests of the Participants, but in no event later than two years after such termination; or,

(ii) Continuation of the Trust created by this Plan and the distribution of benefits at such time and in such manner as though the Plan had not been terminated.

In no event, however, may a distribution be made to a Participant without the Participant’s consent if the balance of the vested portion of the Participant’s Account exceeds $5,000 and an Employer or an Affiliated Employer then maintains another defined contribution plan other than an employee stock ownership plan, nor may distribution be made to a Participant of a Participant’s Salary Deferral Account upon termination of this Plan if the Employer establishes or maintains another defined contribution plan except as otherwise permitted under Code Section 401(k)(10) or the regulations promulgated thereunder.

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(c) This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other Plan and Trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation.

7.08 Exercise of Discretion. Any person with any discretionary power in the administration of the Plan shall exercise such discretion in a nondiscriminatory manner and shall discharge his duties with respect to the Plan in a manner consistent with the provisions of the Plan and with the standards of fiduciary conduct contained in Title I, Part 4, of ERISA.

7.09 Fiduciary Liability. In administering the Plan, neither the Administrator nor any person or member of a committee serving as the Administrator nor any person to whom the Administrator delegates any duty or power in connection with administering the Plan shall be liable, except in the case of his own willful misconduct, for:

(a) any act or failure to act,

(b) the payment of any amount under the Plan,

(c) any mistake of judgment made by him or on his behalf, or

(d) any omission or wrongdoing of any other member of the Administrator. No person or member of a committee serving as the Administrator shall be personally liable under any contract, agreement, bond, or other instrument made or executed by him or on his behalf as a member of a committee serving as the Administrator.

7.10 Indemnification by Employer. To the extent not compensated by insurance or otherwise, the Employer shall indemnify and hold harmless each person and each member of a committee serving as the Administrator, and each Employee of the Employer designated by the Administrator to carry out fiduciary responsibility with respect to the Plan from any and all claims, losses, damages, expenses (including counsel fees approved by the Employer) and liabilities (including any amount paid in settlement with the approval of the Employer), arising from any act or omission of such member or Employee, except where the same is judicially determined to be due to willful misconduct of such member or Employee. Anything herein to the contrary notwithstanding, no assets of the Plan may be used for any such indemnification.

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ARTICLE VIII

TRUSTEE

8.01 Basic Responsibilities Of The Trustee. The Trustee shall have the following basic responsibilities:

(a) Consistent with the “funding policy and method” determined by the Employer pursuant to Section 7.06 to invest, to manage, and to control the Plan assets subject, however, to the direction of an Investment Manager if the Employer should appoint such manager as to all or a portion of the assets of the Trust Fund.

(b) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries;

(c) To maintain records of receipts and disbursements and to furnish to the Employer and Administrator for each Fiscal Year a written annual report in accordance with Section 8.06.

(d) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf.

8.02 Investment Powers and Duties of The Trustee.

(a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by law so that at all times this Plan may be qualified.

(b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature.

(c) The Trustee may from time to time with the consent of the Employer transfer to a common, collective, or pooled trust fund maintained by any corporate Trustee hereunder, all or such part of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, or pooled trust fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The trustee may, from time to time with the consent of the Employer, withdraw from such common, collective, or pooled trust fund all or such part of the Trust Fund as the Trustee may deem advisable.

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(d) Discharge of Duties. Subject to the provisions of Section 8.12 hereof, the Trustees shall discharge their duties with respect to the Plan solely in the interests of the Participants and their Beneficiaries and:

(i) For the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses for administering the Plan;

(ii) With the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims;

(iii) By diversifying the investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and

(iv) In accordance with the documents and instruments governing the Plan insofar as such documents and instruments governing the Plan are consistent with the provisions of ERISA.

8.03 Other Powers of The Trustee. The Trustee, in addition to all powers and authorities under common law, statutory authority and other provisions of this Plan, shall have the following powers and authorities:

(a) To purchase, or to subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained;

(b) To sell, to exchange, to convey, to transfer, to grant options to purchase, or to otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;

(c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or to otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property;

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(d) To cause any securities or other property to be registered in the Trustee’s own name or in the name of one or more of the Trustee’s nominees, and to hold any investment in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund;

(e) To borrow or to raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing;

(f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon;

(g) To accept and to retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder;

(h) To make, to execute, to acknowledge, and to deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

(i) To settle, to compromise, or to submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or to defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings;

(j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;

(k) To rely upon information, data and advice which the Trustee has requested and obtained.

(l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee’s bank;

(m) To invest in Treasury Bills and other forms of United States government obligations;

(n) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan association, including those of the Employer;

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(o) To consent to or to otherwise participate in reorganizations, recapitalizations, consolidations, mergers and similar transactions with respect to any securities and to pay any assessments or charges in connection therewith.

(p) To deposit any securities in any voting trust, or with any protective or like committee, or with a trustee or with depositories designated thereby.

(q) To sell or to exercise any options, subscription rights and conversion privileges and to make any payments incidental thereto.

(r) To exercise any of the powers of an owner, with respect to any securities or other property comprising the Trust Fund. The Administrator, with the Trustee’s approval, may authorize the Trustee to act on any administrative matter or class of matters with respect to which direction or instruction to the Trustee by the Administrator is called for hereunder without specific direction or other instruction from the Administrator.

8.04 Duties of The Trustee Regarding Payments.

(a) The Trustee will make distributions from the Trust only on instructions from the Administrator. The Trustee shall make distributions from the Plan at such times and in such amounts, to or for the benefit of the person entitled thereto under the Plan, as the Administrator directs in writing. Any undistributed part of a Participant’s interest in his accounts shall be retained in the Plan until the Administrator directs its distribution. If a dispute arises as to who is entitled to or should receive any benefit or payment, the Trustee may withhold or cause to be withheld such payment until the dispute has been resolved.

(b) As directed by the Administrator, the Trustee shall make payments out of the Trust Fund. Such directions or instructions need not specify the purpose of the payments so directed and the Trustee shall not be responsible in any way respecting the purpose or propriety of such payments except as mandated by ERISA.

(c) In the event that any distribution or payment directed by the Administrator shall be mailed by the Trustee to the person specified in such direction at the latest address of such person filed with the Administrator, and shall be returned to the Trustee because such person cannot be located at such address, the Trustee shall promptly notify the Administrator of such return. Upon the expiration of sixty (60) days after such notification, such direction shall become void, and unless and until a further direction by the Administrator is received by the Trustee with respect to such distribution or payment, the Trustee shall thereafter continue to administer the Trust as if such direction had not been made by the Administrator. The Trustee shall not be obligated to search for or ascertain the whereabouts of any such person.

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8.05 Trustee’s Compensation and Expenses and Taxes.

(a) Unless the individual serving as Trustee otherwise receives full time pay from the Employer, then the Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.

(b) Indemnification. The Employer shall indemnify and hold harmless each of the Trustees against any and all claims, loss, damages, expense, including legal fees and other expenses of litigation and liability arising from any action or failure to act, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such Trustee.

8.06 Annual Report of the Trustee.

Within sixty (60) days after the later of the Anniversary Date or receipt of the Employer’s contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth:

(a) the net income, or loss, of the Trust Fund;

(b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets;

(c) the increase, or decrease, in the value of the Trust Fund;

(d) all payments and distributions made from the Trust Fund; and

(e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires.

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8.07 Audit.

(a) If an audit of the Plan’s records shall be required for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of the audit setting forth the accountant’s opinion as to whether each of the following statements, schedules or lists, or any others that are required by Section 103 of ERISA or the Secretary of Labor to be filed with the Plan’s annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently:

(i) Statement of the assets and liabilities of the Plan;

(ii) Statement of changes in net assets available to the Plan;

(iii) Statement of receipts and disbursements, a schedule of all assets held for investment purposes, a schedule of all loans or fixed income obligations in default at the close of the Plan Year;

(iv) A list of all leases in default or uncollectible during the Plan Year;

(v) The most recent annual statement of assets and liabilities of any bank common or collective trust fund in which Plan assets are invested or such information regarding separate accounts or trusts with a bank or insurance company as the Trustee and Administrator deem necessary; and

(vi) A schedule of each transaction or series of transactions involving an amount in excess of three percent (3%) of Plan assets.

All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund.

(b) If some or all of the information necessary to enable the Administrator to comply with Section 103 of ERISA is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Section 103(b) of ERISA within one hundred twenty (120) days after the end of the Plan Year or such other date as may be prescribed under regulations of the Secretary of Labor.

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8.08 Resignation, Removal and Succession of Trustee.

(a) The Trustee may resign upon sixty (60) days (or at any time by mutual agreement with the Employer) written notice to the Employer.

(b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at its last known address, a written notice of its removal.

(c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of this Plan.

(d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor.

(e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Fiscal Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Fiscal Year required under Section 8.06 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Fiscal Year. The procedures set forth in Section 8.06 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 8.06 shall have the same effect upon the statement as the Employer’s approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 8.06 and this subparagraph.

8.09 Direct Rollover From Plan.

(a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Participant’s election under this Section, a Participant may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover.

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(b) An Eligible Rollover Distribution is any distribution of all or any portion of the nonforfeitable balance of the Participant’s Combined Account to the credit of the Participant, except that an Eligible Rollover Distribution does not include (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or joint life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant’s designated beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; (iii) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); (iv) effective January 1, 2000, a hardship distribution permitted under Section 4.02(d).

(c) An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Participant’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

(d) For purposes of this Section only, a Participant includes an employee or former employee. In addition, the employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(q) of the Code, are Participants with regard to the interest of the spouse or former spouse.

(e) A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Participant.

(f) If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:

(i) The Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and

(ii) The Participant, after receiving the notice, affirmatively elects a distribution.

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8.10 Rollovers to Plan.

(a) An Employee may, with the consent of the Administrator, which shall be granted or withheld in a uniform and nondiscriminatory manner, rollover to the Plan in cash or in kind, within sixty (60) days of his receipt thereof, all or any part of the amount distributed to him within one taxable year of the Employee as a rollover amount, as defined in Section 401(a)(5), 403(a)(4) and 408(d)(3) of the Code, to the extent permitted by the Code; provided, however, that no such rollover amount may include any amounts representing the Employee’s contributions. The Administrator may require such information or documentation with respect to any such rollover contribution hereunder as it deems necessary or desirable to enable it to determine that such a rollover is permitted by the Code.

(b) Furthermore, with the consent of, and at the direction of the Administrator, which consent shall be granted or withheld in a uniform and nondiscriminatory manner, the Trustee shall accept from a trustee or custodian on behalf of any Employee the amount of cash, securities, and other property standing to his account in any plan which is qualified pursuant to Section 401(a) of the Code provided such plan was not subject to the joint and survivor annuity requirements of Code Section 401(a)(11) and 417 with respect to such Participant. The Administrator may require such information or documentation with respect to any such transfer hereunder as it deems necessary or desirable to enable it to determine that such a transfer is permitted by the Code.

(c) Any amounts deposited in this Plan pursuant to this Section shall be held in a Rollover Account that shall be established and maintained by the Administrator for the benefit of such Employee. Any amounts held in the Rollover Account shall be nonforfeitable and with the consent of the Administrator may be withdrawn from the Plan by the Employee as of any Anniversary Date, or other valuation date.

8.11 Participant Loans. The Administrator may, at the request of a Participant, and in accordance with a written participant loan program established in accordance with pertinent regulations and forming part of this Plan, direct the Trustee to make a loan to such Participant. Any such loan shall conform to the requirements of this Section.

(a) Loans shall be made available to all Participants on a reasonably equivalent basis.

(b) Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants.

(c) Loans shall bear a reasonable rate of interest.

(d) Loans shall be adequately secured. A Participant who receives a loan pursuant to this Section 8.11, shall be deemed to have pledged and assigned to the Trustee, as security for the loan, all of his right, title and interest in the Plan. The Administrator may require such additional security as he deems necessary or appropriate.

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(e) Loans shall provide for substantially level amortization of principal and interest (with payments not less frequently than quarterly) over a period that shall not exceed five (5) years. However, loans used to acquire any dwelling unit that within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the Participant may provide for repayment over a reasonable period of time.

(f) Loans may be conditioned upon the consent of the Participant to repay such loans by payroll deduction.

(g) Any loan, when added to the outstanding balance of all loans to the Participant under this Plan, or any other qualified plan maintained by the Employer, shall neither exceed the vested balance of the Participant’s Combined Account nor exceed the lesser of (i) $50,000, reduced by the highest outstanding balance of any loan outstanding during the 12 month period immediately preceding the current loan, or (ii) one-half (1/2) of the total vested value of the Participant’s Combined Account.

(h) No Participant shall have more than one loan outstanding hereunder at any time.

(i) In no event shall a loan be made in an amount less than $1,000.

(j) Loans shall be charged against the Participant’s Salary Deferral Account, Participant’s Matching Contribution Account, Participant’s Rollover Account, or the Participant’s Discretionary Contribution Account as directed by the Participant, or on a pro rata basis if no direction is provided. For purposes of making the allocations of net earnings or losses of the Trust Fund, as provided in Section 5.02(d), amounts so charged against a Participant’s account shall not share in the net earnings or losses of the Trust Fund to the extent of the loan. Repayments of principal and interest shall be credited to the applicable accounts of the Participant.

(k) [RESERVED]

(l) In no event shall any amount be charged against a Participant’s Salary Deferral Account pursuant to subsection (j) or be deemed a distribution of such account until the Participant shall have attained the age of fifty-nine and one-half (59 1/2) died, become Disabled, Retired or shall have otherwise terminated his employment with the Employer.

(m) Loan repayments will be suspended under this Plan as permitted under Code Section 414(u)(4). This subsection shall be effective as of the later of (1) the Effective Date, or (2) December 12, 1994.

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(n) If Section 6.03 permits distributions to be made in the form of an annuity, then no loan made to a Participant pursuant to this Section 8.11 may be secured with the Participant’s Combined Account unless the Participant’s spouse has irrevocably consented thereto in writing, which consent must acknowledge the effect of the loan and be witnessed by a Plan representative or Notary Public. Such spousal consent shall be obtained no earlier than the beginning of the 90-day period ending on the date on which the loan is secured with the Participant’s Combined Account. Such spousal consent shall be binding upon the consenting spouse and any subsequent spouse. A new consent shall be required if the loan is renegotiated, extended, renewed or otherwise modified.

8.12 Directed Investments. Notwithstanding the powers granted to the Trustee hereunder, the Administrator may direct the Trustee to divide the Trust Fund into two or more investment funds (hereinafter referred to as “Investment Funds”), the selection of which shall be solely the responsibility of the Administrator. If the Trustee has been so directed by the Administrator, each Participant shall have the right to direct the Trustee as to the investment of the Participant’s accounts under the Plan between or among such Investment Funds, and the Trustee shall invest each Participant’s accounts under the Plan as directed in writing by the Participant, such written direction to be in such form as the Trustee may require. Written investment directions from a Participant must be followed by the Trustee, and neither the Trustee nor any other person, including the Administrator, shall be under any duty to question any such direction of the Participant or to make any suggestions to the Participant in connection therewith. The Trustee shall comply as promptly as practicable with written directions given by a Participant hereunder. Any such direction may be of a continuing nature or otherwise and may be revoked by a Participant, as permitted under a procedure adopted by the Administrator to implement the provisions of this Section, upon written notice to the Trustee in such form as the Trustee may require. The Trustee shall not be responsible or liable for any loss or expense that may arise from or result from selection of Investment Funds by the Administrator or compliance with any investment directions from a Participant.

8.13 [RESERVED]

8.14 [RESERVED]

8.15 In-Service Distributions. A Participant who has attained the age of 59 ½ and is 100% vested in his Participant’s Combined Account, may, with the consent of the Administrator, which shall be granted or withheld in a uniform and nondiscriminatory manner, elect to withdraw all or any part of the vested portion of his Participant’s Combined Account provided the amounts to be withdrawn shall have been held in such Accounts for a period of at least two (2) years or the Participant has completed at least five (5) years of participation in the Plan.

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ARTICLE IX

TOP HEAVY

9.01 Minimum Benefits.

(a) Except as provided in subsection (b), during any Plan Year that this Plan is a Top Heavy Plan, the Employer shall contribute, and allocate to the Participant’s Discretionary Contribution Account of each Participant who was employed by the Employer on the last day of the Plan Year and who is not a Key Employee, an amount:

(i) Equal to at least 3% of the Participant’s Section 415 Compensation (as defined in Section 5.03(d)(iii)) for the Plan Year; or

(ii) If less, the contribution percentage of Compensation allocated to the Key Employee receiving the highest such contribution percentage for the Plan Year (determined in accordance with the regulations promulgated under Section 416 of the Code) under this Plan and any defined contribution plan in an Aggregation Group, except that if this Plan and a defined benefit are required to be included in an Aggregation Group and if this Plan enables such other plan to meet the requirements of Sections 401(a)(4) or 410 of the Code, then the contribution shall be provided without regard to this subsection (a)(ii).

(b) If a Participant is also a participant in a defined benefit plan maintained by the Employer, the minimum benefit shall be provided under such defined benefit plan.

(c) If a non Key Employee participates in this Plan and another defined contribution plan of the Employer, the minimum contribution required by subsection (a) may be satisfied by combining the contributions provided under such plans.

(d) A Participant’s Deferred Compensation shall not be taken into account for purposes of satisfying the requirements of subsection (a), however the Participant’s Deferred Compensation of Key Employees shall be taken into account in determining the contribution percentage of Compensation allocated to a Key Employee for purposes of Section 9.01(a)(ii).

9.02 Definitions.

(a) “Aggregation Group” shall mean

(i) Any plan maintained by the Employer which has a Key Employee as a Participant; and

(ii) Any plan which enables a plan described in subsection (a) to satisfy the requirements of Section 401(a)(4) or 410 of the Code; and

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(iii) At the election of the Administrator, any plan not described in subsections (a) and (b) if by adding such plan to the Aggregation Group, the resulting Aggregation Group, as a whole would continue to satisfy the requirements of Section 401(a)(4) and 410 of the Code.

(b) “Determination Date” shall mean the last day of the preceding Plan Year, or in the case of the first Plan Year, the last day of such Plan Year.

(c) For purposes of this Article, “Employee” shall have the meaning set forth in Section 2.09 and shall also include any former Employees and any Beneficiaries of the Employee or former employees, as determined by Section 6.05.

(d) “Key Employee” shall mean any Employee who, at any time during the Plan Year, or any of the preceding four (4) Plan Years, is:

(i) An officer of the Employer having Compensation greater than 50 percent of the dollar amount in effect under Section 415(b)(1)(A) of the Code for any such Plan Year. For this purpose, if there are more than three (3) officers of the Employer, no more than ten percent (10%) of all Employees, to a maximum of 50, shall be treated as officers.

(ii) An Employee having Compensation greater than an amount equal to the dollar limitation in effect under Section 415(c)(1)(A) of the Code for any such Plan Year provided such Employee owns one of the ten largest interests in the Employer an such interest is more than a one-half percent (.5%) interest in the Employer. For this purpose, if two Employees have the same ownership interest, the Employee having the larger Compensation for the Plan Year shall be treated as having a larger ownership interest.

(iii) An owner of at least a five percent (5%) interest in the Employer. For this purpose, “five percent owner” shall mean any person who owns more than five percent (5%) of the outstanding stock (or capital or profit interest) of the Employer or stock (or capital or profit interest) possessing more than five percent (5%) of the total combined voting power of all stock (or capital or profit interest) of the Employer.

(iv) An owner of at least a one percent (1%) interest in the Employer and the Employee has Compensation for the Plan Year greater than $150,000. For this purpose, “one percent owner” shall have the same meaning as “five percent owner” if “one percent” was substituted for “five percent.”

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In determining ownership, the constructive ownership provisions of Section 318 of the Code shall be applied by substituting “5 percent” for “50 percent” in Section 318(a)(2) of the Code and the aggregation rules set forth in Sections 414(b), 414(c), 414(m) and 414(o) of the Code shall not apply.

(e) This Plan shall be a “Top Heavy Plan” for any Plan Year, if, as of the Determination Date:

(i) The Top Heavy Ratio exceeds 6/10; or

(ii) The Plan is part of an Aggregation Group and the Top Heavy Ratio of the Aggregation Group, as a whole, exceeds 6/10.

(f) “Top Heavy Ratio” shall be a fraction, the numerator of which is the sum of (i) the aggregate value of the accounts of Key Employees in any defined contribution plan in the Aggregation Group, and (ii) the present value of accrued benefit of Key Employees in any defined benefit plan in the Aggregation Group (using the actuarial assumptions and methods stated in such defined benefit plans), and (iii) any distributions from such accounts within five (5) years of the Determination Date, and the denominator of which is a similar sum determined for all Employees. The calculation of the Top Heavy Ratio shall be made in accordance with Code Section 416 and the Regulations promulgated thereunder.

9.03 Top Heavy Vesting. During any Plan Year that this Plan is a Top Heavy Plan the following schedule shall supersede and replace the schedule set forth in Section 6.02(b):

Participant’s Completed Years of Service	Nonforfeitable Percentage
2	20%
3	40%
4	60%
5	80%
6	100%

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ARTICLE X

MISCELLANEOUS

10.01 Upon the acceptance of any benefits under this Plan, the Employee shall be bound by the terms and conditions hereof. Unless otherwise provided herein, the rights and benefits, if any, of a former Employee who is not credited with an Hour of Service subsequent to the effective date of this amendment shall be determined in accordance with the provisions of the Plan as in effect on the date of his termination of employment.

10.02 This Plan and Trust shall be interpreted and construed in accordance with the ERISA, the Code, any regulations promulgated thereunder and the laws of the State of Connecticut.

10.03 This Plan shall be for the exclusive benefit of the Participants and their Beneficiaries and, except as specifically permitted by law, or the terms of this Plan no assets of the Trust Fund shall ever revert to, or be used or enjoyed by, the Employer.

10.04 All contributions hereunder are made on the condition that this Plan and Trust initially qualify under Sections 401(a) and 501 of the Code. Provided that the application for determination for initial qualification is made by the time prescribed by law for filing the Employer’s tax return for the taxable year in which the Plan is adopted, and if the Internal Revenue Service shall determine that this Plan and Trust do not initially qualify, the Administrator, upon the written request of the Employer, shall direct the Trustee to return to the Employer the then current value of any contributions made by the Employer.

10.05 All provisions of the Plan shall be interpreted and applied in a uniform and nondiscriminatory manner. This Plan may not discriminate in favor of “highly compensated employees” as that term is defined in Section 414(q) of the Code.

10.06 Any action of the Employer that is required, or permitted, under the terms of the Plan shall be performed by its governing body or any person duly authorized by said governing body.

10.07 (a) The benefits payable under this Plan shall neither (i) be subject in any manner (except as provided in subsection (b)) to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, attachment, legal process, or the like and any attempt to do so shall be void; nor (ii) be liable for, or subject to, the debts, contracts, liabilities, torts, or the like of any person.

(b) The rights and benefits under this Plan shall be subject to the rights afforded to any “alternate payee” under a “qualified domestic relations order” as those terms are defined in Section 414(p) of the Code. Furthermore, a distribution to an “alternate payee” shall be permitted if such distribution is authorized by a “qualified domestic relations order”, even if the affected participant has not separate from service and has not reached the “earliest retirement age” under the Plan.

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10.08 In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or parent of such minor Beneficiary and such a payment shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.

10.09 In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the expiration of five (5) years after it shall become payable, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be reallocated in the same manner as a Forfeiture pursuant to this Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored.

10.10 This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan.

10.11 In the event any claim, suit, or proceeding is brought regarding the Plan and Trust established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney’s fees, and other expenses pertaining thereto incurred by them for which they shall have become liable.

10.12 Every Fiduciary, except a bank or an insurance company, unless exempted by law shall be bonded by an appropriate corporate surety company in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.

10.13 Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.

10.14 Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Internal Revenue Code. This subsection shall be effective as of the later of (1) the Effective Date, or (2) December 12, 1994.

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ARTICLE XI

SAFE HARBOR 401(K) PROVISIONS

11.01 Purpose. The purpose of this Article XI is to add provisions to the Plan, effective April 1, 2000, that are intended to satisfy the requirements of Code Sections 401(k)(12) and 401(m)(11).

11.02 Contribution.

(a) Prior to the beginning of each Plan Year, the Employer may elect, in the manner set forth in Section 11.03(b), to make a contribution pursuant to subsections (b) or (c) for such Plan Year.

(b) Employer 3% Safe Harbor Approach. The Employer may elect to make a non-elective contribution to the Plan equal to 3% of a Participant’s Compensation. Such contribution shall be allocated to the Participant’s Safe Harbor 3% Account, which shall be included as part of the Participant’s Combined Account.

(c) Employer Safe Harbor Match Approaches.

(i) Basic Match. The Employer may elect to make a matching contribution to the Plan equal to 100% of a Participant’s Salary Deferral Contribution up to 3% of such Participant’s Compensation, plus 50% of a Participant’s Salary Deferral Contribution between 3% and 5% of such Participant’s Compensation. (“Basic Safe Harbor Match”).

(ii) Enhanced Match. Alternatively, the Employer may elect to make a matching contribution to the Plan in an amount that is at least equal to the matching contribution that would be made pursuant to subclause (i) provided that the rate of matching contribution may not increase as a Participant’s rate of Participant’s Salary Deferral Contribution increases. (“Enhanced Safe Harbor Match”).

(iii) Allocation. Such contribution shall be allocated to the Participant’s Safe Harbor Matching Account, which shall be included as part of the Participant’s Combined Account.

(iv) Payroll by Payroll Basis. The matching contributions under this Article XI shall be determined on a payroll by payroll basis.

(d) No Year of Service or Last Day Required. The contributions provided by this Article XI shall be made without regard to whether a Participant has completed a Year of Service during the Plan Year, or whether the Participant is employed on the last day of the Plan Year.

(e) Deposit. The contributions required by this Article XI shall be deposited by the Employer within 12 months after the close of the Plan Year.

55

11.03 Election and Notice.

(a) The provisions of this Article XI shall only be applicable if the conditions of subsections (b) and (c) are satisfied.

(b) Election.

(i) Method. Each Plan Year the Employer may elect to make a contribution to the Plan pursuant to Section 11.02 (b) or (c). Such election shall be made by resolution of its governing body. Such resolution shall set forth the applicable contribution approach to be used for such Plan Year.

(ii) Timing. Except as provided by subclause (iii), the Employer must make the election under subclause (i) prior to the beginning of the Plan Year in sufficient time to allow for the distribution of the Notice as set forth in subsection (c).

(iii) Plan Year End Election Approach. Notwithstanding the foregoing, pursuant to IRS Notice 2000-3, the Employer shall be entitled to use a Plan Year End Election Approach. Under this approach, the Employer may wait until 30 days prior to the end of each Plan Year to elect to make a contribution pursuant to Section 11.02(b). If the Employer adopts the Plan Year End Election Approach, the Employer must provide the Notice as set forth in subsection (c)(i), and the Supplemental Notice as set forth in subsection (c)(iii). The provisions of this subclause (iii) shall only apply in Plan Years that do not use the Prior Year ADP Testing Method as set forth in Sections 4.03(a)(iv) and 4.03(f) or the Prior Year ACP Testing Method as set forth in Sections 4.05(a)(iv) and 4.05(g).

(c) Notice.

(i) Content. The Employer shall provide each Participant with a written notice (Notice) that accurately and comprehensively informs the Participant of his rights and obligations under the Plan. The Notice shall include a description of the applicable Safe Harbor Contribution, a description of the levels of matching contributions (if any), the potential (if any) for a discretionary matching contribution, and the conditions under which such contributions are made, the name of the plan to which the contributions will be made if other than this Plan, the type and amount of compensation that may be deferred, how to make the election to make Salary Deferral Contributions, the time requirements for filing such an election and the withdrawal and vesting provisions applicable to the Plan contributions. In the event the Employer uses the Plan Year Election Approach set forth in Section 11.03(b)(iii), then the notice provided by this subpart shall be modified to provide that the Employer may decide, during the Plan Year, to make a contribution pursuant to Section 11.02(b), and that the Supplemental Notice provided by subclause (iii) will be provided to Participants if such contribution will be made by the Employer.

56

(ii) Timing. The Notice required by this Section shall be provided to each Participant at least 30 days, but not more than 90 days before the beginning of each applicable Plan Year.

(iii) Supplemental Notice. If the Employer uses the Plan Year End Election Approach as provided by subsection (b)(iii) above, then the Employer must also provide a Supplemental Notice to all Participants within 30 days prior to the Plan Year End. The Supplemental Notice must inform the Participants that the Employer will make an Employer Safe Harbor 3% Contribution for the Plan Year.

(d) Participant Election. Upon receipt of the Notice, a Participant shall have a reasonable period (at least 30 days) to make or change his election pursuant to Section 4.02 (a) for the forthcoming Plan Year.

11.04 Application of Other Provisions.

(a) Employer Safe Harbor 3% Contribution. In the event the Employer has made a contribution pursuant to Section 11.02 (b) and the notice required by Section 11.03 (b) has been timely provided, then the Plan shall be treated as automatically satisfying the requirements of:

(i) Section 4.03 and 9.01.

(ii) Section 4.05 provided that any Employer Matching Contributions permitted by the Plan shall not be made with respect to any employee after-tax contributions (if permitted by Section 8.14) or Salary Deferral Contributions that exceed 6% of a Participant’s Compensation; and the rate of Employer Matching Contributions may not increase as the rate of employee after-tax contribution (if permitted by Section 8.14) or Participant’s Salary Deferral Contribution increases and the rate of Employer Matching Contribution that would apply with respect to any Highly Compensated Participant shall not exceed the rate of Employer Matching Contribution that would apply with respect to any non-Highly Compensated Participant who contributed at the same rate of Participant’s Salary Deferral; and in no event shall the Employer Matching Contributions provided by Section 4.04 exceed 4% of a Participant’s Compensation.

(b) Employer Safe Harbor Match Contribution. In the event the Employer has made a contribution pursuant to Section 11.02 (c) and the notice required by Section 11.03 (b) has been timely provided, then the Plan shall be treated as automatically satisfying the requirements of:

(i) Section 4.03 provided that the rate of any Matching Contributions under the Plan that would apply with respect to any Highly Compensated Participant is not greater than the rate of any Matching Contributions under the Plan that would apply to any non-Highly Compensated Participant who has contributed at the same rate of Participant’s Salary Deferral Contributions.

57

(ii) Section 4.05 provided that:

(A) if the Employer has made a Basic Match pursuant to Section 11.02 (c) (i), no other Matching Contributions shall be made under the Plan; or

(B) if the Employer has made an Enhanced Match pursuant to Section 11.02 (c)(ii), such contribution shall only be made with respect to Participant’s Salary Deferral Contributions which do not exceed 6% of such Participant’s Compensation, and no other Matching Contributions shall be made under the Plan; and

(C) further provided that in no event shall the Employer Matching Contributions provided by Section 4.04 exceed 4% of a Participant’s Compensation.

(iii) Section 9.01 shall not be treated as automatically satisfied.

(c) Distribution Restrictions. Except as provided in subsection (d), contributions made pursuant to this Article XI shall be subject to the restrictions imposed by Section 4.02 (d).

(d) Hardship Distributions Prohibited. The provisions of Section 4.02 (d) permitting a distribution for reasons of hardship shall not apply to any contributions made pursuant to this Article XI.

(e) Vesting. A Participant’s Employer Safe Harbor 3% Contribution Account and Employer Safe Harbor Matching Account shall always be nonforfeitable.

(f) After Tax Contribution. Notwithstanding any other provision of this Article XI, if the Plan permits after-tax contributions pursuant to Section 8.14, then such contributions must still satisfy the requirements of Section 4.05 using the current year method.

(g) Current Year Method. In the event that the Employer has made an election to make a contribution pursuant to this Article XI for any Plan Year, then the Plan shall not be permitted to elect to use the Prior Year ADP Testing Method as set forth in Sections 4.03(a)(iv) and 4.03(f) or the Prior Year ACP Testing Method as set forth in Sections 4.05(a)(iv) and 4.05(g) for that Plan Year.

11.05 Revocation of Election By Employer.

(a) Revocation. Notwithstanding the foregoing, the Employer may elect to prospectively eliminate or suspend the Employer Safe Harbor 3% Contribution and Employer Safe Harbor Matching Contributions during the Plan Year provided a supplemental notice is provided to Participants explaining the consequences of the elimination or suspension of these contributions and informing the Participants of the effective date of the elimination or suspension of such contributions, and that the Participant shall have a reasonable time and opportunity to change their elections that were made under Section 4.02(a).

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(b) Effective Date of Revocation. The elimination or suspension provided by this Section may not be effective prior to the later of (i) 30 days after Participants receive the supplemental notice required by subsection (a); or (2) the date of the election to provided by subsection (a).

(c) Participant’s Right to Change Election. In the event a Participant receives a notice pursuant to this Section, the Participant shall have a reasonable time and opportunity to modify their elections that were made pursuant to Section 4.02(a).

(d) The Plan shall not be permitted to elect to use the Prior Year ADP Testing Method as set forth in Sections 4.03(a)(iv) and 4.03(f) or the Prior Year ACP Testing Method as set forth in Sections 4.05(a)(iv) and 4.05(g) for that Plan Year.

This Plan and Trust has been executed this              day of                     , 2002 at Willimantic, Connecticut.

WITNESSES AS TO ALL	EMPLOYER SAVINGS INSTITUTE
	By
	Title:
	TRUSTEES SAVINGS INSTITUTE TRUST DEPARTMENT
	By
	Title:

59

SAVINGS INSTITUTE PROFIT SHARING

AND 401(K) SAVINGS PLAN

EGTRRA “GOOD FAITH” AMENDMENTS

1.1 Adoption and effective date of amendment. This amendment of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first plan year beginning after December 31, 2001.

1.2 Supersession of inconsistent provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.

INCREASE IN COMPENSATION LIMIT (Section 2.06)

2.1 The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B). Annual Compensation means Compensation during the Plan Year or such other consecutive 12-month period over which Compensation is otherwise determined under the Plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year.

ELECTIVE DEFERRALS — CONTRIBUTION LIMITATION (Section 4.02(a))

3.1 Section 4.02(a) shall be amended to read as follows: “4.02(a) Election. Subject to the provisions of Section 4.03, a Participant may elect, by salary reduction agreement provided by the Administrator, to have the Employer contribute to the Plan, on the Participant’s behalf, a portion of his Compensation, which amount shall be deemed the Participant’s Deferred Compensation. No Participant shall be permitted to have elective deferrals made under this Plan, or any other qualified plan maintained by the Employer during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect for such taxable year, except to the extent permitted under Section 4.1 of this amendment and Code Section 414(v), if applicable.”

CATCH-UP CONTRIBUTIONS (Section 4.02)

4.1 Any Participant who is eligible to make elective deferrals under Section 4.02(a) of this Plan and who has attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of Code Section 414(v). Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such catch-up contributions. Contributions under this provision shall be allocated to the Participant’s Salary Deferral Account.

SUSPENSION PERIOD FOLLOWING

HARDSHIP DISTRIBUTION (Section 4.02(d))

5.1 A participant who receives a distribution of elective deferrals after December 31, 2001, on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the Employer for 6 months after receipt of the distribution. A Participant who receives a distribution of elective deferrals in calendar year 2001 on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the Employer for a period of 6 months after receipt of the distribution or until January 1, 2002, if later.

REPEAL OF MULTIPLE USE TEST (Section 4.06)

6.1 Effective for Plan Years beginning after December 31, 2001, Section 4.06 of the Plan shall be deleted and the multiple use test described in Treasury Regulation section 1.401(m)-2 shall not apply.

LIMITATIONS ON CONTRIBUTIONS (Section 5.03(a))

7.1 Effective date. This section shall be effective for Limitation Years beginning after December 31, 2001.

7.2 Maximum annual addition. Except to the extent permitted under Section 4.1 of this amendment and Code Section 414(v), if applicable, Section 5.03(a) shall be amended to read as follows:

“(a) Basic Limitation. Notwithstanding Section 5.02, and except as provided by subsection (b), the amount of “Annual Additions” that may be contributed or allocated to a Participant’s Combined Account during any Limitation Year shall not exceed the lesser of:

(i) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or

(ii) One hundred percent (100%) of the Participant’s Compensation, within the meaning of Code Section 415(c)(3), for such Limitation Year.

The compensation limit referred to in (ii) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Section 401(h) or Code Section 419A(f)(2)) which is otherwise treated as an Annual Addition.”

VESTING SCHEDULE (Section 6.02(b))

8.1 Effective for Plan Years beginning after December 31, 2001, and only with respect to Participants who have been credited with an Hour of Service under the Plan in any Plan Year beginning after December 31, 2001, Section 6.02(b) of the Plan shall be amended to read as follows:

(b) A Participant’s Salary Deferral Account shall always be nonforfeitable. Except as otherwise required by Section 9.03, a Participant’s Matching Contribution Account and Participant’s Discretionary Contribution Account shall become nonforfeitable in accordance with the following schedule:

Participant’s Completed Years of Service	Nonforfeitable Percentage
2	25%
3	50%
4	75%
5	100%

ROLLOVERS DISREGARDED IN INVOLUNTARY CASH-OUTS (Article VI)

9.1 Applicability and effective date. This section shall be effective with respect to any distributions occurring after December 31, 2001.

9.2 Rollovers disregarded in determining value of account balance for involuntary distributions. For purposes of Article VI of the Plan, the determination of whether the Participant’s Combined Account exceeds $5,000, shall be determined without regard to that portion of the Participant’s Combined Account that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).

DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS (Section 8.09)

10.1 Effective date. This section shall apply to distributions made after December 31, 2001.

10.2 Modification of definition of Eligible Retirement Plan. For purposes of the direct rollover provisions in Section 8.09 of the Plan, an Eligible Retirement Plan shall also mean an annuity contract described in Code Section 403(b) Code and an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving

spouse, or to a spouse or former spouse who is the Alternate Payee under a qualified domestic relation order, as defined in Code Section 414(p).

10.3 Modification of definition of Eligible Rollover Distribution to exclude hardship distributions. For purposes of the direct rollover provisions in Section 8.09 of the Plan, any amount that is distributed on account of hardship shall not be an Eligible Rollover Distribution and the distributee may not elect to have any portion of such a distribution paid directly to an Eligible Retirement Plan.

10.4 Modification of definition of Eligible Rollover Distribution to include after-tax employee contributions. For purposes of the direct rollover provisions in Section 8.09 of the Plan, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Code Section 408(a) or (b), or to a qualified defined contribution plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

11.1 [RESERVED]

PLAN LOANS FOR OWNER-EMPLOYEES AND SHAREHOLDER-EMPLOYEES (Section 8.11)

12.1 Effective for plan loans made after December 31, 2001, Section 8.11(k), and any other Plan provisions prohibiting loans to any Owner-Employee or Shareholder-Employee shall be deleted, and shall cease to apply.

MODIFICATION OF TOP-HEAVY RULES (Article IX)

13.1 Effective date. This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Code Section 416(g) for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code Section 416(c) for such years. This section amends Article IX of the Plan.

13.2 Determination of top-heavy status.

13.2.1 Key Employee. Key Employee means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having annual Compensation greater than $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual Compensation of more than $150,000. For this purpose, annual Compensation means Compensation within the meaning of Code Section 415(c)(3). The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder.

13.2.2 Determination of present values and amounts. This section 2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Employees as of the Determination Date.

13.2.2.1 Distributions during year ending on the Determination Date. The present values of accrued benefits and the amounts of account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Code Section 416(g)(2) during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than separation from service, death, or Disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

13.2.2.2 Employees not performing services during year ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.

13.3. Minimum benefits.

13.3.1 Matching contributions. Employer Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as Matching Contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m).

14.1 Safe-harbor 401(k) Provisions (Article XI). The top-heavy requirements of Code Section 416 and Section 9.01 of the Plan shall not apply in any year beginning after December 31, 2001, in which the plan consists solely of a cash or deferred arrangement which meets the requirements of Code Section 401(k)(12) and matching contributions with respect to which the requirements of Code Section 401(m)(11) are met.

DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT

15.1 Effective date. This section shall apply for distributions and severances from employment occurring after December 31, 2001, regardless of when the severance from employment occurred.

15.2 New distributable event. A Participant’s Salary Deferral Account, qualified nonelective contributions, qualified matching contributions, and earnings attributable to these contributions shall be distributed on account of the participant’s severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed.

All other provisions of the Plan are confirmed and ratified.

IN WITNESS WHEREOF, this Amendment has been executed this      day of ,                      2002, at                                 , Connecticut.

WITNESSES AS TO ALL	EMPLOYER AND ADMINISTRATOR
	By
		Title:
	TRUSTEES

SECOND AMENDMENT TO

SAVINGS INSTITUTE

PROFIT SHARING AND 401(K) SAVINGS PLAN

WHEREAS, pursuant to a resolution of its governing body, SAVINGS INSTITUTE (“the Company”) has adopted this Amendment this 17^th day of March, 2004;

WHEREAS, the Company adopted, effective January 1, 1990, the above entitled plan (“the Plan”);

WHEREAS, the Company amended, effective January 1, 1997, the Plan and restated it in its entirety for GUST;

WHEREAS, the Company desires to amend the Plan;

NOW THEREFORE, effective April 1, 2004, the Plan is further amended as follows:

1. ARTICLE II, Section 2.29(a) is deleted and shall be shown as [RESERVED].

2. ARTICLE III, Section 3.01(a) is amended to read as follows:

(a) Except as provided in subsection (b) and (c), every Employee who has completed 90 days of service with the Employer (without regard to the number of Hours of Service performed) and attained age twenty-one (21) shall become a Participant in this Plan on the applicable Entry Date.

3. ARTICLE III, Section 3.02(a) is amended to read as follows:

(a) Except as provided in subsection (b), “Entry Date” shall mean the Effective Date, and the first day of the calendar month coinciding with or next following the completion of the requirements of Section 3.01(a).

4. ARTICLE IV, Section 4.02(b) is amended to read as follows:

(b) Payroll Authorization. Any Participant making the election provided in subsection (a), must authorize, by said salary reduction agreement, the Employer to deduct from the Participant’s pay an amount equal to his Participant’s Deferred Compensation. The Administrator shall adopt a policy that shall set forth how a Participant may change his election under subsection (a) and the amount of his payroll deduction under this subsection (b). A Participant shall be allowed to modify such election as of the first day of any calendar quarter and may revoke such election at any time during the Plan Year upon 30 days written notice to the Administrator.

5. ARTICLE V, Section 5.02(c) is amended to read as follows:

(c) Employer Discretionary Contributions. Employer Discretionary Contributions made pursuant to Section 4.07 shall first be applied to restore the Forfeited portions of a Participant’s Combined Account pursuant to Section 6.02(c) and any remaining Employer Discretionary Contribution shall be allocated by the Administrator, as of each Anniversary Date, to the Participant’s Discretionary Contribution Account of each Participant who is credited with a Year of Service during the Plan Year in the same proportion that each such Participant’s Compensation bears to the total Compensation of all such Participants.

All other provisions of the Plan are confirmed and ratified.

WITNESSES	EMPLOYER & ADMINISTRATOR SAVINGS INSTITUTE
	By
		Title:

EX-10.4

Exhibit 10.4

FORM OF

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this             th day of                     , 2004, by and among SI FINANCIAL GROUP, INC., a federally chartered corporation (the “Company”) SAVINGS INSTITUTE BANK AND TRUST COMPANY, a federally-chartered savings bank (the “Bank”), and                      (“Executive”).

W I T N E S S E T H

WHEREAS, Executive serves in a position of substantial responsibility;

WHEREAS, the Company and the Bank wish to assure the services of Executive for the period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employ of the Bank on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as the                      of the Company and the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of                      or which, consistent with those offices, are delegated to him by                     . During the term of this Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary of the Company and the Bank and in such capacity will carry out such duties and responsibilities reasonably appropriate to that office.

2. Location and Facilities. The Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Company and the Bank, or at such other site or sites customary for such offices.

3. Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the                      anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. Commencing on the first year anniversary date of this Agreement, and continuing on each anniversary thereafter, the disinterested members of the boards of directors of the Bank and the Company may extend the Agreement an additional year such that the remaining term of the Agreement shall be                      (            ) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Bank (the “Board”) will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Bank shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended.

4. Base Compensation.

a. The Company and the Bank agree to pay the Executive during the term of this Agreement a base salary at the rate of $             per year, payable in accordance with customary payroll practices.

b. The Board shall review annually the rate of the Executive’s base salary based upon factors they deem relevant, and may maintain or increase his salary, provided that no such action shall reduce the rate of salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, the Executive shall continue to receive salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. The Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Company and the Bank may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. The Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Company and the Bank for the benefit of their employees.

7. Vacation and Leave.

a. The Executive shall be entitled to vacations and other leave in accordance with policy for senior executives, or otherwise as approved by the Board.

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b. In addition to paid vacations and other leave, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

8. Expense Payments and Reimbursements. The Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Company and the Bank.

9. Automobile Allowance. During the term of this Agreement, the Executive shall be entitled to an automobile allowance on terms no less favorable that those in effect immediately prior to the execution of this Agreement. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Company or the Bank from time to time, and the Company or the Bank shall annually include on Executive’s Form W-2 any amount of income attributable to Executive’s personal use of such automobile.

10. Loyalty and Confidentiality.

a. During the term of this Agreement Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company and the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Company and the Bank.

b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Company and the Bank, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Company and the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other

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information concerning the Company and the Bank to which he may be exposed during the course of his employment. The Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Company and the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to the Executive through the last day of the calendar month in which his death occurred.

b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Company and the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank will pay Executive, as Disability pay, an amount equal to one hundred percent (100%) of Executive’s bi-weekly rate of base salary in effect as of the date of his

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termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Bank in the same capacity as he was employed prior to his termination for Disability; (B) his death; or (C) upon attainment of age 65. Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Executive under any other disability programs sponsored by the Company and the Bank. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Company and the Bank, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Company and the Bank.

d. Termination for Cause.

i. The Board may, by written notice to the Executive in the form and manner specified in this paragraph, immediately terminate his employment at any time, for “Cause”. The Executive shall have no right to receive compensation or other benefits for any period after termination for Cause except for vested benefits. Termination for “Cause” shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Company and the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

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ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Company and the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of such Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive to be heard before the Board with counsel), of finding that in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Board, in which case Executive shall receive only his compensation, vested rights and employee benefits up to the date of his termination.

f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e) the Board, may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days following an event constituting “Good Reason” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, receive the benefits he would have received during the remaining term of the Agreement under any retirement programs (whether tax-qualified or non-qualified) in which Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination) and continue to participate in any benefit plans of the Company and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Company and the Bank during such period. In the event that the Company and the Bank are unable to provide such coverage by reason of Executive no longer being an employee, the Company and the

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Bank shall provide Executive with comparable coverage on an individual policy basis.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Company and the Bank materially breach any of their respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Company or the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of the Executive to be nominated or renominated to the Board;

(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans, programs or arrangements, or reduction of Executive’s participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) liquidation or dissolution of the Company or the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of the Executive’s benefits less than one or more benefit plans maintained by the Company and the Bank as part of a good faith, overall reduction or elimination of such plans or plans or benefits thereunder applicably to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall

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not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Company and the Bank or any company that controls either of them under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Company and the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, the Executive shall not serve as an officer, director or employee of any bank holding company, bank, savings Bank, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank from any office within fifty (50) miles from the main office or any branch of the Bank and shall not interfere with the relationship of the Company and the Bank and any of its employees, agents, or representatives.

12. Termination in Connection with a Change in Control.

For purposes of this Agreement, a Change in Control means any of the following events:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation.

(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

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(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

Notwithstanding anything in this Agreement to the contrary, in no event shall the conversion of the Bank from mutual to stock form (including without limitation, through the formation of a stock holding company) or the reorganization of the Bank into the mutual holding company form of organization constitute a “Change in Control” for purposes of this Agreement.

a. Termination. If within the period ending              years after a Change in Control, (i) the Company and the Bank shall terminate the Executive’s employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Company and the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to                      times the Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation shall include base salary and any other taxable income, including but not limited to amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f) are not otherwise affected by this Section 12. Also, in such event, the Executive shall, for

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a              (            ) month period following his termination of employment, receive the benefits he would have received over such period under any retirement programs (whether tax-qualified or nonqualified) in which the Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding the Change in Control) and continue to participate in any benefit plans of the Company and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of during such period. In the event that the Company and the Bank are unable to provide such coverage by reason of the Executive no longer being an employee, the Company and the Bank shall provide the Executive with comparable coverage on an individual policy.

b. The provisions of Section 12 and Sections 14 through 25, including the defined terms used is such sections, shall continue in effect until the later of the expiration of this Agreement or two years following a Change in Control.

13. Indemnification and Liability Insurance.

a. Indemnification. The Company and the Bank agree to indemnify the Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Company, the Bank or any of their subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorney’s fees and the cost of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Executive in his capacity as an Executive or director of the Company and the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of the Executive is required under this Section, the Company and the Bank shall provide the Executive (and his heirs, executors, and administrators) with coverage under a directors’ and Executives’ liability policy at the expense of the Company and the

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Bank, at least equivalent to such coverage provided to directors and senior Executives of the Company and the Bank.

14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Company and the Bank shall reimburse the Executive for all out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by the Executive in connection with successful enforcement by the Executive of the obligations of the Company and the Bank to the Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Company and the Bank take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Company and the Bank following an initial failure of the Company and the Bank to pay such money or take such action promptly after written demand therefor from the Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Limitation of Benefits under Certain Circumstances. If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which the Executive has the right to receive from the Company and the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Company and the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits to be made pursuant to Section 12 shall be based upon the opinion of the Company and the Bank’s independent public accountants and paid for by the Company and the Bank. In the event that the Company, the Bank and/or the Executive do not agree with the opinion of such counsel, (i) the Company and the Bank shall pay to the Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by the Executive, which such opinion indicates there is a high probability do not result in any of such payments and benefits being non-deductible to the Company and the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Company and the Bank may request, and the Executive shall have the right to demand that they request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Company and the Bank, but in no event later than thirty (30) days from the date of the opinion of counsel referred to above, and shall be subject to the Executive’s approval prior to filing, which shall not be unreasonably withheld. The Company, the Bank and the Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12 below zero.

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16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Company and the Bank shall be entitled to injunctive relief restraining the Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Company and the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company and the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company and the Bank.

b. Since the Company and the Bank are contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company and the Bank.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Company and/or the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Company and the Bank.

20. No Plan Created by this Agreement. Executive, the Company and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

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22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Connecticut shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove.

b. If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1); the Bank’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

c. If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

d. If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

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e. All obligations of the Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

f. Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. §1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.

Attest:	SI FINANCIAL GROUP, INC.
	By:
Attest:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
	By:
Witness:	EXECUTIVE

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EX-10.5

Exhibit 10.5

FORM OF

SAVINGS INSTITUTE BANK AND TRUST COMPANY

CHANGE IN CONTROL AGREEMENT

This AGREEMENT (“Agreement”) is hereby entered into as of                     , 2004, by and between Savings Institute Bank and Trust Company (the “Bank”), a federally-chartered savings bank with its principal offices at 803 Main Street, Willimantic, Connecticut 06226,                      (“Executive”) and SI Financial Group, Inc. (the “Company”), a federally-chartered corporation and the holding company of the Bank, as guarantor.

WHEREAS, the Bank recognizes the importance of Executive to the Bank’s operations and wishes to protect his position with the Bank in the event of a change in control of the Bank or the Company for the period provided for in this Agreement; and

WHEREAS, Executive and the Board of Directors of the Bank desire to enter into an agreement setting forth the terms and conditions of payments due to Executive in the event of a change in control and the related rights and obligations of each of the parties.

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is hereby agreed as follows:

1. Term of Agreement.

(a) The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the                     anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 1.

(b) Commencing on the first anniversary of the Effective Date and continuing each anniversary date thereafter, the Board of Directors of the Bank (the “Board of Directors”) may extend the term of this Agreement for an additional one (1) year period beyond the then effective expiration date, provided that Executive shall not have given at least sixty (60) days’ written notice of his desire that the term not be extended.

(c) Notwithstanding anything in this Section to the contrary, this Agreement shall terminate if Executive or the Bank terminates Executive’s employment prior to a Change in Control.

2. Change in Control.

(a) Upon the occurrence of a Change in Control of the Bank or the Company followed at any time during the term of this Agreement by the termination of Executive’s employment in accordance with the terms of this Agreement, other than for Just Cause, as defined in Section 2(c) of this Agreement, the provisions of Section 3 of this Agreement

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shall apply. Upon the occurrence of a Change in Control, Executive shall have the right to elect to voluntarily terminate his employment at any time during the term of this Agreement following an event constituting “Good Reason.”

“Good Reason” means, unless Executive has consented in writing thereto, the occurrence following a Change in Control, of any of the following:

(i) the assignment to Executive of any duties materially inconsistent with Executive’s position, including any material change in status, title, authority, duties or responsibilities or any other action that results in a material diminution in such status, title, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Bank or Executive’s employer reasonably promptly after receipt of notice thereof given by the Executive;

(ii) a reduction by the Bank or Executive’s employer of the Executive’s base salary in effect immediately prior to the Change in Control;

(iii) the relocation of the Executive’s office to a location more than                      miles from its location as of the date of this Agreement;

(iv) the taking of any action by the Bank or any of its affiliates or successors that would materially adversely affect the Executive’s overall compensation and benefits package, unless such changes to the compensation and benefits package are made on a non-discriminatory basis to all employees; or

(v) the failure of the Bank or the affiliate of the Bank by which Executive is employed, or any affiliate that directly or indirectly owns or controls any affiliate by which Executive is employed, to obtain the assumption in writing of the Bank’s obligation to perform this Agreement by any successor to all or substantially all of the assets of the Bank or such affiliate within thirty (30) days after a reorganization, merger, consolidation, sale or other disposition of assets of the Bank or such affiliate.

(b) For purposes of this Agreement, a “Change in Control” shall be deemed to occur on the earliest of any of the following events:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation.

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(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

Notwithstanding anything in this Agreement to the contrary, in no event shall the conversion of SI Bancorp, MHC from mutual to stock form (including without limitation, through the formation of a stock holding company) constitute a “Change in Control” for purposes of this Agreement.

(c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon termination for Just Cause. The term “Just Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), final cease and desist order, or any material breach of any provision of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Just Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors, Executive was guilty of conduct justifying termination for Just Cause and specifying the particulars thereof in detail. Executive shall not have the right to receive compensation or other benefits for any period after termination for Just Cause. During the period beginning on the date of the Notice of Termination for Just Cause pursuant to Section 4 hereof through the Date of Termination, stock options granted to Executive under any stock option plan shall not be exercisable nor shall any unvested stock awards granted to Executive under any stock benefit plan of the Bank, the Company or any

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subsidiary or affiliate thereof, vest. At the Date of Termination, such stock options and any such unvested stock awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such termination for Just Cause.

3. Termination Benefits.

(a) If Executive’s employment is voluntarily (in accordance with Section 2(a) of this Agreement) or involuntarily terminated within                      years of a Change in Control, Executive shall receive:

(i) a lump sum cash payment equal to                      (            ) times the Executive’s “base amount,” within the meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). Such payment shall be made not later than five (5) days following Executive’s termination of employment under this Section 3.

(ii) Continued benefit coverage under all Bank health and welfare plans which Executive participated in as of the date of the Change in Control (collectively, the “Employee Benefit Plans”) for a period of                      (            ) months following Executive’s termination of employment. Said coverage shall be provided under the same terms and conditions in effect on the date of Executive’s termination of employment. Solely for purposes of benefits continuation under the Employee Benefit Plans, Executive shall be deemed to be an active employee. To the extent that benefits required under this Section 3(a) cannot be provided under the terms of any Employee Benefit Plan, the Bank shall enter into alternative arrangements that will provide Executive with comparable benefits.

(b) Notwithstanding the preceding provisions of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the “Termination Benefits”) constitute an “excess parachute payment” under Section 280G of the Code or any successor thereto, and to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive’s “base amount,” as determined in accordance with said Section 280G. The allocation of the reduction required hereby among the Termination Benefits provided by this Section 3 shall be determined by Executive.

4. Notice of Termination.

(a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

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(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a termination for Just Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given).

5. Source of Payments.

All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

6. Effect on Prior Agreements and Existing Benefit Plans.

This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. Nothing in this Agreement shall confer upon Executive the right to continue in the employ of the Bank or shall impose on the Bank any obligation to employ or retain Executive in its employ for any period.

7. No Attachment.

(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void and of no effect.

(b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and their respective successors and assigns.

8. Modification and Waiver.

(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.

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9. Severability.

If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

10. Headings for Reference Only.

The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. In addition, references herein to the masculine shall apply to both the masculine and the feminine.

11. Governing Law.

Except to the extent preempted by federal law, the validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Connecticut, without regard to principles of conflicts of law of that State.

12. Arbitration.

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Bank, in accordance with the rules of the American Arbitration Bank then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

13. Payment of Legal Fees.

All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, only if Executive is successful pursuant to a legal judgment, arbitration or settlement.

14. Indemnification.

The Company or the Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company or the Bank

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(whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs, attorneys’ fees and the cost of reasonable settlements.

15. Successors to the Bank and the Company.

The Bank and the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and the Company would be required to perform if no such succession or assignment had taken place.

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SIGNATURES

IN WITNESS WHEREOF, Savings Institute Bank and Trust Company and SI Financial Group, Inc. have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, on the              day of                     , 200            .

ATTEST:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
	By:
Corporate Secretary	For the Entire Board of Directors
ATTEST:	SI FINANCIAL GROUP, INC. (Guarantor)
	By:
Corporate Secretary	For the Entire Board of Directors
[SEAL]
WITNESS:	EXECUTIVE
Corporate Secretary

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EX-10.6

Exhibit 10.6

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE SEVERANCE COMPENSATION PLAN

PLAN PURPOSE

The purpose of the Savings Institute Bank and Trust Company Employee Severance Compensation Plan (the “Plan”) is to assure the services of employees of the Bank (and affiliates of the Bank that adopt the Plan) in the event of a Change in Control (capitalized terms are defined in Section 2.1). The benefits contemplated by the Plan recognize the value to the Bank of the services and contributions of the employees of the Bank and the effect upon the Bank resulting from the uncertainties of continued employment, reduced employee benefits, management changes and relocations that may arise in the event of a Change in Control. The Board of Directors of the Bank believes that the Plan will also aid the Bank in attracting and retaining highly qualified individuals who are essential to its success and the Plan’s assurance of fair treatment of the Bank’s employees will reduce the distractions and other adverse effects on employees’ performance in the event of a Change in Control.

ARTICLE I

ESTABLISHMENT OF PLAN

1.1 Establishment of Plan

As of the Effective Date of the Plan, the Bank hereby establishes an employee severance compensation plan to be known as the “Savings Institute Bank and Trust Company Employee Severance Compensation Plan.”

1.2 Applicability of Plan

The benefits provided by this Plan shall be available to all employees of the Bank, who, at or after the Effective Date, meet the eligibility requirements of Article III.

1.3 Contractual Right to Benefits

This Plan establishes and vests in each Participant a contractual right to the benefits to which each Participant is entitled hereunder, enforceable by the Participant against the Employer.

ARTICLE II

DEFINITIONS AND CONSTRUCTION

2.1 Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below.

(a) “Annual Compensation” of a Participant means and includes all cash compensation paid or accrued by the Employer with respect to the Participant’s service during the 12-consecutive month period ending on the last business day of the month preceding the date the Participant’s employment terminates.

(b) “Bank” means Savings Institute Bank and Trust Company or any successor as provided for in Article VII hereof.

(c) “Change in Control” means any one of the following events occur:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation.

(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

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Notwithstanding anything in this Plan to the contrary, in no event shall the conversion of the Bank from mutual to stock form (including without limitation, through the formation of a stock holding company) or the reorganization of the Bank into the mutual holding company form of organization constitute a “Change in Control” for purposes of this Plan.

(d) “Company” means SI Financial Group, Inc., a federally chartered corporation.

(e) “Disability” means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Board that it is either not possible to determine if or when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of said employees lifetime.

(f) “Effective Date” means                     , 2004.

(g) “Employer” means (i) the Bank, (ii) the Company, or (iii) any subsidiary of the Bank or the Company that adopts the Plan.

(h) “ERISA” means Employee Retirement Income Security Act of 1974, as amended.

(i) “Participant” means an employee of an employer who meets the eligibility requirements of Article III.

(j) “Termination for Cause” shall include termination because of a Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or violation of any final cease-and desist order, or material breach of any provision of the plan. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.

(k) “Leave of Absence” and “LOA” mean (i) the taking of an authorized or approved leave of absence under the provisions of the federal Family and Medical Leave Act (“FMLA”), (ii) any state law providing qualitatively similar benefits as the FMLA, or (iii) a leave of absence authorized under the policies of the Bank. “Leave of Absence” and “LOA” are defined in this paragraph for the exclusive purposes of this Plan.

(l) “Plan” means this Savings Institute Bank and Trust Employee Severance Compensation Plan.

(m) “Year of Service” means each consecutive 12 month period, beginning with an

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employee’s date of hire and running without a termination of employment in which an employee is credited with at least one hour of service in each of the 12 calendar months in such period. The taking of an LOA shall not eliminate a period of time from being a Year of Service if such period of time otherwise qualifies as such. Further if a particular 12 month period of time would not otherwise qualify under the Plan as a Year of Service because one hour of service is not credited during each month of such period due to the taking of a LOA, then such period of time shall be deemed to be a Year of Service for all other sections of this Plan.

2.2 Applicable Law

The laws of the State of Connecticut shall be the controlling law in all matters relating to the Plan to the extent not preempted by Federal law.

2.3 Severability

If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

ARTICLE III

ELIGIBILITY

3.1 Participation

All employees of the Employer who have completed at least one (1) Year of Service with the Employer at the time of any termination pursuant to Section 4.2 of this Plan are eligible to participate in the Plan. Notwithstanding the foregoing, persons who have entered into and continue to be covered by an employment agreement with the Employer shall not be entitled to participate in this Plan.

3.2 Duration of Participation

A Participant shall cease to be a Participant in the Plan when the Participant ceases to be an employee of an Employer, unless such Participant is entitled to benefits under the Plan. A Participant entitled to benefits under the Plan shall remain a Participant in this Plan until he has received full payment of his Plan benefits.

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ARTICLE IV

BENEFITS

4.1 Right to Benefits

A Participant shall be entitled to receive from his respective Employer a severance benefit in the amount provided in Section 4.3 of the Plan if there has been a Change in Control of the Bank or the Company and if, within              (        ) months thereafter, the Participant’s employment by an Employer shall terminate for any reason specified in Section 4.2 of the Plan, whether the termination of employment is voluntary or involuntary. A Participant shall not be entitled to a benefit if termination occurs by reason of death, voluntary retirement, voluntary termination other than for reasons specified in Section 4.2 of the Plan, Disability, or as a result of Termination for Cause.

4.2 Reasons for Termination

Following a Change in Control, a Participant shall be entitled to a benefit if employment by an Employer is terminated, voluntarily or involuntarily, for any one or more of the following reasons:

(a) The Employer reduces the Participant’s base salary or rate of compensation as in effect immediately prior to the Change in Control.

(b) The Employer materially changes the Participant’s function, duties or responsibilities which would cause the Participant’s position to be one of lesser responsibility, importance or scope with the Employer than immediately prior to the change in control.

(c) The Employer requires the Participant to change the location of the Participant’s job or office, so that such Participant will be based at a location more than              miles from the location of the Participant’s job or office immediately prior to the Change in Control provided that such new location is not closer to the Participant’s home.

(d) The Employer materially reduces the benefits and perquisites available to the Participant immediately prior to the Change in Control, provided, however, that a material reduction in benefits and perquisites generally provided to all Employees of the Employer on a nondiscriminatory basis would not trigger a payment pursuant to this Plan.

(e) A successor to the Bank fails or refuses to assume the Employer’s obligations under this Plan, as required by Article VII.

(f) The Bank or any successor to the Bank breaches any other provisions of this Plan.

(g) The Employer terminates the employment of a Participant at or after a Change in Control other than for Termination for Cause.

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4.3 Amount of Benefit

(a) Each Participant entitled to a benefit under this Plan shall receive from the Bank, a lump sum cash payment equal to one-twelfth of his Annual Compensation for each Year of Service up to a maximum of              (        ) months of service.

(b) Notwithstanding the provisions of paragraph (a) above, if a benefit to a Participant who is a “Disqualified Individual” shall be in an amount which includes an “Excess Parachute Payment,” the benefit hereunder to that Participant shall be reduced to the maximum amount which does not include an Excess Parachute Payment. The terms “Disqualified Individual” and “Excess Parachute Payment” shall have the same meanings as under Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision thereto.

Participants shall not be required to mitigate damages on the amount of the benefit by seeking other employment or otherwise, nor shall the amount of such benefit be reduced by any compensation earned by a Participant as a result of employment after termination of employment hereunder.

4.4 Time of Payment of Benefit

The benefit to which a Participant is entitled shall be paid to the Participant by the Employer or the successor to the Employer, in cash and in full, not later than twenty (20) business days after the termination of the Participant’s employment. If any Participant should die after termination of the employment but before all amounts have been paid, such unpaid amounts shall be paid to the Participant’s named beneficiary, if living, otherwise to the personal representative on behalf of or for the benefit of the Participant’s estate.

ARTICLE V

OTHER RIGHTS AND BENEFITS NOT AFFECTED

5.1 Other Benefits

Neither the provisions of this Plan nor the benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Participant’s rights as an Employee of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock ownership or any employment agreement or other plan or arrangement.

5.2 Employment Status

This Plan does not constitute a contract of employment or impose on the Participant or the Participant’s Employer any obligation to retain the Participant as an Employee, to change the status of the Participant’s employment, or to change the Employer’s policies regarding termination of employment.

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ARTICLE VI

PARTICIPATING EMPLOYERS

6.1 Upon approval by the Board of Directors of the Bank, this Plan may be adopted by any “Subsidiary” or “Parent” of the Bank. Upon such adoption, the Subsidiary or Parent shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that Subsidiary or Parent. The term “Subsidiary” means any corporation in which the Bank, directly or indirectly, holds a majority of the voting power of its outstanding shares of capital stock. The term “Parent” means any corporation which holds a majority of the voting power of the Bank’s outstanding shares of capital stock.

ARTICLE VII

SUCCESSOR TO THE BANK

7.1 The Employer shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Employer, expressly and unconditionally to assume and agree to perform the Employer’s obligations under this plan, in the same manner and to the same extent that the Employer would be required to perform if no such succession or assignment had taken place.

ARTICLE VIII

DURATION, AMENDMENT AND TERMINATION

8.1 Duration

If a Change in Control has not occurred, this Plan shall expire ten (10) years from the Effective Date, unless sooner terminated as provided in Section 8.2 of the Plan, or unless extended for an additional period or periods by resolution adopted by the Board of Directors of the Bank.

Notwithstanding the foregoing, if a Change in Control occurs this Plan shall continue in full force and effect, and shall not terminate or expire until such date as all Participants who become entitled to benefits hereunder shall have received such benefits in full.

8.2 Amendment and Termination

The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Board of Directors of the Bank, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever.

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8.3 Form of Amendment

The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Bank, certifying that the amendment or termination has been approved by the Board of Directors. A proper amendment of the Plan automatically shall effect a corresponding amendment to each Participant’s rights hereunder. A proper termination of the Plan automatically shall effect a termination of all Participants’ rights and benefits hereunder.

8.4 No Attachment

(a) Except as required by law, no right to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect such action shall be null, void, and of no effect.

(b) This Plan shall be binding upon, and inure to the benefit of, Employee and the Bank and their respective successors and assigns.

ARTICLE IX

LEGAL FEES AND EXPENSES

9.1 All reasonable legal fees and other expenses paid or incurred by a party hereto pursuant to any dispute or question of interpretation relating to this Plan shall be paid or reimbursed by the prevailing party in any legal judgment, arbitration or settlement.

ARTICLE X

REQUIRED PROVISIONS

10.1 The Employer may terminate an Employee’s employment at any time, but any termination by the Employer, other than Termination for Cause, shall not prejudice the Employee’s right to compensation or other benefits under this Plan. Employee shall not have the right to receive compensation or other benefits for any period after Termination for Cause as otherwise provided hereunder.

10.2 If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1), the Bank’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

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10.3 If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1), all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

10.5 All obligations under the Plan shall be terminated, except to the extent determined that continuation of the Plan is necessary for the continued operation of the Bank:

(a) by the Director or his designee, at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the Federal Deposit Insurance Act; or

(b) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested, however, shall not be affected by such action.

10.6 Any payments made to a Participant pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and any regulations promulgated thereunder.

ARTICLE XI

ADMINISTRATIVE PROVISIONS

11.1 Plan Administrator The administrator of the Plan shall be under the supervision of the Board of Directors of the Bank or a Committee appointed by the Board of Directors of the Bank (the “Board”). It shall be a principal duty of the Board to see that the Plan is carried out in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. The Board will have full power to administer the Plan in all of its details subject, however, to the requirements of ERISA if the Plan is subject to such requirements. For this purpose, the Board’s powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) to interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) to compute the amount of benefits

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that will be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid; (e) to authorize the payment of benefits; (f) to appoint such agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan; and (g) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be by written instrument and in accordance with Section 405 of ERISA if applicable.

11.2 Named fiduciary The Board will be a “named fiduciary” for purposes of Section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan, and will be responsible for complying with all, if any, of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.

11.3 Claims and review procedures

(a) Claims procedure If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Board. If any such claim is wholly or partially denied, the Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Board (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim.

(b) Review procedure Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his duly authorized representative) may (i) file a written request with the Board for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Board. The Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Board (or within 120 days, if special circumstances require an extension of time for processing the requests such as an election by the Board to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). If the decision on review is not made within such period, the claim will be considered denied.

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11.4 Nondiscriminatory exercise of authority Whenever, in the administration of the Plan, any discretionary action by the Board is required, the Board shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment.

11.5 Indemnification of Board The Bank will indemnify and defend to the fullest extent permitted by law any person serving on the Board or as a member of a committee designated as Board (including any person who formerly served as a Board member or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys fees and amounts paid in settlement of any claims approved by the Bank) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.

11.6 Benefits solely from general assets The benefits provided hereunder will be paid solely from the general assets of the Employer. Nothing herein will be construed to require the Employer or the Board to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person shall have any claim against, right to, or security or other interest in, any fund, account or asset of the Employer from which any payment of benefits under the Plan may be made.

Having been adopted by its Board of Directors on                     , 2004, this Plan is executed by its duly authorized officer this              day of                     , 2004.

Attest	SAVINGS INSTITUTE BANK AND TRUST COMPANY
	By:
	Rheo A. Brouillard
	President and Chief Executive Officer

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EX-10.7

Exhibit 10.7

SAVINGS INSTITUTE

DIRECTOR RETIREMENT PLAN

1. PURPOSE. The purpose of The Savings Institute Bank Director Retirement Plan (the “Plan”) is to provide retirement benefits to Directors who have contributed to the growth and success of Savings Institute (the “Bank”) a savings bank headquartered in Willimantic, Connecticut.

2. DEFINITIONS.

1.3 Definitions. For purposes of the Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise.

“Administrator” of the Plan shall mean the Board of Directors of the Bank.

“Cause” means termination of employment because of the Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar infractions) or a final cease-and-desist order issued on such Participant.

“Compensation” shall mean the total Board fees and retainer payable to a Director.

“Disability” means the Director’s ability to perform substantially all normal duties of a Director, as determined by the Bank’s Board of Directors, in its sole discretion. As a condition to any benefits, the Bank may require the Director to submit to such physical or mental evaluations and tests, as the Board of Directors deems appropriate.

“Effective Date” of the Plan is May 21, 2003.

“Eligible Director” means a Director of the Bank who is identified in Exhibit A as a Participant or who is designated by the Administrator as a Participant after the Effective Date of the Plan.

“Participant” means an Eligible Director who has been selected by the Administrator to participate in the Plan or who is identified in Exhibit A.

“Retirement Date” means the first day of the month following the month in which the Director attains age seventy-two (72).

“Early Retirement” a director can retire prior to age 72 provided he/she has completed at least fifteen (15) years of service as a director.

“Years of Service” means each twelve consecutive month period following the date of an Eligible Director’s election to the Board of Directors of the Bank; provided that such Director remained in Continuous service for such period on a full-time basis during such period.

3. ADMINISTRATION. This Plan shall be administered by the Board of Directors of the Bank, who shall have full authority to interpret the Plan and make all factual determinations necessary therefor. No member of the Board of Directors shall be liable for any act done or determination made in good faith. The construction and interpretation of any provision of the Plan by the Board of Directors, and a determination by the Board of Directors of the amount of any Participant’s benefit under the Plan, shall be final and conclusive.

4. REMUNERATION. A Participant shall receive an annual benefit under the Plan equal to 70% of the average Compensation received by the Participant for service as a director of the Bank during the three calendar years preceding the date on which the Participant terminated his services. Such amount shall be payable in monthly installments beginning with the first month of the Participant’s termination of service and ending on the earlier of: (1) the 120^th month following commencement of such monthly payments; or (2) the date on which the Participant attains age 82.

5. BENEFITS. A Participant who retires at the Retirement Date shall be paid his/her vested annual retirement benefit in equal monthly installments, commencing on the first business day of the month following his Retirement Date, and continuing until the month he/she attains age 82. A Participant who elects Early Retirement shall be paid an amount equal to his/her accrued liability balance as of the Early Retirement date in equal monthly installments, commencing on the first business day of the month following the month of his/her Early Retirement and continuing until the earlier of (i) the 120^th month following commencement of such payments or (ii) age 82. Notwithstanding anything herein to the contrary, no benefit shall be payable under this Plan to a Participant whose service as a Director of the Bank is terminated for Cause.

6. DEATH OF A PARTICIPANT. If a Participant dies after his Retirement Date, all remaining benefits payable hereunder shall be paid to such Participant’s beneficiaries, heirs or assigns. If a Participant dies prior to his Retirement Date, the benefit payable to his beneficiaries, heirs, or assigns shall be equal to the value of the accrued liability as of the date of the Participant’s death.

7. UNFUNDED ARRANGEMENT. This Plan shall be an unfunded arrangement, and shall not relate to any specific funds of the Bank. Payments of benefits due under the Plan shall be made from the general assets of the Bank, and a Participant shall have only the rights of an unsecured creditor of the Bank with respect thereto. Notwithstanding the foregoing, the Bank shall have the right in its sole discretion to provide for the funding of payments required to be made hereunder through a trust or otherwise.

8. AMENDMENT. The Board of Directors may amend, modify, suspend or terminate this Plan at any time; provided, however, that any amendment, modification, suspension or termination shall not affect the rights of Participants to benefits which have accrued prior to the date of amendment.

9. NON-ALIENATION. No Participant shall have the power to transfer, assign, anticipate, mortgage or otherwise encumber any rights or any amounts payable hereunder; nor

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shall any such rights or payments be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.

10. MERGER_OR_ACQUISITION. In the event of any merger, consolidation or acquisition where the Bank or its parent holding company, SI Bancorp, Inc., is not the surviving entity or resulting corporation, or upon transfer of all or substantially all of the assets of the Bank, this Agreement shall continue and be in frill force and effect and shall be binding upon such surviving entity, resulting corporation, or transferee.

11. GOVERNING_LAW. Except to the extent preempted by federal law, this Plan shall be governed by the laws of the State of Connecticut, USA, without reference to conflicts of law principles.

12. EFFECTIVE_DATE. May 21, 2003.

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IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed this Agreement.

DIRECTOR:	BANK:
	Savings Institute
	By:
	Title:

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EXHIBIT A

The following directors are Participants in the Plan

Robert C. Cushman, Sr.

Roger Engle

Donna M. Evan

Robert O. Gillard

Henry P. Hinckley

Everett A. Watson

Steven Townsend

EX-10.8

Exhibit 10.8

FORM OF

SAVINGS INSTITUTE BANK AND TRUST COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Form of

Savings Institute Bank and Trust Company

Supplemental Executive Retirement Plan

Table of Contents

Article I – Introduction	1
Article II – Definitions	2
Article III – Eligibility and Participation	5
Article IV – Benefits	6
Article V – Accounts	8
Article VI – Supplemental Benefit Payments	9
Article VII – Claims Procedures	10
Article VIII – Amendment and Termination	12
Article IX – General Provisions	13

Article I

Introduction

Section 1.01 Purpose, Design and Intent.

(a) The purpose of the Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan (the “Plan”) is to assist Savings Institute Bank and Trust Company (the “Bank”) and its affiliates in retaining the services of key employees until their retirement, to induce such employees to use their best efforts to enhance the business of the Bank and its affiliates, and to provide certain supplemental retirement benefits to such employees.

(b) The Plan, in relevant part, is intended to constitute an unfunded “excess benefit plan” as defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended. In this respect, the Plan is specifically designed to provide certain key employees with retirement benefits that would have been provided under various tax-qualified retirement plans sponsored by the Bank but for the applicable limitations placed on benefits and contributions under such plans by various provisions of the Internal Revenue Code of 1986, as amended.

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Article II

Definitions

Section 2.01 Definitions. In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or a beneficiary of a Participant, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:

(a) “Affiliate” means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code.

(b) “Applicable Limitations” means one or more of the following, as applicable:

(i) the maximum limitations on annual additions to a tax-qualified defined contribution plan under Section 415(c) of the Code;

(ii) the maximum limitation on the annual amount of compensation that may, under Section 401(a)(17) of the Code, be taken into account in determining contributions to and benefits under tax-qualified plans; and

(iii) the maximum limitations, under Sections 401(k), 401(m), or 402(g) of the Code, on pre-tax contributions that may be made to a qualified defined contribution plan.

(c) “Bank” means Savings Institute Bank and Trust Company, and its successors.

(d) “Board of Directors” means the Board of Directors of the Bank.

(e) “Change in Control” means the earliest occurrence of one of the following events:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation.

(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a

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fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

(f) “Code” means the Internal Revenue Code of 1986, as amended.

(g) “Committee” means the person(s) designated by the Board of Directors, pursuant to Section 9.02 of the Plan, to administer the Plan.

(h) “Common Stock” means the common stock of the Company.

(i) “Company” means SI Financial Group, Inc. and its successors.

(j) “Eligible Individual” means any Employee who participates in the ESOP or the Savings Plan, as the case may be, and whom the Board of Directors determines is one of a “select group of management or highly compensated employees,” as such phrase is used for purposes of Sections 101, 201, and 301 of ERISA.

(k) “Employee” means any person employed by the Bank or an Affiliate.

(l) “Employer” means the Bank or Affiliate that employs the Employee.

(m) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(n) “ESOP” means the Savings Institute Bank and Trust Company Employee Stock Ownership Plan, as amended from time to time.

(o) “ESOP Acquisition Loan” means a loan or other extension of credit incurred by the trustee of the ESOP in connection with the purchase of Common Stock on behalf of the ESOP.

(p) “ESOP Valuation Date” means any day as of which the investment experience of the trust fund of the ESOP is determined and individuals’ accounts under the ESOP are adjusted accordingly.

(q) “Effective Date” means January 1, 2004.

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(r) “Participant” means an Eligible Employee who is entitled to benefits under the Plan.

(s) “Plan” means this Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan.

(t) “Savings Plan” means the Savings Institute Bank and Trust Company Profit Sharing and 401(k) Savings Plan, as amended from time to time.

(u) “Supplemental ESOP Account” means an account established by an Employer, pursuant to Section 5.01 of the Plan, with respect to a Participant’s Supplemental ESOP Benefit.

(v) “Supplemental ESOP Benefit” means the benefit credited to a Participant pursuant to Section 4.01 of the Plan.

(w) “Supplemental Savings Benefit” means the benefit credited to a Participant pursuant to Section 4.03 of the Plan.

(x) “Supplemental Savings Account” means an account established by an Employer, pursuant to Section 5.03 of the Plan, with respect to a Participant’s Supplemental Savings Benefit.

(y) “Supplemental Stock Ownership Account” means an account established by an Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant’s Supplemental Stock Ownership Benefit.

(z) “Supplemental Stock Ownership Benefit” means the benefit credited to a Participant pursuant to Section 4.02 of the Plan.

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Article III

Eligibility and Participation

Section 3.01 Eligibility and Participation.

(a) Each Eligible Employee may participate in the Plan. An Eligible Employee shall become a Participant in the Plan upon designation as such by the Board of Directors. An Eligible Employee whom the Board of Directors designates as a Participant in the Plan shall commence participation as of the date established by the Board of Directors. The Board of Directors shall establish an Eligible Employee’s date of participation at the same time it designates the Eligible Employee as a Participant in the Plan.

(b) The Board of Directors may, at any time, designate an Eligible Employee as a Participant for any or all supplemental benefits provided for under Article IV of the Plan.

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Article IV

Benefits

Section 4.01 Supplemental ESOP Benefit.

As of the last day of each plan year of the ESOP, the Employer shall credit the Participant’s Supplemental ESOP Account with a Supplemental ESOP Benefit equal to the excess of (a) over (b), where:

(a) Equals the annual contributions made by the Employer and/or the number of shares of Common Stock released for allocation in connection with the repayment of an ESOP Acquisition Loan that would otherwise be allocated to the accounts of the Participant under the ESOP for the applicable plan year, if the provisions of the ESOP were administered without regard to any of the Applicable Limitations; and

(b) Equals the annual contributions made by the Employer and/or the number of shares of common stock released for allocation in connection with the repayment of an ESOP Acquisition Loan that are actually allocated to the accounts of the Participant under the provisions of the ESOP for that particular plan year, after giving effect to any reduction of such allocation required by any of the Applicable Limitations.

Section 4.02 Supplemental Stock Ownership Benefit.

(a) Upon a Change in Control, the Employer shall credit to the Participant’s Supplemental Stock Ownership Account a Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of which is multiplied by (iii), where:

(i) Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP Acquisition Loans) that would have been allocated or credited for the benefit of the Participant under the ESOP and/or this Plan, as the case may be, had the Participant continued in the employ of the Employer through the first ESOP Valuation Date following the last scheduled payment of principal and interest on all ESOP Acquisition Loans outstanding at the time of the Change in Control; and

(ii) Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP Acquisition Loans) and allocated for the benefit of the Participant under the ESOP and/or this Plan, as the case may be, as of the first ESOP Valuation Date following the Change in Control; and

(iii) Equals the fair market value of the Common Stock immediately preceding the Change in Control.

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(b) For purposes of clause (i) of subsection (a) of this Section 4.02, the total number of shares of Common Stock shall be determined by multiplying the sum of (i) and (ii) by (iii), where:

(i) equals the average of the total shares of Common Stock acquired with the proceeds of an ESOP Acquisition Loan and allocated for the benefit of the Participant under the ESOP as of the three most recent ESOP Valuation Dates preceding the Change in Control (or lesser number if the Participant has not participated in the ESOP for three full years);

(ii) equals the average number of shares of Common Stock credited to the Participant’s Supplemental ESOP Account for the three most recent plan years of the ESOP (such that the three most recent plan years coincide with the three most recent ESOP Valuation Dates referred to in (i) above); and

(iii) equals the original number of scheduled annual payments on the ESOP Acquisition Loans.

Section 4.03 Supplemental Savings Benefit.

A Participant’s Supplemental Savings Benefit under the Plan shall be equal to the excess of (a) over (b), where:

(a) is the sum of the matching contributions and other contributions of the Employer that would otherwise be allocated to an account of the Participant under the Savings Plan for a particular year, if the provisions of the Savings Plan were administered without regard to any of the Applicable Limitations; and

(b) is the sum of the matching contributions and other contributions of the Employer that are actually allocated on account of the Participant under the provisions of the Savings Plan for that particular year, after giving effect to any reduction of such allocation required by any of the Applicable Limitations.

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Article V

Accounts

Section 5.01 Supplemental ESOP Benefit Account.

For each Participant who is credited with a benefit pursuant to Section 4.01 of the Plan, the Employer shall establish, as a memorandum account on its books, a Supplemental ESOP Account. Each year, the Committee shall credit to the Participant’s Supplemental ESOP Account the amount of benefits determined under Section 4.01 of the Plan for that year. The Committee shall credit the account with an amount equal to the appropriate number of shares of Common Stock or other medium of contribution that would have otherwise been made to the Participant’s accounts under the ESOP but for the limitations imposed by the Code. Shares of Common Stock shall be valued under this Plan in the same manner as under the ESOP. Cash contributions credited to a Participant’s Supplemental ESOP Account shall be credited annually with interest at a rate equal to the combined weighted return provided to the Participant’s non-stock accounts under the ESOP.

Section 5.02 Supplemental Stock Ownership Account.

The Employer shall establish, as a memorandum account on its books, a Supplemental Stock Ownership Account. Upon a Change in Control, the Committee shall credit to the Participant’s Supplemental Stock Ownership Account the amount of benefits determined under Section 4.02 of the Plan. The Committee shall credit the account with an amount equal to the appropriate number of shares of Common Stock or other medium of contribution that would have otherwise been made to the Participant’s accounts under the ESOP. Shares of Common Stock shall be valued under this Plan in the same manner as under the ESOP. Cash contributions credited to a Participant’s Supplemental Stock Ownership Account shall be credited annually with interest at a rate equal to the combined weighted return provided to the Participant’s non-stock accounts under the ESOP.

Section 5.03 Supplemental Savings Account.

The Employer shall establish a memorandum account, the “Supplemental Savings Account” for each Participant on its books, and each year the Committee will credit the amount of contributions determined under Section 4.03 of the Plan. Contributions credited to a Participant’s Supplemental Savings Account shall be credited monthly with interest at a rate equal to the combined weighted return provided to the Participant’s account(s) under the Savings Plan.

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Article VI

Supplemental Benefit Payments

Section 6.01 Payment of Supplemental ESOP Benefit.

(a) A Participant’s Supplemental ESOP Benefit shall be paid to the Participant or, in the event of the Participant’s death, to his beneficiary, in the same form, time and medium (i.e., cash and/or shares of Common Stock) as his benefits are paid under the ESOP.

(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP Benefit credited to him under this Plan in the same percentage as he has to benefits allocated to him under the ESOP at the time the benefits become distributable to him under the ESOP.

Section 6.02 Payment of Supplemental Stock Ownership Benefit.

(a) A Participant’s Supplemental Stock Ownership Benefit shall be paid to the Participant or, in the event of the Participant’s death, to his beneficiary, in the same form, time and medium (i.e., cash and/or shares of Common Stock) as his benefits are paid under the ESOP.

(b) A Participant shall always have a fully non-forfeitable right to the Supplemental Stock Ownership Benefit credited to him under this Plan.

Section 6.03 Payment of Supplemental Savings Benefit.

(a) A Participant’s Supplemental Savings Benefit shall be paid to the Participant or, in the event of the Participant’s death, to his beneficiary, in the same form and at the same time as his benefits are paid under the Savings Plan.

(b) A Participant shall have a non-forfeitable right to his Supplemental Savings Benefit under this Plan in the same percentage as he has to his matching contributions under the Savings Plan at the time the benefits become distributable to him under the Savings Plan.

Section 6.04 Alternative Payment of Benefits.

Notwithstanding the other provisions of this Article VI, a Participant may, with prior written consent of the Committee and upon such terms and conditions as the Committee may impose, request that the Supplemental ESOP Benefit and/or the Supplemental Stock Ownership Benefit and/or the Supplemental Savings Benefit to which he is entitled be paid commencing at a different time, over a different period, in a different form, or to different persons, than the benefit to which he or his beneficiary may be entitled under the ESOP or the Savings Plan.

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Article VII

Claims Procedures

Section 7.01 Claims Reviewer.

For purposes of handling claims with respect to this Plan, the “Claims Reviewer” shall be the Committee, unless the Committee designates another person or group of persons as Claims Reviewer.

Section 7.02 Claims Procedure.

(a) An initial claim for benefits under the Plan must be made by the Participant or his beneficiary or beneficiaries in accordance with the terms of this Section 7.02.

(b) Not later than ninety (90) days after receipt of such a claim, the Claims Reviewer will render a written decision on the claim to the claimant, unless special circumstances require the extension of such 90-day period. If such extension is necessary, the Claims Reviewer shall provide the Participant or the Participant’s beneficiary or beneficiaries with written notification of such extension before the expiration of the initial 90-day period. Such notice shall specify the reason or reasons for the extension and the date by which a final decision can be expected. In no event shall such extension exceed a period of ninety (90) days from the end of the initial 90-day period.

(c) In the event the Claims Reviewer denies the claim of a Participant or any beneficiary in whole or in part, the Claims Reviewer’s written notification shall specify, in a manner calculated to be understood by the claimant, the reason for the denial; a reference to the Plan or other document or form that is the basis for the denial; a description of any additional material or information necessary for the claimant to perfect the claim; an explanation as to why such information or material is necessary; and an explanation of the applicable claims procedure.

(d) Should the claim be denied in whole or in part and should the claimant be dissatisfied with the Claims Reviewer’s disposition of the claimant’s claim, the claimant may have a full and fair review of the claim by the Committee upon written request submitted by the claimant or the claimant’s duly authorized representative and received by the Committee within sixty (60) days after the claimant receives written notification that the claimant’s claim has been denied. In connection with such review, the claimant or the claimant’s duly authorized representative shall be entitled to review pertinent documents and submit the claimant’s views as to the issues, in writing. The Committee shall act to deny or accept the claim within sixty (60) days after receipt of the claimant’s written request for review unless special circumstances require the extension of such 60-day period. If such extension is necessary, the Committee shall provide the claimant with written notification of such extension before the expiration of such initial 60-day period. In all events, the Committee shall act to deny or accept the claim within 120 days of the receipt of the claimant’s written request for review. The action of the Committee shall be in the form

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of a written notice to the claimant and its contents shall include all of the requirements for action on the original claim.

(e) In no event may a claimant commence legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Article VII.

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Article VIII

Amendment and Termination

Section 8.01 Amendment of the Plan.

The Bank may from time to time and at any time amend the Plan; provided, however, that such amendment may not adversely affect the rights of any Participant or beneficiary with respect to any benefit under the Plan to which the Participant or beneficiary may have previously become entitled prior to the effective date of such amendment without the consent of the Participant or beneficiary. The Committee shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes); provided, however, that such amendments must subsequently be ratified by the Board of Directors.

Section 8.02 Termination of the Plan.

The Bank may at any time terminate the Plan; provided, however, that such termination may not adversely affect the rights of any Participant or beneficiary with respect to any benefit under the Plan to which the Participant or beneficiary may have previously become entitled prior to the effective date of such termination without the consent of the Participant or beneficiary. Any amounts credited to the supplemental accounts of any Participant shall remain subject to the provisions of the Plan and no distribution of benefits shall be accelerated because of termination of the Plan.

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Article IX

General Provisions

Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future.

The right of a Participant or any beneficiary to receive a distribution under this Plan shall be an unsecured claim against the general assets of the Bank or its Affiliates, and neither a Participant, nor his designated beneficiary or beneficiaries, shall have any rights in or against any amount credited to any account under this Plan or any other assets of the Bank or an Affiliate. The Plan at all times shall be considered entirely unfunded both for tax purposes and for purposes of Title I of ERISA. Any funds invested hereunder shall continue for all purposes to be part of the general assets of the Bank or an Affiliate and available to its general creditors in the event of bankruptcy or insolvency. Accounts under this Plan and any benefits which may be payable pursuant to this Plan are not subject in any manner to anticipation, sale, alienation, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of a Participant or a Participant’s beneficiary. The Plan constitutes a mere promise by the Bank or Affiliate to make benefit payments in the future. No interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such Participant or beneficiary, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.

Section 9.02 Committee as Plan Administrator.

(a) The Plan shall be administered by the Committee designated by the Board of Directors of the Bank.

(b) The Committee shall have the authority, duty and power to interpret and construe the provisions of the Plan as it deems appropriate. The Committee shall have the duty and responsibility of maintaining records, making the requisite calculations and disbursing the payments hereunder. In addition, the Committee shall have the authority and power to delegate any of its administrative duties to employees of the Bank or an Affiliate, as they may deem appropriate. The Committee shall be entitled to rely on all tables, valuations, certificates, opinions, data and reports furnished by any actuary, accountant, controller, counsel or other person employed or retained by the Bank with respect to the Plan. The interpretations, determinations, regulations and calculations of the Committee shall be final and binding on all persons and parties concerned.

Section 9.03 Expenses.

Expenses of administration of the Plan shall be paid by the Bank or an Affiliate.

Section 9.04 Statements.

The Committee shall furnish individual annual statements of accrued benefits to each Participant, or current beneficiary, in such form as determined by the Committee or as required by law.

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Section 9.05 Rights of Participants and Beneficiaries.

(a) The sole rights of a Participant or beneficiary under this Plan shall be to have this Plan administered according to its provisions and to receive whatever benefits he or she may be entitled to hereunder.

(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in any trust which may be established in connection with the Plan or assets of the Bank or an Affiliate will be sufficient to pay any benefit hereunder.

(c) The adoption and maintenance of this Plan shall not be construed as creating any contract of employment or service between the Bank or an Affiliate and any Participant or other individual. The Plan shall not affect the right of the Bank or an Affiliate to deal with any Participants in employment or service respects, including their hiring, discharge, compensation, and other conditions of employment or service.

Section 9.06 Incompetent Individuals.

The Committee may, from time to time, establish rules and procedures which it determines to be necessary for the proper administration of the Plan and the benefits payable to a Participant or beneficiary in the event that such Participant or beneficiary is declared incompetent and a conservator or other person is appointed and legally charged with that Participant’s or beneficiary’s care. Except as otherwise provided for herein, when the Committee determines that such Participant or beneficiary is unable to manage his financial affairs, the Committee may pay such Participant’s or beneficiary’s benefits to such conservator, person legally charged with such Participant’s or beneficiary’s care, or institution then contributing toward or providing for the care and maintenance of such Participant or beneficiary. Any such payment shall constitute a complete discharge of any liability of the Bank or an Affiliate and the Plan for such Participant or beneficiary.

Section 9.07 Sale, Merger or Consolidation of the Bank.

The Plan may be continued after a sale of assets of the Bank, or a merger or consolidation of the Bank into or with another corporation or entity only if, and to the extent that, the transferee, purchaser or successor entity agrees to continue the Plan. Additionally, upon a merger, consolidation or other change in control any amounts credited to Participant’s deferral accounts shall be placed in a grantor trust to the extent not already in such a trust. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall be terminated subject to the provisions of Section 8.02 of the Plan. Any legal fees incurred by a Participant in determining benefits to which such Participant is entitled under the Plan following a sale, merger, or consolidation of the Bank or an Affiliate of which the Participant is an Employee or, if applicable, a member of the Board of Directors, shall be paid by the resulting or succeeding entity.

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Section 9.08 Location of Participants.

Each Participant shall keep the Bank informed of his current address and the current address of his designated beneficiary or beneficiaries. The Bank shall not be obligated to search for any person. If such person is not located within three (3) years after the date on which payment of the Participant’s benefits payable under this Plan may first be made, payment may be made as though the Participant or his beneficiary had died at the end of such three-year period.

Section 9.09 Liability of the Bank and its Affiliates.

Notwithstanding any provision herein to the contrary, neither the Bank nor any individual acting as an employee or agent of the Bank shall be liable to any Participant, former Participant, beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of the Bank or any such employee or agent of the Bank.

Section 9.10 Governing Law.

All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and, to the extent not preempted by such laws, by the laws of the State of Connecticut.

Having been adopted by its Board of Directors, this Plan is executed by its duly authorized officer this              day of                     , 2004.

	SAVINGS INSTITUTE BANK AND TRUST COMPANY
Attest:
		By:
Corporate Secretary		For the Entire Board of Directors

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EX-10.9

Exhibit 10.9

SAVINGS INSTITUTE

GROUP TERM REPLACEMENT PLAN

Effective July 8, 2003, the Savings Institute Group Term Replacement Plan (the “Plan”) is established to induce executives selected to participate in the Plan to continue employment with the Savings Institute (the “Bank”), a savings bank headquartered in Willimantic, Connecticut. Certain capitalized terms used herein are defined in Article 1 below.

INTRODUCTION

The purpose of the Plan is to attract and retain highly qualified executives. To further this objective, the Bank is willing to divide the death proceeds of certain life insurance policies which are owned by the Bank on the lives of the participating executives with the designated beneficiary of each insured participating executive. The Bank will pay life insurance premiums from its general assets.

ADMINISTRATION

The Human Resources Committee of the Board of Directors of the Bank shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall consider advisable, and to interpret the provisions of the Plan. The Human Resources Committee’s decisions shall be final and binding. To the extent permitted by applicable law, the Human Resources Committee may delegate to one or more Eligible Employee officers of the Bank, the power to make all determinations under the Plan with respect thereto.

Article 1

General Definitions

The following terms shall have the meanings specified:

1.1 “Compensation” shall have the same meaning as under the Bank’s 401(k) Plan at the time the amount of a Participant’s benefit is being determined; provided, however, that Compensation shall be determined without regard to any limitation on the maximum dollar amount of compensation taken into account under the Bank’s 401(k) Plan pursuant to Internal Revenue Code Section 401(a)(17) or any similar provision of law.

1.2 “Disability” means the executive’s inability to perform substantially all normal duties of a Participant, as determined by the Bank’s Board of Directors in its sole discretion. As a condition to any benefits, the Bank may require the executive to submit to such physical or mental evaluations and tests, as the Board of Directors deems appropriate.

1.3 “Human Resources Committee” means either the Human Resources Committee of the Board of Directors of the Bank designated from time to time by the Bank’s Board of Directors or a majority of the Bank’s Board of Directors, either of which shall hereinafter be referred to as the Human Resources Committee.

1.4 “Insured” means the individual whose life is insured.

1.5 “Insurer” means the insurance company issuing the life insurance policy on the life of the insured.

1.6 “Other Group Term Coverage” means group term life insurance maintained on a Participant’s life that is owned by the Bank and that is in addition to the Policies covered under the Plan.

1.7 “Participant” means the executive who is designated by the Human Resources Committee as eligible to participate in the Plan; provided, however, that such executive elects in writing to participate in the Plan by using the form attached hereto as Exhibit A, and signs a Split Dollar Endorsement using the form attached hereto as Exhibit B, for the Policy in which he or she is the Insured.

1.8 “Policy” or “Policies” means the individual insurance policy (or policies) adopted by the Human Resources Committee for purposes of insuring a Participant’s life under the Plan.

1.9 “Plan” means this instrument, including all amendments thereto.

1.10 “Retirement” means the first day of the month following the month in which the Participant attains the earlier of (i) age sixty-five; or (ii) the date on which the sum of his Years of Service and age equal 80.

1.11 “Terminated for Cause” means that the Bank has terminated the Insured’s employment for any of the following reasons:

Gross negligence or gross neglect of duties;

Commission of a felony or of a gross misdemeanor involving moral terpitude; or

Fraud, disloyalty, dishonesty or willful violation of any law or significant Bank policy committed in connection with the executive’s employment.

1.12 “Three Times Annual Compensation” means the sum of the base annual compensation of the Participant, plus commissions and pay-for-performance payments earned for a particular performance period, multiplied by a factor of three (3); provided that the value of such sum shall be determined on the earliest of: (1) the date of the Participant’s death; (2) the date of the Participant’s Disability; or (3) the date of the Participant’s Retirement.

1.13 “Years of Service” means each twelve consecutive month period following the date of any executive’s employment date, provided that the executive was employed by the Bank on a full-time basis during such period.

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Article 2

Participation

2.1 Eligibility to Participate. The Human Resources Committee in its sole discretion shall designate from time to time the executives that are eligible to participate in the Plan.

2.2 Participation. Each eligible executive may participate in the Plan by executing an Election to Participate (attached hereto as Exhibit A) and a Split Dollar Endorsement (attached hereto as Exhibit B). The Split Dollar Endorsement shall bind the executive and his or her beneficiaries, assigns and transferees, to the terms and conditions of the Plan. An executive’s participation is limited to only those Policies in which he or she is the Insured.

2.3 Termination of Participation. A Participant’s rights under the Plan shall cease and his or her participation in the Plan shall terminate if the Insured’s employment with the Bank is Terminated for Cause or the Insured terminates employment with the Bank for reasons other than the Insured’s death, Disability or Retirement.

In the event that the Bank decides to maintain the Policy after the Participant’s termination of participation in the Plan, the Bank shall be the direct beneficiary of the entire death proceeds of the Policy,

Article 3

Policy Ownership/Interests

3.1 Participant’s Interest. With respect to each Policy, the Participant, or the Participant’s assignee, shall have the right to designate the beneficiary of an amount of vested death proceeds, determined in accordance with Exhibit E equal to the lesser of (i) the specific amount of death benefit identified in the Participant’s Split Dollar Policy; (ii) the amount equal to Three Times Annual Compensation of the Insured/Participant, less all such sums as are payable by reason of any Other Group Term Coverage on the life of the Participant; or (iii) the maximum dollar amount of the Participant’s Interest set forth in the Participant’s individual Split Dollar Endorsement. The Participant shall also have the right to elect and change settlement options with the consent of the Bank and the Insurer.

3.2 Bank’s Interest. The Bank shall own the Policies and shall have the right to exercise all incidents of ownership. With respect to each Policy, the Bank shall be the direct beneficiary of the remaining death proceeds of the Policy (after the Participant’s Interest is determined).

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Article 4

Premiums

4.1 Premium Payment. The Bank shall pay all premiums due on all Policies.

4.2 Imputed Income. The Bank shall impute income to the Participant in an amount equal to the current term rate for the Participant’s age multiplied by the aggregate death benefit payable to the Participant’s beneficiary. The “current term rate” is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority.

Article 5

Assignment

Any Participant may assign without consideration all interests in his or her Policy and in the Plan to any person, entity or trust. In the event a Participant shall transfer all of his/her interest in the Policy, then all of that Participant’s interest in his or her Policy and in the Plan shall be vested in his/her transferee, who shall be substituted as a party hereunder, and that Participant shall have no further interest in his or her Policy or in the Plan.

Article 6

Insurer

The Insurer shall be bound only by the terms of its corresponding Policy. Any payments the Insurer makes or actions it takes in accordance with a Policy shall fully discharge it from all claims, suits and demands of all persons relating to that Policy. The Insurer shall not be bound by the provisions of this Plan. The Insurer shall have the right to rely on the Bank’s representations with regard to any definitions, interpretations, or Policy interests as specified under this Plan.

Article 7

Claims Procedure

7.1 Claims Procedure. The Bank shall notify any person or entity that makes a claim against the Plan (the “Claimant”), in writing, within ninety (90) days of Claimant’s written application for benefits, of Claimant’s eligibility or ineligibility for benefits under the Plan. If the Bank determines that Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Plan on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect Claimant’s claim, and a description of why it is needed, and (4) an explanation of the Plan’s claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision, the Bank shall notify the Claimant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period.

7.2 Review Procedure. If a Claimant is determined by the Bank not to be eligible for benefits, or if the Claimant believes that Claimant is entitled to greater or different benefits, the

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Claimant shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty (60) days after receipt of the notice issued by the Bank. Said petition shall state the specific reasons which the Claimant believes entitle Claimant to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Bank of the petition, the Bank shall afford the Claimant (and counsel, if any) an opportunity to present Claimant’s position to the Bank verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant an the specific provisions of the Plan on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the Claimant.

Article 8

Amendments and Termination

The Plan may be amended or terminated at the discretion of the Bank. In the event that the Plan is terminated, Participants who have satisfied the requirements for Retirement as specified in Section 1.11 shall be entitled to the value of the Participant’s death benefit as of the date the Plan is terminated and such death benefit shall be payable in accordance with the terms of the Plan.

Article 9

Miscellaneous

9.1 Binding Effect. The Plan in conjunction with each Split Dollar Endorsement shall bind each Participant and the Bank, their beneficiaries, survivors, executors, administrators and transferees and any Policy beneficiary.

9.2 No Guarantee of Employment. The Plan is not an employment policy or contract. It does not give a Participant the right to remain an employee of the Bank, nor does it interfere with the Bank’s right to discharge a Participant. It also does not require a Participant to remain an employee nor interfere with a Participant’s right to terminate employment at any time.

9.3 Reorganization. The Bank shall not merge or consolidate into or with another Bank, or reorganize, or sell substantially all of its assets to another Bank, firm, or person unless such succeeding or continuing Bank, firm, or person agrees to assume and discharge the obligations of the Bank under the Plan. In the event of any merger, consolidation or acquisition where the Bank or its parent holding company, SI Bancorp, Inc. is not the surviving entity or restructuring corporation, or upon transfer of all or substantially all of the assets of the Bank, the Plan shall continue and be in full force and effect. In the event of any merger, consolidation or acquisition where the Bank or its parent holding company, SI Bancorp, Inc., is not the surviving entity or resulting corporation, or upon transfer of all or substantially all of the assets of the Bank, this Agreement shall continue and be in full force and effect and shall be binding upon such surviving entity, resulting corporation, or transferee.

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9.4 Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Bank shall be the named fiduciary and plan administrator under the Plan. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

9.5 Applicable Law. The Plan and all rights hereunder shall be governed by and construed according to the laws of the State of Connecticut, except to the extent preempted by the laws of the United States of America.

9.6 Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Plan by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his/her last known address as shown on the records of the Bank. The date of such mailing shall be deemed the date of such mailed notice, consent or demand.

9.7 Plan Document. No rights are granted to the Participant by virtue of this Plan other than those specifically set forth herein.

IN WITNESS WHEREOF, the Bank executes the Plan as of the date indicated above.

SAVINGS INSTITUTE
By:	/s/    BRIAN J. HULL
	Brian J. Hull
Title:	Executive Vice President

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EX-10.10

Exhibit 10.10

FORM OF

SAVINGS INSTITUTE

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Article 1

Description, Purpose and Definitions

1.1 Name. The name of this Plan is the “Savings Institute Supplemental Executive Retirement Plan.”

1.2 Purpose. The purpose of the Plan is to promote the recruitment and retention of high quality management personnel by providing an additional source of retirement income to supplement that available to Participants from other sources.

1.3 Definitions. For purposes of the Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise.

“Accrued Liability Balance” means the amount equal to a Participant’s accrued benefit, which is or which should have been reflected as a liability on the Bank’s financial statements during the period beginning with the Effective Date of the Plan and ending on the Participant’s date of death or termination of employment without Cause; provided, however, that for the year in which the Participant dies or is terminated, such amount shall be adjusted upwards to reflect the accruals during the period since the Bank’s most recent financial statements.

“Administrator” means the Human Resources Committee of the Board of Directors of the Bank.

“Bank” is the Savings Institute, Willimantic, Connecticut.

“Cause” means termination of employment because of the Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar infractions) or a final cease-and-desist order.

“Change in Control” means any one of the following events occurs (i) If the Bank and/or its parent holding company SI Bancorp, Inc. (the “MHC”) shall be a party to any merger or consolidation with another bank, corporation, association or business entity (“Resulting Entity”), and, following such merger or consolidation, the Bank’s representatives serving as directors of the Resulting Entity shall constitute one-half or fewer of such board of directors; or (ii) If the Bank and/or MHC shall sell, exchange or transfer all or substantially all of its assets to some other person. In addition, if the Bank, the MHC or Resulting Entity issues shares of its capital stock to any person other than the MHC or a Resulting Entity then the Bank may, at its option, either treat the event as a Change in Control and make the payments otherwise required in a Change in Control situation or amend this Agreement to provide both for such change in control events as are analogous to those described in (i) and (ii) above and which are customary for publicly-traded companies.

“Contingent Disability Trust” means a trust created for the benefit of a Participant in circumstances set forth in Section 3.4(E).

“Compensation” shall have the same meaning as under the Bank’s 401(k) Plan at the time the amount of a Participant’s benefit is being determined; provided, however, that Compensation shall be determined without regard to any limitation on the maximum dollar amount of compensation taken into account under the Bank’s 401(k) Plan pursuant to Internal Revenue Code Section 401(a) (17) or any similar provision of law.

“Disability” means a Participant’s inability to perform substantially all normal duties of a Participant, as determined by the Administrator in its sole discretion. As a condition to any benefits, the Bank may require the executive to submit to such physical or mental evaluations and tests, as the Administrator deems appropriate.

“Eligible Employee” means one of a select group of management and highly compensated employees of the Bank designated by the Administrator as a Participant in the Plan or identified in Appendix A as a Participant.

“Final Average Compensation” means a Participant’s average Compensation over the three most recently completed years preceding his termination of employment.

“Participant” means an Eligible Employee who has been selected by the Administrator to participate in the Plan or who is identified in Appendix A.

“Social Security Benefit” means the amount, as determined by the Administrator in its discretion and based upon the Participant’s estimated earnings history to the date of his termination of employment with the Bank, to which a Participant will be entitled under the old age provisions of the Social Security Act upon attainment of the normal Social Security retirement age.

“Year(s) of Service” means each twelve (12) month period during which the Executive is employed on a full-time basis by the Bank, beginning on the Executive’s date of hire.

Article 2

Eligibility

2.1 Selection of Participants. After the effective date, an Eligible Employee shall become a Participant in the Plan only upon his selection by the Administrator. The Administrator shall give each Participant written notice of the commencement of his participation in the Plan. The initial Participants as of the effective date are identified in Appendix A to the Plan.

2.2 Entitlement to Benefits. Except to the extent provided in Sections 3.3, 3.4 and 3.5, a Participant shall become entitled to receive a benefit under the Plan only if his employment with the Bank terminates for reasons other than Cause (i) after he has attained age

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65 or (ii) on a date when the sum of the Participant’s age and Years of Service total at least 80. Notwithstanding anything in this Plan to the contrary, no benefit shall be payable to a Participant whose employment is terminated for Cause.

Article 3

Supplemental Retirement Benefits

3.1 Basic Benefit. Subject to the succeeding provisions of this Article, a Participant shall be entitled to an annual benefit equal to 70% of his Final Average Compensation upon the earlier of the Participant’s termination of employment (other than for Cause) (i) at or after attaining age 65 or (ii) on a date when the sum of the Participant’s age and Years of Service totals at least 80. Such benefit shall be paid in accordance with the Participant’s election under Section 3.6 at the time specified in Section 3.7.

3.2 Other Retirement Income Reduction.

A. A Participant’s annual benefit determined under Section 3.1 shall be reduced by the sum of the following amounts:

(1) 50% of the amount of the Participant’s annual Social Security Benefit; and

(2) The value of the Participant’s annual benefit attributable to employer-provided qualified retirement plan benefits.

B. If any benefit described in Subsection A. is not payable as a single life annuity or does not commence at the same time as the Participant’s benefit under this Plan, the Administrator shall, for purposes of this section, convert the value of such benefit into an actuarially equivalent single life annuity benefit commencing at the same time as the benefit under this Plan.

C. If the Participant would be entitled to a benefit described in Subsection A but for his failure to apply for such benefit, Subsection A will be applied as if the Participant had applied for and received the benefit.

D. Changes in a benefit described in Subsection A that occur after commencement of the Participant’s benefit under this Plan because of changes in the plan or program under which the benefit is provided or because of cost of living adjustments will not change the amount of the reduction under Subsection A.

3.3 Early Retirement Benefit. If a Participant’s termination of employment occurs prior to a date when the Participant is eligible to receive a benefit determined under Section 3.1, the Participant’s benefit shall equal the benefit determined under Section 3.1 reduced by 2% for each point by which the sum of the Participant’s age and Years of Service is less than 80. Such benefit shall be paid in accordance with the Participant’s election under Section 3.6 at the time specified in Section 3.7.

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3.4 Death and Disability Benefits.

A. Death During Active Service. If a participant dies while actively employed by the Bank, the Bank shall pay to the Participant’s beneficiary the benefit described in this Section 3.4(A).

(i) Amount of Benefit. Subject to Section 3.4(A)(ii), the benefit payable under Section 3.4(A) is the Participant’s Accrued Liability Balance as of the date of the Employee’s death.

(ii) Payment of Benefit. The Bank shall pay the benefit under this Section 3.4(A) to the Participant’s beneficiary in a lump sum within 30 days of the Participant’s death.

(iii) Limitation on the Section 3.4(A) Benefit. Notwithstanding anything in this Plan to the contrary, the sum of (x) the benefit otherwise payable to a Participant under Section 3.4(A) and (y) the Participant’s Considered Split Dollar Benefit (as defined below) shall not exceed the amount set forth for the Participant in Column A of Schedule A to this Plan. In the event that the sum of (x) and (y) above exceed the Participant’s Column A amount, the benefit payable under (x) (i.e., the Section 3.4(A) benefit) shall be reduced (but not below zero) to the extent necessary to satisfy to the greatest extent possible the limitation of this Section 3.4(A)(iii). For purposes of this Plan, a Participant’s “Considered Split Dollar Benefit” shall mean the amount by which the benefit payable to a Participant under any split dollar agreement in effect between the Participant and the Bank on the Participant’s date of death exceeds the amount set forth for the Participant in Column B of Schedule A.

B. Death During Benefit Period. If a Participant dies after benefit payments have commenced or the Participant’s entitlement to a benefit has been established by reason of his termination of employment but prior to the time payment have commenced, the Bank shall pay to the Participant’s beneficiary the benefit described in this Section 3.4(B).

(i) Amount of Benefit. Subject to Section 3.4(B)(ii), the benefit payable under Section 3.4(B) is the Participant’s Accrued Liability Balance as of the date of the Participant’s death.

(ii) Payment of Benefit. The Bank shall pay the benefit under this Section 3.4(B) to the Participant’s beneficiary in a lump sum within 30 days of the Participant’s death.

(iii) Limitation on the Section 3.4(B) Benefit. Notwithstanding anything in this Plan to the contrary, the benefit otherwise payable to a Participant under Section 3.4(B) shall be reduced dollar-for–dollar by the amount of the

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Participant’s Considered Post-Termination Split Dollar Benefit. For purposes of this Agreement, a Participant’s “Considered Post-Termination Split Dollar Benefit” shall mean the amount by which the benefit payable to a Participant under any split dollar agreement in effect between the Participant and the Bank on the Participant’s date of death exceeds three (3) times the Participant’s Final Average Compensation.

C. Each Participant may, on a form prescribed by and filed with the Administrator, designate a beneficiary to receive any death benefit payable under this section. If no effective beneficiary designation is on file at the time of the Participant’s death, the death benefit under this section shall be paid as follows:

(1) To the Participant’s surviving spouse, or

(2) If no spouse survives, to the Participant’s surviving children in equal shares, with the descendants of a child who has predeceased the Participant taking such child’s share by representation; or

(3) If none of the Participant’s spouse and descendants is living, to the representative of the Participant’s estate.

D. The automatic beneficiaries set forth in Subsection C. and, except as otherwise provided in the Participant’s duly filed beneficiary designation, the beneficiaries named in such designation, shall become fixed at the Participant’s death so that if a beneficiary survives the Participant but dies before final payment of the death benefit, any remaining death benefits shall be paid to the representative of such beneficiary’s estate.

E. Disability. Notwithstanding anything in this Plan to the contrary, in the event a Participant terminated employment with the Bank due to a Disability, the following shall apply with respect to benefits payable under the Plan:

(i) Disability Benefit Upon Termination of Employment Prior to Normal Retirement Age. Upon a Participant’s termination of employment due to a Disability before the Participant is eligible to receive a benefit determined under Section 3.1, the Bank shall deposit into the Participant’s Contingent Disability Trust the Accrued Liability Balance with respect to such Participant. Except as provided in clause (iii) this 3.7 (E), no further benefits shall be payable to the Participant under this Plan during the period of Disability.

(ii) Continuing Disability. If the Participant remains disabled on the earlier date he otherwise would have been eligible for a benefit under Section 3.1, the Participant’s participation in this Plan shall cease, and the Participant shall not be entitled to further benefits under the Plan.

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(iii) Return to Employment Following Disability. In the event the Participant returns to employment following a period of Disability, the Participant’s benefit upon a subsequent termination of employment, if any, shall be reduced by amounts payable from the Participant’s Contingent Disability Trust in accordance with its terms.

3.5 Change in Control Benefit.

If a Participant terminates employment with the Bank following a Change in Control (other than for Cause), there shall be paid to the Participant the amount set forth for the Participant in Column C of Schedule A of this Plan in lieu of any other benefit payable under the Plan. The Bank shall pay the benefit under this Section 3.5 to the Participant in a lump sum within 30 days of the Participant’s termination of employment.

3.6 Form of Benefit.

Upon a Participant’s entitlement to a benefit under Sections 3.1 or 3.3, the Participant’s benefit shall be paid in the form of (i) a single life annuity with 15 annual payments guaranteed or (ii) a lump sum which is actuarially equivalent to the annuity form of payment in (i), as designated by the Participant on an election form designated by the Bank for such purpose.

A Participant while employed by the Bank may change the form in which his benefits shall be paid by filing a revised election indicating such change at least one (1) calendar year prior to the date payments are to commence. Such election shall be irrevocable beginning one (1) calendar year prior to the date payments are to commence. No changes in the form of benefit payment shall be permitted following a Participant’s termination of employment.

3.7 Time of Payment.

Benefit payments made to a Participant or beneficiary pursuant to Sections 3.1 or 3.3 shall commence in accordance with the Participant’s election not later than 60 days following the Participant’s termination of employment.

3.8 Payment in the Event of Incapacity or Minority. If the Administrator, in its discretion, determines that any person entitled to receive any payment under this Plan is physically, mentally or legally incapable of receiving or acknowledging receipt of payment, and no legal representative has been appointed for such person, the Administrator in its discretion may (but shall not be required to) cause any sum otherwise payable to such person to be paid to such one or more as may be chosen by the Administrator from among the following: the institution maintaining such person, such person’s spouse, children, parents or other relatives by blood or marriage, a custodian under any applicable Uniform Transfers to Minors Act or any other person determined by the Administrator to have incurred expense for such person. The

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Administrator’s payment based upon its good faith determination of the incapacity of the person otherwise entitled to payments under this Plan and the existence of any other person specified above shall be conclusive and binding on all persons. Any such payment shall be a complete discharge of the liabilities of the Bank under this Plan to the extent of such payment.

Article 4

Source of Benefits

4.1 Employer Funds. This Plan is unfunded, and all benefits payable to Participants and beneficiaries shall be payable solely from the general assets of the Bank. No Participant shall be required or permitted to make any contribution to the Plan.

4.2 Trust Fund. The Bank may establish a trust from which part or all of the benefits under the Plan are to be paid. If a trust is established, all of the principal and income of such trust shall remain subject to the claims of the Bank’s creditors until applied to the payment of benefits.

4.3 Participant’s Right to Funds. This Plan constitutes a mere promise by the Bank to make benefit payments in the future. Beneficial ownership of any assets, whether cash or investments, that the Bank may earmark or place in trust to pay the Participants’ benefits under this Plan shall at all times remain in the Bank, and no Participant or beneficiary shall have any property interest in any specific assets of the Bank. To the extent a Participant or any other person acquires a right to receive payments from the Bank under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Bank.

Article 5

Administration

5.1 Administrator. The Administrator of the Plan may delegate any of its administrative functions to another person, subject to revocation of such delegation at any time.

5.2 Discretion. The Administrator shall have the discretionary power and authority to determine the individuals who shall become Participants in the Plan. The Administrator shall also have the discretionary power and authority, which it shall exercise in good faith, to determine whether a Participant is entitled to a benefit under the Plan, the identity of a Participant’s beneficiary, and the amount and form of the benefit payable to any Participant or beneficiary. The Administrator shall have the discretion and authority to interpret the Plan and to make such rules and regulations as it deems necessary for the administration of the Plan and to carry out its purposes. The determinations of the Administrator shall be conclusive and binding on all persons.

5.3 Determination of Benefit. The Administrator’s good faith determination of the benefits to which a Participant, surviving spouse, or beneficiary is entitled under this Plan shall be conclusive and binding on all persons; provided, however, that this provision shall not preclude the Administrator’s correcting any error the Administrator determines to have been

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made in the computation of any benefit. The Administrator shall be entitled to recover from any Participant or beneficiary, or from his estate, the amount of any overpayment of benefits and may reduce the amount of future benefits payable to any Participant or beneficiary by the amount of any overpayment made with respect to the Participant.

5.4 Benefit Claim Procedure. Within a reasonable period of time following a Participant’s termination of employment, the Administrator will inform the Participant or the beneficiary of a deceased Participant of the amount of benefits, if any, payable from the Plan. Not later than 30 days after receipt of such notification, the Participant or beneficiary may file with the Administrator a written claim objecting to the amount of benefits payable under the Plan. The Administrator, not later than 90 days after receipt of such claim, will render a written decision to the claimant on the claim. If the claim is denied, in whole or in part, such decision will include the reason or reasons for the denial, a reference to the Plan provision that is the basis for the denial, a description of additional material or information, if any, necessary for the claimant to perfect the claim, an explanation as to why such information or material is necessary and an explanation of the Plan’s claim procedure. The claimant may file with the Administrator, not later than 60 days after receiving the Administrator’s written decision, a written notice of request for review of the decision, and the claimant or the claimant’s representative may review Plan documents which relate to the claim and may submit written comments to the Administrator. Not later than 60 days after receipt of such review request, the Administrator will render a written decision on the claim, which decision will include the specific reasons for the decision, including a reference to the Plan’s specific provisions where appropriate. The foregoing 90- and 60-day periods during which the Administrator must respond to the claimant may be extended by up to an additional 90 or 60 days, respectively, if special circumstances beyond the Administrator’s control so require.

5.5 Indemnification. The Bank shall indemnify the Administrator and each other person to whom administrative functions are delegated against any and all liabilities that may arise out of their administration of the Plan, except those that are imposed on account of such person’s willful misconduct.

5.6 Limitation of Authority. No person performing any administrative functions with respect to the Plan shall exercise, or participate in the exercise of, any discretion with respect to his own benefit under the Plan. This provision shall not preclude such person from exercising discretionary authority with respect to the generally applicable provisions of the Plan, even though such person’s benefit may be affected by such exercise.

Article 6

Miscellaneous

6.1 Actuarial Equivalency. Whenever an actuarial equivalent must be determined under this Plan, it shall be determined using reasonable actuarial factors elected by the Administrator.

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6.2 Termination of Employment. A Participant shall be deemed to have terminated employment for purposes of this Plan when he or she has ceased to provide service to the Bank as an employee.

6.3 Effective Date. This Plan is effective as of June 17, 2003.

6.4 No Employment Rights. Nothing contained in this Plan shall be construed as conferring upon any employee the right to continue in the employ of the Bank.

6.5 No Compensation Guarantees. Nothing contained in this Plan shall be construed as conferring upon any employee the right to receive any specific level of compensation; nor shall the Bank be prevented in any way from modifying the manner or form in which the employee is to be compensated.

6.6 Effect on Benefit Plans. Neither benefits accrued by a Participant under this Plan nor amounts paid pursuant to the Plan following the Participant’s termination of employment shall be deemed to be salary or other compensation to the Participant for the purpose of computing benefits to which he or she may be entitled under any pension plan or other employee benefit plan or arrangement sponsored by the Bank, except to the extent such other plan expressly provides otherwise.

6.7 Rights and Benefits Not Assignable. The rights and benefits of a Participant and any other person or persons to whom payments may be made pursuant to this Plan are personal and, except for payments made to the representative of a person’s estate which may be assigned to the persons entitled to such estate, shall not be subject to any voluntary or involuntary anticipation, alienation, sale, assignment, pledge, transfer, encumbrance, attachment, garnishment by creditors of the Participant or such person or other disposition.

6.8 Amendment and Termination.

A. The Board of Directors of the Bank may amend this Plan in such manner as it deems advisable, provided that no amendment shall reduce the accrued benefit of any Participant, determined as of the date of the adoption of such amendment.

B. The Bank may terminate this Plan at any time. No person shall accrue any additional benefits under the Plan following the date of its termination. However, the termination of the Plan shall not affect a Participant’s right to receive payment of his accrued benefit (determined as of the date of the Plan’s termination) upon termination of employment; provided the Participant would have been entitled to a benefit upon termination of employment if the Plan had not been terminated.

C. For purposes of this Section 6.8, a Participant’s accrued benefit shall mean five percent of the benefit the Participant would be entitled to receive at age 65 (assuming his continued employment to such date) for each completed Year of

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Service. Such benefit shall be determined by projecting the Participant’s Final Average Compensation to age 65.

6.9 Governing Law. Except to the extent preempted by federal law, this Plan shall be construed in accordance with, and governed by, the laws of the State of Connecticut without regard to rules relating to choice of law.

6.10 Entire Agreement. This Plan constitutes the entire understanding between the Bank and each Participant as to the subject matter hereof. No rights are granted to a Participant by virtue of this Agreement other than those specifically set forth herein.

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APPENDIX A

Participant Name Column A
Column B
Column C

Acceptance and Beneficiary Designation

I,                    , hereby designate                      as direct beneficiary and                      as contingent beneficiary of the [portion of] benefits payable under the terms of the Plan.

Signed at Willimantic, Connecticut, this      day of                      2003.

_______________________________

Form of Benefit

In accordance with Section 3.6 of the Plan, I hereby elect to have my benefits under the Plan payable in the form of a:

¨ Single life annuity, with 15 annual payments guaranteed.

¨ Lump sum payment.

IN WITNESS WHEREOF, the Bank and the executive execute the Plan as of the dates indicated below:

SAVINGS INSTITUTE	EXECUTIVE
By:	By:
Title:	Title:
Date:	Date:

EX-10.11

Exhibit 10.11

FORM OF

SAVINGS INSTITUTE

DIRECTOR DEFERRED FEE AGREEMENT

THIS AGREEMENT is made this              day of                     , 2003, by and between the Savings Institute (the “Bank”), a savings bank headquartered in Willimantic, Connecticut, and                      (the “Director”).

INTRODUCTION

In an effort to reward past service, encourage continued service on the Bank’s Board of Directors, and as a method to attract future Directors, the Bank is willing to provide to the Director a deferred fee opportunity. The Bank will pay each Director’s benefits from the Bank’s general assets.

AGREEMENT

The Director and the Bank agree as follows:

Article 1

Definitions

1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1.1 “Anniversary Date” means December 31 of each year.

1.1.2 “Change in Control” means either of the following events: (i) If the Bank and/or its parent holding company SI Bancorp, Inc. (the “MHC”) shall be a party to any merger or consolidation with another bank, corporation, association or business entity (“Resulting Entity”), and, following such merger or consolidation, the Bank’s representatives serving as directors of the Resulting Entity shall constitute one-half or fewer of such board of directors; or (ii) If the Bank and/or MHC shall sell, exchange or transfer all or substantially all of its assets to some other person. In addition, if the Bank, the MHC or Resulting Entity issues shares of its capital stock to any person other than the MHC or a Resulting Entity then the Bank may, at its option, either treat the event as a Change in Control and make the payments otherwise required in a Change in Control situation or amend this Agreement to provide both for such change in control events as are analogous to those described in (i) and (ii) above and which are customary for publicly-traded companies.

1.1.3 “Code” means the Internal Revenue Code of 1986, as amended.

1.1.4 “Deferral Account” means the Bank’s accounting of the Director’s accumulated Deferrals plus accrued interest.

1.1.5 “Deferrals” means the amount of the Director’s Fees, which the Director elects to defer according to this Agreement.

1.1.6 “Disability” means the Director’s inability to perform substantially all normal duties of a Director, as determined by the Bank’s Board of Directors in its sole discretion. As a condition to any benefits, the Bank may require the Director to submit to such physical or mental evaluations and tests as the Board of Directors deems appropriate.

1.1.7 “Effective Date” means May 21, 2003.

1.1.8 “Election Form” means the Form attached as Exhibit A.

1.1.9 “Fees” means the total Director’s fees payable to the Director.

1.1.10 “Plan Year” means the calendar year.

1.1.11 “Prime Rate” means the Prime Interest Rate reported in the Wall Street Journal on the business day immediately prior to the Anniversary Date.

1.1.12 “Termination of Service” means the Director ceasing to be a member of the Bank’s Board of Directors for any reason whatsoever.

Article 2

Deferral Election

2.1 Initial Election. The Director shall make an initial deferral election under this Agreement by filing with the Bank a signed Election Form within thirty (30) days after the Effective Date of this Agreement. The Election Form shall set forth the amount of Fees to be deferred. The Election Form shall be effective to defer only Fees earned after the date the Election Form is received by the Bank.

2.2 Election Changes

2.2.1 Generally. The Director may modify the amount of Fees to be deferred annually by filing a new Election Form with the Bank prior to the beginning of the Plan Year in which the Fees are to be deferred. The modified deferral election shall not be effective until the Plan Year following the year in which the subsequent Election Form is received and approved by the Bank. The new Election Form may be used to change the Director’s distribution option; however, the change shall not be effective until the Plan Year following the year in which the new Election Form is received and approved by the Bank.

2.2.2 Hardship. If an unforeseeable financial emergency arising from the death of a family member, divorce, sickness, injury, catastrophe or similar event outside the control of the Director occurs, the Director, by written instructions to the Bank, may reduce future deferrals under this Agreement.

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Article 3

Deferral Account

3.1 Establishing and Crediting. The Bank shall establish a Deferral Account on its books for the Director and shall credit to the Deferral Account the following amounts:

3.1.1 Deferrals. The Fees deferred by the Director as of the time the Fees would have otherwise been paid to the Director.

3.1.2 Interest. On the first day of each month and immediately prior to the payment of any benefits, interest on the Deferral Account balance since the preceding credit under this Section 3.1.1, if any, at an annual rate, compounded monthly, equal to the Prime Rate for the previous Anniversary Date. However, the actual crediting rate will equal the Prime Rate unless the Prime Rate is less than Six (6%) or greater than Twelve (12%). In which case the maximum crediting rate shall be Twelve (12%) and the minimum shall be Six (6%).

3.2 Statement of Accounts. The Bank shall provide to the Director, within one hundred twenty (120) days after each Anniversary Date, a statement setting forth the Deferral Account balance.

3.3 Accounting Device Only. The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Director is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere promise by the Bank to pay such benefits. The Director’s rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Director’s creditors.

Article 4

Distribution of Benefits

4.1 Termination of Service Benefit. Upon the Director’s Termination of Service, the Bank shall pay to the Director the benefit described in this Section 4.1 in lieu of any other benefit under this Agreement.

4.1.1 Amount of Benefit. The benefit under this Section 4.1 is the Deferral Account balance at the Director’s Termination of Service date.

4.1.2 Payment of Benefit. The Bank shall pay the benefit to the Director in the form elected by the Director on the Election Form. If the Director elected to receive his benefit in the form of installments, the Bank shall continue to credit interest on the remaining Deferral Account balance during any applicable installment period fixed at the rate in effect under Section 3.1.2 on the Director’s date of Termination of Service.

4.2 Pre-Termination of Service Benefit. The Director shall have a one-time option to receive benefit payments prior to the Director’s Termination of Service. However, if the

3

Director exercises this one-time option, his election shall be effective to defer only Fees earned after the date the Election Form is received by the Bank and the Director shall not have the ability to defer future Fees.

4.2.1 Amount of Pre-Termination of Service Benefit. The benefit under this section 4.2 is the Deferral Account balance on the date the Director elects to receive Pre-Termination of Service benefit payments.

4.2.2 Payment of Pre-Termination of Service Benefit. The Bank shall pay the benefit to the Director in the form elected by the Director on the Election Form. If the Director elected to receive his benefit in the form of installments, the Bank shall continue to credit interest on the remaining Deferral Account balance during any applicable installment period fixed at the rate in effect under Section 3.1.2 on the date of the Director’s Termination of Service.

4.3 Change of Control Benefit. Upon Termination of Service within 12 months of a Change of Control, the Bank shall pay to the Director the benefit described in this Section 4.3 in lieu of any other benefit under this Agreement.

4.3.1 Amount of Benefit. The benefit under this Section 4.3 shall be the balance of the Director’s Deferral Account on the date of the Director’s Termination of Service.

4.3.2 Payment of Benefit. The Bank shall pay the benefit to the Director in the form of a lump sum payment. This lump-sum payment shall occur within 30 days after the date of the Director’s Termination of Service.

4.4 Hardship Distribution. Upon the Board of Director’s determination (following petition by the Director) that the Director has suffered an unforeseeable financial emergency as described in Section 2.2.2, the Bank shall distribute to the Director all or a portion of the Deferral Account balance as determined by the Bank, but in no event shall the distribution be greater than is necessary to relieve the financial hardship.

4.5 Entitlement to Benefits. Except to the extent provided in Section 5, a Director shall become entitled to receive a benefit under the Plan only if he or she experiences a Termination of Service for reasons other than Cause and only after the earlier of (i) the date he attained age 65 (or as otherwise indicated in Exhibit A); or (ii) the date that the sum of his or her age and Years of Service equals at least 80.

Article 5

Death Benefits

5.1 Death During Active Service. If the Director dies while in the active service of the Bank, the Bank shall pay to the Director’s beneficiary the benefit described in this Section 5.1 in lieu of any other benefit under this Agreement.

5.1.1 Amount of Benefit. The benefit under Section 5.1 is the Deferral Account balance on the date of the Director’s death.

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5.1.2 Payment of Benefit. The Bank shall pay the benefit to the beneficiary in the form elected by the Director on the Election Form. If the Director elected to receive his benefit in the form of installments, the Bank shall continue to credit interest on the remaining Deferral Account balance during any applicable installment period fixed at the rate in effect under Section 3.1.2 on the date of the Director’s death.

5.2 Death During Benefit Period. If the Director dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to the Director’s beneficiary at the same time and in the same amounts they would have been paid to the Director had the Director survived.

Article 6

Beneficiaries

6.1 Beneficiary Designations. The Director shall designate a beneficiary by filing a written designation with the Bank. The Director may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Director and received and approved by the Bank during the Director’s lifetime. The Director’s beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director, or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the Director’s estate.

6.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property (as determined by the Bank), the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

Article 7

Amendments and Termination

7.1 This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Director.

7.2 Notwithstanding Section 7.1, the Bank may amend or terminate this Agreement at any time if, pursuant to legislative, judicial or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Director prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Bank. In no event shall this Agreement be terminated under this Section 7.2 without payment to the Director of the Deferral Account balance attributable to the Director’s Deferrals and interest credited on such amounts.

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Article 8

Miscellaneous

8.1 Binding Effect. This Agreement shall bind the Director and the Bank, and their beneficiaries, survivors, executors, administrators and transferees.

8.2 No Guarantee of Service. This Agreement is not a contract for services. It does not give the Director the right to remain a Director of the Bank. It also does not require the Director to remain a Director nor interfere with the Director’s right to terminate services at any time.

8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

8.4 Tax Withholding. The Bank is authorized to withhold any taxes that it believes are required to be withheld from the benefits provided under this Agreement.

8.5 Applicable Law. The Plan and all rights hereunder shall be governed by and construed according to the laws of the State of Connecticut, except to the extent preempted by the laws of the United States of America.

8.6 Recovery of Estate Taxes. If the Director’s gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Agreement, and if the beneficiary is other than the Director’s estate, then the Director’s estate shall be entitled to recover from the beneficiary receiving such benefit under the terms of the Agreement, an amount by which the total estate tax due by the Director’s estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Director’s gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability hereunder, the beneficiary may petition the Bank for a lump sum payment in an amount not to exceed the lesser of the beneficiary’s liability hereunder and the balance remaining in the Deferral Account.

8.7 Unfunded Arrangement. The Director and, to the extent the Director’s beneficiary or estate have rights to benefits under this Agreement, are the general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance which the Bank may have procured in connection with this Agreement on the Director’s life is a general asset of the Bank to which the Director, the Director’s beneficiary nor the Director’s estate have any preferred or secured claim.

8.8 Reorganization. In the event of any merger, consolidation or acquisition where the Bank or its parent holding company, SI Bancorp, Inc., is not the surviving entity or

6

resulting corporation, or upon transfer of all or substantially all of the assets of the Bank, this Agreement shall continue and be in full force and effect and shall be binding upon such surviving entity, resulting corporation, or transferee.

8.9 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.

8.10 Administration. The Bank shall have powers which are necessary to administer this Agreement, including but not limited to:

8.10.1 Interpreting the provisions of the Agreement;

8.10.2 Establishing and revising the method of accounting for the Agreement;

8.10.3 Maintaining a record of benefit payments; and

8.10.4 Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.

8.11 Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Bank shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

7

IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed this Agreement.

DIRECTOR:	BANK:
	Savings Institute
	By:
	Title:

8

EXHIBIT A

TO

DIRECTOR FEE DEFERRAL AGREEMENT

(Name of Director)

[Initial and Complete]

             I elect to defer                     % or         $             of my Board Fees.

             I elect to defer                     % or         $             of my Retainer.

             I elect to defer                     % or         $             of both my Retainer and Board Fees.

             I elect not to defer my Retainer and/or Board Fees.

I understand that I may change the amount, frequency and duration of my deferral by filing a new election form with the Bank; provided, however, that any subsequent election will not be effective until the calendar year following the year in which the new election is received by the Bank.

Form of Benefit

I elect to receive benefits under the Agreement in the following form:

[Initial One]

             Lump Sum

             Equal monthly installments for 120 months

Beneficiary Designation

I designate the following as beneficiaries of benefits under the Director Fee Deferral Agreement payable following my death:

Primary:

Contingent:

I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the dissolution of our marriage.

Signature

Date

Accepted by Savings Institute this      day of                     , 2003.

By:

Title:

EX-10.12

Exhibit 10.12

FORM OF

SAVINGS INSTITUTE

DIRECTOR CONSULTATION PLAN

Effective May 21, 2003 the Savings Institute Director Consultation Plan (the “Plan”) is established to induce selected retired directors of the Savings Institute (the “Bank”), a savings bank headquartered in Willimantic, Connecticut, to participate in the Plan and to continue to provide services to the Bank.

1. PURPOSE. The purpose of the Plan is to secure the ongoing services of certain directors of the Bank who have served for many years as directors and who have retired or will retire as directors of the Bank, but are willing to contribute their experience and knowledge of the operations of the Bank as consultants. The Plan seeks to accomplish this purpose and achieve this result by providing future compensation for those directors of the Bank who become consultants and who provide services to the Bank in accordance with the Plan.

2. ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Bank (the “Board”). Any action of the Board with respect to the administration of the Plan shall be taken pursuant to a majority vote or the unanimous written consent of its members. Subject to the express provisions of the Plan, the Board shall have the authority to construe and interpret the Plan; define the terms used herein; prescribe, amend and rescind the rules and regulations relating to the administration of the Plan and make all other determinations necessary or advisable for administration of the Plan. All decisions, determinations, interpretations or other actions by the Board shall be final, conclusive and binding on all persons, inclusive of the consultant.

3. PARTICIPATION. Participation in the Plan shall be limited to those directors of the Bank identified as Participants in Exhibit A to the Plan (each, a “Participant”). Participants shall have independent contractor status with respect to consulting services rendered to the Bank.

4. TERM AS A CONSULTANT. A Participant’s service as a consultant shall commence as of the date of the Participant’s termination of service as a director of the Bank and shall continue until the earliest to occur of the following events:

A. Death of the Participant;

B. Resignation of the Participant as a consultant;

C. Determination by the Board of Directors of the Bank that the Participant has not fulfilled the service requirements of Section 5; or

D. The first date of the month following the Participant’s attainment of age 65 or such other date indicated in Exhibit A, if any.

Notwithstanding anything in the Plan to the contrary, a Participant shall not be retained as a consultant if his termination of service as a director, is for “Cause.” Cause shall mean termination of service as a director because of the Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar infractions) or a final cease-and-desist order on such Participant.

5. SERVICE REQUIREMENTS. To qualify for the remuneration described in this Plan, a consultant shall perform the following services:

A. Continue to utilize the Bank as a banking facility for the Participant and his businesses, if any; and

B. Continue to refer customers to the Bank and to support and promote the Bank within the communities served by the Bank; and

C. Allow the Bank to utilize the consultant’s name in Bank publications; and

D. Provide meaningful and comprehensive input on strategic and operational issues and policies as requested by the Bank from to time.

The Board may waive any of the individual service requirements set forth above on a case-by-case basis.

6. REMUNERATION. A Participant shall receive an annual fee, during the Participant’s term of service as a consultant equal to 70% of the average annual cash compensation (retainers and fees) received by the Participant for service as a director of the Bank during the three calendar years preceding the date on which the Participant retired as a director. Such amount shall be payable in monthly installments beginning with the first month of the Participant’s term of service and ending on the earlier of: (1) the 120^th month following commencement of such monthly payments; or (2) the date on which the Participant attains age 82.

7. AMENDMENT. The Board of Directors may amend, modify, suspend or terminate this Plan at any time; provided, however, that any amendment, modification, suspension or termination shall not affect the rights of Participants to benefits which have accrued prior to the date of amendment.

8. NON-ALIENATION. No Participant shall have the power to transfer, assign, anticipate, mortgage or otherwise encumber any rights or any amounts payable hereunder; nor shall any such rights or payments be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.

2

9. REORGANIZATION. The Bank shall not merge or consolidate into or with another Bank, or reorganize, or sell substantially all of its assets to another Bank, firm, or person unless such succeeding or continuing Bank, firm, or person agrees to assume and discharge the obligations of the Bank under the Plan. In the event of any merger, consolidation or acquisition where the Bank or its parent holding company, SI Bancorp, Inc. is not the surviving entity or restructuring corporation, or upon transfer of all or substantially all of the assets of the Bank, the Plan shall continue and be in full force and effect and shall be binding upon such surviving entity, resulting corporation, or transferee.

10. GOVERNING LAW. Except to the extent preempted by federal law, the Plan shall be governed by the laws of the State of Connecticut.

11. EFFECTIVE DATE OF THE PLAN. The Plan is effective as of May 21, 2003.

3

IN WITNESS WHEREOF, the Bank executes the Plan as of the date indicated above.

SAVINGS INSTITUTE

By:

Title:

4

EXHIBIT A

The following directors shall be Participants in the Plan, up to the date on which such Participants attain age 82:

•      Jack Stevens; and

•      James Derby.

5

EXHIBIT B

ELECTION TO PARTICIPATE

I,                                                      , an eligible Participant of the Savings Institute Director Consultation Plan (the “Plan”) dated                                              , hereby agree that any and all rights and restrictions, that may apply to my participation are subject to the terms of the Plan.

Executed this              day of                             , 2003

Witness Participant

6

EX-21.1

Exhibit 21.1

Parent

SI Financial Group, Inc.

Subsidiary	Percentage of Ownership	Jurisdiction or State of Incorporation
Savings Institute Bank and Trust Company	100%	Federal

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement of SI Financial Group, Inc. on Form S-1 of our report on the consolidated financial statements of SI Bancorp, Inc. and Subsidiaries dated February 12, 2004, appearing in the Prospectus, which is a part of this Registration Statement.

We also consent to the reference to our firm under the caption “Experts” in such Prospectus.

/s/ McGladrey & Pullen, LLP

New Haven, Connecticut

June 9, 2004

EX-23.3

Exhibit 23.3

KELLER & COMPANY, INC.

FINANCIAL INSTITUTION CONSULTANTS

555 METRO PLACE NORTH

SUITE 524

DUBLIN, OHIO 43017

(614) 766-1426

(614) 766-1459 FAX

June 10, 2004

Re: Valuation Appraisal of SI Financial Group, Inc.

Savings Institute Bank and Trust Company

Willimantic, Connecticut

We hereby consent to the use of our firm’s name in the Form S-1 and in the Form MHC-2 of SI Financial Group, Inc., to the reference to our firm under the heading “Experts” in the prospectus, and to the inclusion of our opinion regarding the valuation of SI Financial Group, Inc., provided in our Valuation Appraisal Report and any Valuation Updates, in the Form S-1 to be filed by with the Securities and Exchange Commission and the Form MHC-2 to be filed with the Office of Thrift Supervision and any amendments thereto.

Very truly yours,
KELLER & COMPANY, INC.
by:	/s/ Michael R. Keller
	Michael R. Keller President

EX-24.1

Exhibit 24.1

POWERS OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints Rheo A. Brouillard and Brian J. Hull as the true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities to sign any or all amendments to the Form MHC-2 Application for Approval of a Minority Stock Issuance by a Savings Association Subsidiary of a Mutual Holding Company by SI Financial Group, Inc. and the Registration Statement on Form S-1 by SI Financial Group, Inc. and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Office of Thrift Supervision (the “OTS”) or the U.S. Securities and Exchange Commission, respectively, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of Part 563b of the OTS Rules and Regulations and the Securities Act of 1933, as amended, and any rules and regulations promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction with the Application and the Registration Statement on Form S-1 have been duly signed by the following persons in the capacities and on the dates indicated.

NAME	DATE
/s/    Rheo A. Brouillard Rheo A. Brouillard President, Chief Executive Officer and Director (principal executive officer) SI Financial Group, Inc.	June 10, 2004
/s/    Brian J. Hull Brian J. Hull Executive Vice President, Chief Financial Officer and Treasurer (principal accounting and financial officer) SI Financial Group, Inc.	June 10, 2004
/s/    Henry P. Hinckley Henry P. Hinckley Chairman of the Board SI Financial Group, Inc.	June 10, 2004

NAME	DATE
/s/    Robert C. Cushman, Sr. Robert C. Cushman, Sr. Director SI Financial Group, Inc.	June 10, 2004
/s/    Roger Engle Roger Engle Director SI Financial Group, Inc.	June 10, 2004
/s/    Donna M. Evan Donna M. Evan Director SI Financial Group, Inc.	June 10, 2004
/s/    Robert O. Gillard Robert O. Gillard Director SI Financial Group, Inc.	June 10, 2004
/s/    Steven H. Townsend Steven H. Townsend Director SI Financial Group, Inc.	June 10, 2004
/s/    Everett A. Watson Everett A. Watson Director SI Financial Group, Inc.	June 10, 2004

EX-99.1

Exhibit 99.1

CONVERSION VALUATION APPRAISAL REPORT

Prepared for:

SI Financial Group, Inc.

Willimantic, Connecticut

As Of:

May 21, 2004

Prepared By:

Keller & Company, Inc.

555 Metro Place North

Suite 524

Dublin, Ohio 43017

(614) 766-1426

KELLER & COMPANY

CONVERSION VALUATION APPRAISAL REPORT

Prepared for:

SI Financial Group, Inc.

Willimantic, Connecticut

As Of:

May 21, 2004

TABLE OF CONTENTS

		PAGE
INTRODUCTION		1
I.	Description of Savings Institute
	General	3
	Performance Overview	7
	Income and Expense	9
	Yields and Costs	15
	Interest Rate Sensitivity	17
	Lending Activities	19
	Nonperforming Assets	24
	Investments	26
	Deposit Activities	27
	Borrowings	28
	Subsidiaries	28
	Office Properties	29
	Management	29
II.	Description of Primary Market Area	30
III.	Comparable Group Selection
	Introduction	36
	General Parameters
	Merger/Acquisition	37
	Mutual Holding Companies	38
	Trading Exchange	39
	IPO Date	39
	Geographic Location	39
	Asset Size	40
	Balance Sheet Parameters
	Introduction	41
	Cash and Investments to Assets	41
	Mortgage-Backed Securities to Assets	42
	One- to Four-Family Loans to Assets	43
	Total Net Loans to Assets	43
	Total Net Loans and Mortgage-Backed Securities to Assets	43
	Borrowed Funds to Assets	44
	Equity to Assets	44
	Performance Parameters
	Introduction	45

TABLE OF CONTENTS (cont.)

		PAGE
III.	Comparable Group Selection (cont.)
	Performance Parameters (cont.)
	Return on Average Assets	45
	Return on Average Equity	46
	Net Interest Margin	46
	Operating Expenses to Assets	47
	Noninterest Income to Assets	47
	Asset Quality Parameters
	Introduction	48
	Nonperforming Assets to Assets	48
	Repossessed Assets to Assets	49
	Loan Loss Reserve to Assets	49
	The Comparable Group	50
IV.	Analysis of Financial Performance	51
V.	Market Value Adjustments
	Earnings Performance	54
	Market Area	58
	Financial Condition	60
	Asset, Loan and Deposit Growth	65
	Dividend Payments	62
	Subscription Interest	63
	Liquidity of Stock	64
	Management	64
	Marketing of the Issue	65
VI.	Valuation Methods	67
	Price to Book Value Method	68
	Price to Earnings Method	70
	Price to Assets Method	71
	Valuation Conclusion	72

LIST OF EXHIBITS

NUMERICAL EXHIBITS		PAGE
1	Consolidated Statements of Financial Condition - At March 31, 2004, and December 31, 2003	78
2	Consolidated Statements of Financial Condition - At December 31, 1999 through 2002	79
3	Consolidated Statements of Income - Three months ended March 31, 2003 and 2004, and Year Ended December 31, 2003	80
4	Consolidated Statements of Income - Years ended December 31, 1999 through 2002	81
5	Selected Financial Information	82
6	Income and Expense Trends	83
7	Normalized Earnings Trend	84
8	Performance Indicators	85
9	Volume/Rate Analysis	86
10	Yield and Cost Trends	87
11	Net Portfolio Value	88
12	Loan Portfolio Composition	89
13	Loan Maturity Schedule	90
14	Loan Originations and Purchases	91
15	Delinquent Loans	92
16	Nonperforming Assets	93
17	Classified Assets	94
18	Allowance for Loan Losses	95
19	Investment Portfolio Composition	96
20	Mix of Deposits	97
21	Certificates by Maturity	98
22	Deposit Activity	99
23	Borrowed Funds Activity	100
24	Offices of Savings Institute	101
25	Management of the Bank	102
26	Key Demographic Data and Trends	103
27	Key Housing Data	104
28	Major Sources of Employment	105
29	Unemployment Rates	106
30	Market Share of Deposits	107
31	National Interest Rates by Quarter	108
32	Thrift Stock Prices and Pricing Ratios	109
33	Key Financial Data and Ratios	117
34	Recently Converted Thrift Institutions	126
35	Acquisitions and Pending Acquisitions	127

LIST OF EXHIBITS (cont.)

NUMERICAL EXHIBITS		PAGE
36	Thrift Stock Prices and Pricing Ratios - Mutual Holding Companies	128
37	Key Financial Data and Ratios - Mutual Holding Companies	130
38	Balance Sheets Parameters - Comparable Group Selection	132
39	Operating Performance and Asset Quality Parameters - Comparable Group Selection	135
40	Balance Sheet Ratios Final Comparable Group	139
41	Operating Performance and Asset Quality Ratios Final Comparable Group	140
42	Balance Sheet Totals - Final Comparable Group	141
43	Balance Sheet - Asset Composition Most Recent Quarter	142
44	Balance Sheet - Liability and Equity Most Recent Quarter	143
45	Income and Expense Comparison Trailing Four Quarters	144
46	Income and Expense Comparison as a Percent of Average Assets - Trailing Four Quarters	145
47	Yields, Costs and Earnings Ratios Trailing Four Quarters	146
48	Dividends, Reserves and Supplemental Data	147
49	Valuation Analysis and Conclusions	148
50	Market Pricings and Financial Ratios - Stock Prices Comparable Group	149
51	Pro Forma Minimum Valuation	150
52	Pro Forma Mid-Point Valuation	151
53	Pro Forma Maximum Valuation	152
54	Pro Forma Superrange Valuation	153
55	Summary of Valuation Premium or Discount	154

ALPHABETICAL EXHIBITS		PAGE
A	Background and Qualifications	155
B	RB 20 Certification	159
C	Affidavit of Independence	160

INTRODUCTION

Keller & Company, Inc. is an independent appraisal firm for financial institutions and has prepared this Conversion Valuation Appraisal Report (“Report”) to provide the pro forma market value of the to-be-issued common stock of SI Financial Group, Inc. (the “Corporation”), a Delaware corporation, formed as a mid-tier holding company to own all of the common stock of Savings Institute Bank and Trust Company (“Savings Institute” or the “Bank”), Willimantic, Connecticut. The Corporation will be majority owned by SI Bancorp, MHC, a federally-chartered mutual holding company. Under the Plan of Conversion, the Corporation will be majority owned by SI Bancorp, MHC, which will own 58.0 percent of the Corporation. The Corporation will sell 40.0 percent on the appraised value of the Corporation as determined in this Report in a minority stock offering and will issue the remaining 2.0 percent to a newly formed foundation, the SI Financial Group Foundation, Inc. (“Foundation”).

The Application is being filed with the Office of Thrift Supervision (“OTS”) of the Department of the Treasury and the Securities and Exchange Commission (“SEC”). Such Application for Conversion has been reviewed by us, including the Prospectus and related documents, and discussed with the Bank’s management and the Bank’s conversion counsel, Muldoon Murphy Faucette & Aguggia LLP, Washington, D.C.

This conversion appraisal was prepared based on the guidelines provided by OTS entitled “Guidelines for Appraisal Reports for the Valuation of Savings Institutions Converting from the Mutual to Stock Form of Organization”, in accordance with the OTS application requirements of Regulation §563b and the OTS’s Revised Guidelines for Appraisal Reports, and represents a full appraisal report. The Report provides detailed exhibits based on the Revised Guidelines and a discussion on each of the fourteen factors that need to be considered. Our valuation will be updated in accordance with the Revised Guidelines and will consider any changes in market conditions for thrift institutions.

The pro forma market value is defined as the price at which the stock of the Corporation after conversion would change hands between a typical willing buyer and a typical willing

1

Introduction (cont.)

seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and with both parties having reasonable knowledge of relevant facts in an arm’s-length transaction. The appraisal assumes the Bank is a going concern and that the shares issued by the Corporation in the conversion are sold in noncontrol blocks.

In preparing this conversion appraisal, we have reviewed the financial statements for the five fiscal years ended December 31, 1999 through 2003, and for the three months ended March 31, 2003 and 2004, and discussed them with Savings Institute’s management and with Savings Institute’s independent auditors, McGladrey & Pullen, LLP, New Haven, Connecticut. We have also discussed and reviewed with management other financial matters and have reviewed internal projections. We have reviewed the Corporation’s preliminary Form SB-2 and the Bank’s preliminary Form MHC and discussed them with management and with the Bank’s conversion counsel.

We have visited Savings Institute’s main office and have traveled the surrounding area. We have studied the economic and demographic characteristics of the primary market area, and analyzed the Bank’s primary market area relative to Connecticut and the United States. We have also examined the competitive market within which Savings Institute operates, giving consideration to the area’s numerous financial institution offices, mortgage banking offices, and credit union offices and other key market area characteristics, both positive and negative.

We have given consideration to the market conditions for securities in general and for publicly-traded thrift stocks in particular. We have examined the performance of selected publicly-traded thrift institutions and compared the performance of Savings Institute to those selected institutions.

Our valuation is not intended to represent and must not be interpreted to be a recommendation of any kind as to the desirability of purchasing the to-be-outstanding shares of common stock of the Corporation. Giving consideration to the fact that this appraisal is based on numerous factors that can change over time, we can provide no assurance that any person who purchases the stock of the Corporation in the minority stock offering in this mutual-to-stock conversion will subsequently be able to sell such shares at prices similar to the pro forma market value of the Corporation as determined in this conversion appraisal.

2

I. DESCRIPTION OF SAVINGS INSTITUTE

GENERAL

Savings Institute was organized in 1842 as a state-chartered mutual savings bank with the name Willimantic Savings Institute and then changed its name to Savings Institute in 1991. In 2000, SI Bancorp, Inc. was formed as a mutual holding company to own all of the stock of Savings Institute, which was converted from a mutual to a stock savings bank. Savings Institute converted from a state-chartered savings bank to a federally-chartered savings bank in 2004 with the name Savings Institute Bank and Trust Company. The Bank also formed a mid-tier stock holding company in 2004 with the name SI Financial Group, Inc., which owns all of the stock of the Bank. The Bank’s mutual holding company SI Bancorp, MHC, will own 58.0 percent of SI Financial Group, Inc.

Savings Institute conducts its business from its main office in Willimantic, Connecticut and its fourteen branch offices in Hartford, New London, Tolland and Windham Counties. The Bank serves its customers from these fifteen offices. The Bank’s primary market area is focused on Windham County, where most of its offices are located.

Savings Institute’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”) in the Bank Insurance Fund (“BIF”). The Bank is also subject to certain reserve requirements of the Board of Governors of the Federal Reserve Bank (the “FRB”). Savings Institute is a member of the Federal Home Loan Bank (the “FHLB”) of Boston and will be regulated by the OTS and by the FDIC. As of March 31, 2004, Savings Institute had assets of $537,410,000, deposits of $425,599,000 and equity of $35,079,000.

Savings Institute is a community-oriented institution which has been principally engaged in the business of serving the financial needs of the public in its local communities and throughout its primary market area. Savings Institute has been involved in the origination of residential mortgage loans secured by one- to four-family dwellings, including construction loans, which represented 87.1 percent of its loan originations during the fiscal year ended December 31, 2003, and a lesser 75.9 percent of its loan originations during the three months

3

General (cont.)

ended March 31, 2004. Consumer loan originations represented a modest 8.0 percent and 12.4 percent of total originations for the same respective time periods. At March 31, 2004, 57.6 percent of its gross loans consisted of residential real estate loans on one- to four-family dwellings, excluding construction and home equity loans, compared to a lesser 65.5 percent at December 31, 1999, with the primary sources of funds being retail deposits from residents in its local communities and FHLB advances. The Bank is also an originator of multi-family and commercial real estate loans, construction loans, consumer loans, and commercial business loans. Consumer loans include home equity loans and lines of credit, automobile loans, loans on deposit accounts and other secured and unsecured personal loans.

The Bank had $119.9 million, or a moderate 22.3 percent of its assets in cash and investments excluding FHLB stock which totaled $3.4 million or 0.6 percent of assets. The Bank had $16.9 million of its investments in mortgage-backed and related securities representing 3.1 percent of assets. Deposits, FHLB advances and equity have been the primary sources of funds for the Bank’s lending and investment activities. The Bank also had $7.2 million in subordinated debt at March 31, 2004.

The total amount of stock to be sold by the Corporation in the minority stock offering will be $34,000,00 or 3,400,000 shares at $10 per share based on the midpoint of the appraised value of $85.0 million, representing 40.0 percent of the total value, excluding the 2.0 percent to the Foundation. The net conversion proceeds will be $32.9 million, reflecting conversion expenses of approximately $1,076,000. The actual cash proceeds to the Bank of $16.5 million will represent 50 percent of the net conversion proceeds. The ESOP will represent 8 percent of the gross shares issued, or 285,600 shares at $10 per share, representing $2,856,000. The Bank’s net proceeds will be used to fund new loans, to open new branches and to invest in securities following their initial deployment to short term investments. The Bank may also use the proceeds to expand services, expand operations or acquire other financial service organizations, diversity into other businesses, or for any other purposes authorized by law. The Corporation will use its proceeds to fund the ESOP, to purchase short- and intermediate-term government or

4

General (cont.)

federal agency securities or to invest in short-term deposits and can use the proceeds to pay dividends and buy back shares of common stock in the future.

Savings Institute has seen a moderate deposit increase over the past four fiscal years with deposits increasing 42.9 percent from December 31, 1999 to December 31, 2003, or an average of 10.7 percent per year. From December 31, 2003, to March 31, 2004, deposits increased by 2.0 percent or 8.0 percent, annualized, compared to a 9.7 percent growth rate in fiscal 2003. The Bank has focused on increasing its residential real estate loan and commercial loan activity during the past five years, monitoring its net interest margin and earnings and maintaining its equity to assets ratio. Equity to assets decreased slightly from 6.57 percent of assets at December 31, 1999, to 6.48 percent at December 31, 2003, and then increased slightly to 6.53 percent at March 31, 2004, due to a steady rise in earnings combined with moderate growth in assets.

Savings Institute’s primary lending strategy has been to focus on the origination of adjustable-rate and fixed-rate one-to four-family loans, the origination of construction loans, the origination of commercial mortgage loans, and the origination of consumer loans, including home equity loans.

Savings Institute’s share of one- to four-family mortgage loans has decreased modestly, from 65.5 percent of gross loans at December 31,1999, to 57.8 percent as of March 31, 2004. Commercial real estate and multi-family loans increased from 16.7 percent of loans to 19.1 percent from December 31, 1999, to March 31, 2004, respectively, while construction loans increased from 3.6 percent to 4.9 percent during the same time period. All types of real estate loans as a group decreased slightly from 85.8 percent of gross loans at December 31, 1999, to 81.5 percent at March 31, 2004. The decrease in real estate loans was offset by the Bank’s increase in commercial business loans. The Bank’s share of commercial loans witnessed an increase in their share of loans from 9.6 percent at December 31, 1999, to 13.7 percent at March 31, 2004, and the dollar level of commercial business loans increased from $22.1 million to $54.5 million. Consumer loans also witnessed an increase in their share of loans from 4.6

5

General (cont.)

percent at December 31, 1999, to 4.7 percent at March 31, 2004. Management’s internal strategy has also included continued emphasis on maintaining an adequate and appropriate allowance for loan losses relative to loans and nonperforming assets in recognition of the more stringent requirements within the industry to establish and maintain a higher level of general valuation allowances and also in recognition of the Bank’s rising level of higher risk loans. At December 31, 1999, Savings Institute had $2,284,000 in its loan loss allowance or 0.99 percent of gross loans and 169.6 percent of nonperforming assets, which increased to $2,835,000 but represented a lower 0.71 percent of gross loans and 167.3 percent of nonperforming assets at March 31, 2004.

Interest income from loans and investments has been the basis of earnings with the net interest margin being the key determinant of net earnings but a greater emphasis on noninterest income. With a dependence on net interest margin for earnings, current management will focus on continuing to strengthen the Bank’s net interest margin without undertaking excessive credit risk combined with maintaining the Bank’s interest risk position and continuing to strive to increase noninterest income.

6

PERFORMANCE OVERVIEW

Savings Institute’s financial position at year end December 31, 1999 through December 31, 2003, and at March 31, 2004, is shown in Exhibits 1 through 4. Exhibit 5 provides selected financial data at December 31, 1999, through 2003 and at March 31, 2004. Savings Institute has focused on growing its asset base and maintaining its equity ratio, increasing its loan portfolio and investment securities, and growing retail deposits. The impact of these trends, recognizing the change in interest rates, has been a rise in net interest rate spread from 3.65 percent at December 31, 1999, to 3.86 percent at December 31, 2003, and then a decrease to 3.61 percent for the three months ended March 31, 2004. Savings Institute has experienced a relatively strong increase in assets from December 31, 1999, through March 31, 2004, with a similar increase in deposits, a moderate increase in FHLB advances and a moderate increase in the dollar level of equity over the past five periods.

Savings Institute witnessed a total increase in assets of $176.5 million or 51.6 percent for the period of December 31, 1999, to December 31, 2003, representing an average annual increase in assets of 12.9 percent. For the year ended December 31, 2003, assets increased $33.2 million or 6.8 percent. For the three months ended March 31, 2004, the Bank’s assets increased $19.3 million or 3.7 percent. Over the past four fiscal periods, the Bank experienced its largest dollar rise in assets of $57.4 million in fiscal year 2002, which represented a strong 13.4 percent increase in assets funded by a rise in deposits of $35.3 million, a rise in FHLB advances of $8.7 million and the issuance of $7.2 million in subordinated debt. This increase in assets was succeeded by a $33.2 million or 6.8 percent increase in assets in fiscal year 2003 and then a $19.3 million increase or 3.7 percent from December 31, 2003, to March 31, 2004.

The Bank’s net loan portfolio, including mortgage loans and non-mortgage loans, increased from $227.9 million at December 31, 1999, to $394.7 million at March 31, 2004, and represented a total increase of $166.8 million, or 73.2 percent. The average annual increase during that period was 17.2 percent. For the year ended December 31, 2003, loans increased $19.0 million or 4.8 percent. For the three months ended March 31, 2004, net loans increased $8.3 million or 2.0 percent, representing 8.0 percent, annualized.

7

Performance Overview (cont.)

Savings Institute has pursued obtaining funds through deposits and FHLB advances in accordance with the demand for loans and secondary market activity. The Bank’s competitive rates for deposits in its local market in conjunction with its focus on service and a larger network of offices have been the sources for attracting retail deposits. Deposits increased $125.3 million or 42.9 percent from 1999 to 2003, with an average annual rate of increase of 10.7 percent. For the three months ended March 31, 2004, deposits increased by $8.3 million or 2.0 percent, annualized to 8.0 percent. The Bank’s largest fiscal year deposit growth was in 2001, when deposits increased $41.2 million or a relatively strong 12.8 percent. The Bank’s FHLB advances increased from $25.7 million at December 31, 1999, to $57.2 million at December 31, 2003, and then increased to $65.0 million at March 31, 2004.

Savings Institute has been able to increase its equity level each fiscal year from 1999 through 2003 and in the three months ended March 31, 2004. At December 31, 1999, the Bank had equity of $22.4 million, representing a 6.57 percent equity to assets ratio and then increased to $34.1 million at December 31, 2003, representing a similar 6.58 percent equity to assets ratio due to the Bank’s growth in assets. At March 31, 2004, equity was a higher $35.1 million but a lower 6.53 percent of assets due to the Bank’s continued growth. The overall stability in the equity to assets ratio from 1999 to 2003 is the result of the Bank’s moderate earnings performance impacted by the Bank’s stronger growth in assets. The dollar level of equity increased 52.0 percent from December 31, 1999, to December 31, 2003, representing an average annual increase of 13.0 percent and increased 2.9 percent for the three months ended March 31, 2004, or 11.5 percent, annually.

8

INCOME AND EXPENSE

Exhibit 6 presents selected operating data for Savings Institute, reflecting the Bank’s income and expense trends. This table provides key income and expense figures in dollars for the fiscal years of 1999 through 2003 and for the three months ended March 31, 2004.

Savings Institute witnessed an overall increase in its dollar level of interest income from December 31, 1999, to December 31, 2002, and then a decrease for the year ended December 31, 2003 and for the three months ended March 31, 2004, due to the decrease in interest rates in the market and at the Bank. Interest income was $23.0 million in 1999 and a higher $28.3 million in 2002. This trend was a rising trend that continued each year from 1999 through 2002. For the year ended December 31, 2003, interest income was $27.9 million, compared to a higher $28.3 million in 2002. For the three months ended March 31, 2004, interest income was $6.8 million compared to a higher $7.0 million for the three months ended March 31, 2003.

The Bank’s interest expense experienced a similar trend with an overall increase from fiscal year 1999 to 2001, and then decreased in 2002 and 2003. Interest expense increased $2.9 million or 28.1 percent from 1999 to 2001, compared to a larger dollar increase in interest income of $4.6 million but a smaller 20.0 percent increase for the same time period. Interest expense then decreased $2.1 million or 16.3 percent from 2001 to 2002, compared to an increase in interest income of $722,000 or 2.6 percent. Such increase in interest income in 2002, notwithstanding the decrease in interest expense, resulted in a larger dollar increase in annual net interest income of $2.9 million or 19.8 percent for the fiscal year ended December 31, 2002, and a moderate increase in net interest margin. Interest expense decreased $1.7 million or 15.1 percent in 2003, compared to a smaller $400,000 decrease in interest income and a minimal increase in net interest spread. Net interest income increased from $12.7 million in 1999, to $18.6 million in 2003. For the three months ended March 31, 2004, Savings Institute’s actual net interest income was $4,533,000 or $18.1 million, annualized, which was modestly lower than the $4,541,000 for the three months ended March 31, 2004, or $18.2 million, annualized.

9

Income and Expense (cont.)

The Bank has made provisions for loan losses in each of the past five fiscal years of 1999 through 2003 and also in the three months ended March 31, 2004. The amounts of those provisions were determined in recognition of the Bank’s levels of nonperforming assets, charge-offs, repossessed assets, the Bank’s rise in lending activity, and industry norms. The loan loss provisions were $300,000 in 1999, $290,000 in 2000, $440,000 in 2001, $537,000 in 2002, $1,602,000 in 2003 and $150,000 in the three months ended March 31, 2004. The higher provision in 2003 was related to the charge-off of one large loan. The impact of these loan loss provisions has been to provide Savings Institute with a general valuation allowance of $2,835,000 at March 31, 2004, or 0.71 percent of gross loans and 167.2 percent of nonperforming assets.

Total other income or noninterest income indicated a rising trend from fiscal year 1999 through 2003. The highest level of noninterest income was in fiscal year 2003 at $4.7 million or 0.91 percent of assets, including $393,000 in gains on the sale of loans. The lowest level of noninterest income was $2.8 million was in 1999, representing 0.82 percent of assets. The average noninterest income level for the past five fiscal years was $3.5 million or 0.81 percent of average assets. In the three months ended March 31, 2004, noninterest income was $1,235,000 or 0.92 percent of assets on an annualized basis. Noninterest income consists primarily of service charges and fees, wealth management fees, other income and gains on the sale of loans and investments.

The Bank’s general and administrative expenses or noninterest expenses increased from $12.9 million for the fiscal year of 1999 to $16.6 million for the fiscal year ended December 31, 2003. The largest dollar increase in noninterest expenses was $1.4 million from 2000 to 2001. This larger increase in noninterest expenses was due primarily to the Bank’s office expansion and the addition of new staffing combined with the normal rise in overhead expenses. On a percent of average assets basis, operating expenses decreased from 3.89 percent of average assets for the fiscal year ended December 31, 1999, to 3.30 percent for the fiscal year ended December 31,

10

Income and Expense (cont.)

2003. For the three months ended March 31, 2004, Savings Institute’s ratio of operating expenses to average assets was a higher 3.52 percent.

The net earnings position of Savings Institute has indicated increasing earnings from 1999 to 2003, and then a decrease in performance in the three months ended March 31, 2004. The annual net income figures for the fiscal years of 1999 to 2003 were $1,464,000, $1,937,000, $1,916,000, $3,082,000 and $3,385,000, respectively, representing returns on average assets of 0.44 percent, 0.55 percent, 0.48 percent, 0.68 percent and 0.67 percent for fiscal years 1999 through 2003, respectively. For the three months ended March 31, 2004, net earnings were $804,000, representing an annualized return on average assets of 0.62 percent.

Exhibit 7 provides the Bank’s normalized earnings or core earnings for the twelve months ended March 31, 2004 and the fiscal year 2003. The Bank’s normalized earnings eliminate any nonrecurring income and expense items. There was one adjustment to income to reduce the Bank’s level of provision for loan losses due to the provision related to a loan charge-off.

The key performance indicators comprised of selected performance ratios, asset quality ratios and capital ratios are shown in Exhibit 8 to reflect the results of performance. The Bank’s return on assets increased from 0.44 percent in 1999 to 0.55 percent in fiscal year 2000 and then to a lesser of 0.48 percent in fiscal year 2001. It then increased to 0.68 percent in 2002 and was a similar 0.67 percent in 2003. It was still lower for the three months ended March 31, 2004, at 0.62 percent, annualized, due primarily to the Bank’s decrease in its net interest margin.

The Bank’s average net interest rate spread decreased from 3.65 percent in 1999 to 3.49 percent in 2000 and 2001 and then increased to 3.83 percent in fiscal year 2002 and to 3.86 percent in fiscal 2003. For the three months ended March 31, 2004, net interest spread decreased to 3.61 percent, annualized. The Bank’s net interest margin indicated a similar overall trend, decreasing from 3.97 percent in 1999 to 3.87 percent in 2000 and then to 3.86 percent in 2001

11

Income and Expense (cont.)

rising to 4.07 percent in fiscal year 2002, and then decreasing to 4.01 percent in fiscal year 2003 and then decreasing further to 3.76 percent for the three months ended March 31, 2004, annualized. Savings Institute’s average net interest rate spread increased 21 basis points from 1999 to 2003 to 3.86 percent from 3.65 percent in 1999. The Bank’s net interest margin followed a more stable trend, increasing 4 basis points to 4.01 percent in 2003 from 3.97 percent in 1999. For the three months ended March 31, 2004, Savings Institute’s annualized net interest spread decreased 25 basis points to 3.61 percent, and its net interest margin decreased 25 basis points to 3.76 percent.

The Bank’s return on average equity increased from 1999 to 2003. The return on average equity increased from 6.49 percent in 1999 to 10.34 percent in fiscal year 2003. For the three months ended March 31, 2004, return on average equity was a lesser 9.32 percent, annualized, due to the Bank’s lower earnings, resulting in a lower return on equity.

Savings Institute’s ratio of interest-earning assets to interest-bearing liabilities decreased modestly from 110.00 percent at December 31, 1999, to 107.77 percent at December 31, 2003, and then increased to 108.19 percent at March 31, 2004. The Bank’s stable ratio of interest-earning assets to interest-bearing liabilities is primarily the result of the Bank’s growth in deposits keeping pace with its growth in loans.

The Bank’s ratio of noninterest expenses to average assets decreased from 3.89 percent in fiscal year 1999 to a lower 3.30 percent in fiscal year 2003, due to the Bank’s stronger growth in assets combined with moderate increases in noninterest expenses. For the three months ended March 31, 2004, noninterest expenses to assets increased to 3.40 percent due to higher costs for professional services. Another key noninterest expense ratio reflecting efficiency of operation is the ratio of noninterest expenses to noninterest income plus net interest income referred to as the “efficiency ratio.” The industry norm is 57.3 percent with the lower the ratio indicating higher efficiency. The Bank has been characterized with a lower level of efficiency historically reflected in its higher efficiency ratio, which decreased from 83.9 percent in 1999 to 71.62

12

Income and Expense (cont.)

percent in 2003. The ratio then increased to 79.39 percent for the three months ended March 31, 2004, due to rise in noninterest expenses discussed previously.

Earnings performance can be affected by an institution’s asset quality position. The ratio of nonperforming assets to total assets is a key indicator of asset quality. Savings Institute witnessed a decrease in its nonperforming asset ratio from 1999 to 2003, and the ratio was below the industry norm. Nonperforming assets consist of loans delinquent 90 days or more, nonaccruing loans, real estate owned and repossessed assets. Savings Institute’s nonperforming assets consisted of all these items in 1999 through 2002 with no real estate owned in 2003 or at March 31, 2004. The ratio of nonperforming assets to total assets was 0.39 percent at December 31, 1999, then rose to 0.54 percent at December 31, 2001, and then decreased to 0.31 percent at December 31, 2003. At March 31, 2004, Savings Institute’ s ratio of nonperforming assets to total assets increased slightly to 0.32 percent of assets.

Another indicator of asset quality is the Bank’s ratio of allowance for loan losses to total loans and also to nonperforming loans. The Bank’s allowance for loan losses was 0.99 percent of loans at December 31, 1999, and decreased to 0.69 percent at December 31, 2003, and then increased to 0.71 percent of loans at March 31, 2004, with the increase due to the Bank’s increase in provision for loan losses. As a percentage of nonperforming loans, Savings Institute’s allowance for loan losses was 199.13 percent in 1999 and 207.48 percent in 2003. At March 31, 2004, the ratio was a similar 207.39 percent.

Exhibit 9 provides the changes in net interest income due to rate and volume changes for the fiscal years of 2002 and 2003 and for the three months ended March 31, 2004. In fiscal year 2002, net interest income increased $2,863,000, due to an increase in interest income of $723,000 accented by a $2,140,000 decrease in interest expense. The increase in interest income was due to an increase due to volume of $3,469,000, reduced by a decrease due to rate of $2,746,000.

13

Income and Expense (cont.)

For the fiscal year ended December 31, 2003, net interest income increased $1,268,000 due to a $1,668,000 decrease in interest expense reduced by a $400,000 decrease in interest income. The decrease in interest income was due to a $3,304,000 decrease due to rate reduced by a $2,904,000 increase due to volume. The decline in interest expense was the result of a decrease due to rate of $2,665,000 reduced by an increase due to volume of $997,000.

For the three months ended March 31, 2004, compared to the three months ended March 31, 2003, net interest income decreased $8,000 due to a $212,000 decrease in interest income reduced by a $204,000 decrease in interest expense. The decrease in interest income was due to an $877,000 decrease due to rate reduced by a $665,000 increase due to volume. The decline in interest expense was the result of a decrease due to rate of $435,000 reduced by an increase due to volume of $231,000.

14

YIELDS AND COSTS

The overview of yield and cost trends for the years ended December 31, 2001, 2002 and 2003, for the three months ended March 31, 2003 and 2004, and at March 31, 2004, can be seen in Exhibit 10, which offers a summary of key yields on interest-earning assets and costs of interest-bearing liabilities.

Savings Institute’s weighted average yield on its loan portfolio decreased 127 basis points from fiscal year 2001 to 2003, from 7.88 percent to 6.61 percent, and then decreased 56 basis points to 6.05 percent for the three months ended March 31, 2004, compared to a higher 6.96 percent for the three months ended March 31, 2003. The yield on securities decreased 185 basis points from 6.11 percent in 2001 to 4.26 percent in fiscal year 2003 and then decreased 19 basis points to 4.07 percent for the three months ended March 31, 2004, compared to a higher 4.36 percent for the three months ended March 31, 2003. The yield on other interest-earning assets decreased 227 basis points from fiscal year 2001 to 2003, from 3.80 percent to 1.53 percent and then decreased another 21 basis points to 1.32 percent for the three months ended March 31, 2004, compared to a higher 1.65 percent for the three months ended March 31, 2003. The combined weighted average yield on all interest-earning assets decreased 135 basis points to 6.03 percent from fiscal year 2001 to 2003, reflecting the Bank’s higher yield on loans. The yield on interest-earning assets for the three months ended March 31, 2004, was a lower 5.63 percent, compared to a higher 6.26 percent for the three months ended March 31, 2003.

Savings Institute’ s weighted average cost of interest-bearing liabilities decreased 172 basis points to 2.17 percent from fiscal year 2001 to 2003, which was greater than the Bank’s 135 basis point increase in yield, resulting in an increase in the Bank’s interest rate spread of 37 basis points from 3.49 percent to 3.86 percent from 2001 to 2003. For the three months ended March 31, 2004, the Bank’s cost of funds decreased 15 basis points to 2.02 percent, compared to a 40 basis point decrease in yield on interest-earning assets, resulting in a lower net interest rate spread by 25 basis points to 3.61 percent compared to 3.87 percent for the three months ended March 31, 2003. The Bank’s net interest margin decreased from 3.86 percent in fiscal year 2001 to 4.07 percent in fiscal year 2002, and then to 4.01 percent in fiscal year 2003. The Bank’s net

15

Yields and Costs (cont.)

interest margin for the three months ended March 31, 2004, decreased to 3.76 percent compared to a higher 4.06 percent for the three months ended March 31, 2003. The Bank’s yield on earning assets decreased 8 basis points to 5.55 percent at March 31, 2004, compared to 5.63 percent for the three months ended March 31, 2004. The Bank’s cost of funds remained at 2.07 percent at March 31, 2004, compared to an identical 2.02 percent for the three months ended March 31, 2003. The resultant net interest rate spread decreased 8 basis points to 3.53 percent at March 31, 2004, compared to 3.61 percent for the three months ended March 31, 2004.

16

INTEREST RATE SENSITIVITY

Savings Institute has closely monitored its interest rate sensitivity position and focused on maintaining a reasonable level of rate sensitive assets relative to rate sensitive liabilities. Savings Institute has recognized the thrift industry’s historically higher interest rate risk exposure, which caused a negative impact on earnings and net portfolio value (“NPV”) as a result of significant fluctuations in interest rates, specifically rising rates. Such exposure was due to the disparate rate of maturity and/or repricing of assets relative liabilities commonly referred to as an institution’s “gap.” The larger an institution’s gap, the greater the risk (interest rate risk) of earnings loss due to a decrease in net interest margin and a decrease in NPV or portfolio loss. In response to the potential impact of interest rate volatility and negative earnings impact, many institutions have taken steps during the late 1990’s and early 2000’s to reduce their gap position. This frequently results in a decline in the institution’s net interest margin and overall earnings performance. Savings Institute has responded to the interest rate sensitivity issue by originating and retaining adjustable-rate residential real estate loans, adjustable-rate commercial loans, short term construction and consumer loans and adjustable-rate commercial business loans.

The Bank measures its interest rate risk through the use of the calculation of its net interest income and the changes in net interest income under rising and falling interest rate assumptions. Such changes in the Bank’s net interest income under changing rates is reflective of the Bank’s interest rate risk exposure.

There are numerous factors which have a measurable influence on interest rate sensitivity in addition to changing interest rates. Such key factors to consider when analyzing interest rate sensitivity include the loan payoff schedule, accelerated principal payments, deposit maturities, interest rate caps on adjustable-rate loans and deposit withdrawals.

Exhibit 11 provides the Bank’s interest rate risk exposure as of December 31, 2003, and at March 31, 2004. Such calculations are provided by an outside service, EPG, Inc. Boston, Massachusetts. The focus of this exposure table is a 200 basis points change in interest rates

17

Interest Rate Sensitivity (cont.)

either up or down to reflect the Bank’s sensitivity measure, which is the percentage change in net interest income over a twelve-month period.

The Bank’s change in net interest income at March 31, 2004, based on a rise in interest rates of 200 basis points over a twelve-month period was a 3.79 percent decrease. In contrast, based on a decline in interest rates of 200 basis points, the Bank’s change in net interest income was not measurable due to currently low interest rates. The Bank’s change in its net interest income decreases to a 0.42 percent increase under a 100 basis point rise in rates, and the change in net interest income is estimated to show a decrease of 0.83 percent, based on a 100 basis point decrease in rates.

The Bank’s change in net interest income at December 31, 2003, based on a 100 basis point rise in rates indicated an increase of 0.84 percent. The Bank’s sensitivity measure was a negative 194 basis points based on a 100 basis point decrease in rates.

Due to Savings Institute’s recognition of the need to control its interest rate exposure, the Bank will continue to be active in the origination and retention of adjustable-rate residential and commercial mortgage loans, commercial business loans and consumer loans.

18

LENDING ACTIVITIES

Savings Institute has focused its lending activity on the origination of conventional mortgage loans secured by one- to four-family dwellings, commercial real estate loans, including multi-family loans, construction loans, commercial business loans and consumer loans. Exhibit 12 provides a summary of Savings Institute’s loan portfolio, by loan type, at December 31, 1999 through 2003, and at March 31, 2004.

Residential loans secured by one- to four-family dwellings was the primary loan type representing 57.6 percent of the Bank’s gross loans as of March 31, 2004. This share has seen a modest decrease from 65.5 percent at December 31, 1999. The second largest real estate loan type as of March 31, 2004, was commercial real estate loans, including multi-family loans, which comprised a moderate 19.1 percent of gross loans compared to 16.6 percent as of December 31, 1999. The third key real estate loan type was commercial business loans, which represented 13.7 percent of gross loans as of March 31, 2004, compared to a lower 9.6 percent at December 31, 1999. These three real estate loan categories represented a strong 90.4 percent of gross loans at March 31, 2004, compared to a larger 91.7 percent of gross loans at December 31, 1999.

Construction loans represent a moderate size loan category for Savings Institute. Construction loans totaled $19.5 million and represented 4.9 percent of gross loans at March 31, 2004, compared to a lesser 3.6 percent at December 31, 1999.

The consumer loan category was the remaining loan type at March 31, 2004, and represented a modest 4.7 percent of gross loans compared to 4.6 percent at December 31, 1999. Consumer loans were the fifth largest overall loan type at March 31, 2004, and the fourth largest at December 31, 1999, surpassing construction loans. The Bank’s consumer loans include home equity loans, home equity lines of credit, automobile loans, savings account loans and secured and unsecured personal loans. The overall mix of loans has witnessed modest changes from fiscal year-end 1999 to March 31, 2004, with the Bank having decreased its share of residential mortgage loans to offset its increases in construction loans, commercial real estate loans, commercial business loans and consumer loans, primarily comprised of home equity loans.

19

Lending Activities (cont.)

The emphasis of Savings Institute’s lending activity is the origination of conventional mortgage loans secured by one- to four-family residences. Such residences are located in Savings Institute’s primary market area, which includes Hartford, New London, Tolland and Windham Counties. At March 31, 2004, 66.6 percent of Savings Institute’s gross loans consisted of loans secured by one- to four-family residential properties.

The Bank offers several types of adjustable-rate mortgage loans, (“ARMs”) with adjustment periods of one year, three years, five years, seven years and ten years. The interest rates on ARMs are generally indexed to the one-year Treasury constant maturity index. ARMs have a maximum rate adjustment of 2.0 percent at each adjustment period and 6.0 percent for the life of the loan. Rate adjustments are computed by adding a stated margin to the index, generally 2.75 percent. The Bank retains all ARMs which it originates. The majority of ARMs have terms of 15 to 20 years with a maximum term of 30 years.

The Bank periodically offers adjustable-rate mortgage loans with discounted or teaser rates at rates below those which would prevail under normal computations based upon a determination of market factors and competitive rates in the market. On such discounted loans, the borrower is qualified at both the initial rate and the fully-indexed rate.

The Bank’s one- to four-family mortgage loans remain outstanding for shorter periods than their contractual terms, because borrowers have the right to refinance or prepay. These mortgage loans contain “due on sale” clauses which permit the Bank to accelerate the indebtedness of the loan upon transfer of ownership of the mortgage property.

The Bank’s other key mortgage loan product is a fixed-rate mortgage loan with a share of Savings Institute’s new fixed-rate mortgage loans being sold in the secondary market. The Bank has historically retained most of its fixed-rate mortgage loans. Fixed-rate mortgage loans have a maximum term of 30 years. The Bank’s fixed-rate mortgage loans conform to FHLMC underwriting standards.

20

Lending Activities (cont.)

The normal loan-to-value ratio for conventional mortgage loans to purchase or refinance one-to four-family dwellings generally does not exceed 80 percent at Savings Institute, even though the Bank is permitted to make loans up to a 95 percent loan-to-value ratio. The Bank does make loans up to 95 percent of loan-to-value but does require private mortgage insurance or additional collateral for the amount in excess of the 80.0 percent loan-to-value ratio. Mortgage loans originated by the Bank include due-on-sale clauses enabling the Bank to adjust rates on fixed-rate loans in the event the borrower transfers ownership.

Savings Institute has also been an originator of adjustable-rate and fixed-rate commercial real estate loans and multi-family loans in the past and will continue to make multi-family and commercial real estate loans. The Bank had a total of $75.7 million in commercial real estate and multi-family loans at March 31, 2004, or 19.1 percent of gross loans, compared to $38.4 million or 16.6 percent of gross loans at December 31, 1999. The major portion of commercial real estate and multi-family loans are secured by condominiums, apartment buildings, small retail establishments, warehouses, small office buildings and other commercial properties located in the market area. Most of the multi-family and commercial real estate loans are fully amortizing with a term of up to 30 years for adjustable-rate loans with a five-year adjustment period and a term of 15 years for fixed-rate loans. The maximum loan-to-value ratio is normally 80 percent for fixed-rate loans and 75.0 percent of the appraised value for adjustable-rate loans.

The Bank also originates construction loans to individuals and to a lesser extent to builders for the construction of single-family homes. The Bank had $19.5 million or 4.9 percent of gross loans in construction loans secured by one- to four-family residences. Construction loans normally have a term of twelve months with a fixed interest rate for the term of the loan and a loan-to-value ratio of no more than 85.0 percent. The construction loan normally converts to a permanent loan at the end of the construction period. The Bank will originate commercial construction loans for a loan-to-value ratio of up to 75.0 percent. The Bank also originates land loans to individuals, area homebuilders and developers. Land loans normally have rates tied to

21

Lending Activities (cont.)

the one-year constant maturity Treasury index with terms of up to fifteen years. The maximum loan-to-value ratio is 75.0 percent for a ten-year loan and 60.0 percent for a fifteen-year loan.

Savings Institute is an originator of commercial business loans with these loans totaling $54.5 million at March 31, 2004, and representing 13.7 percent of gross loans. Commercial business loans are normally secured by business assets such as inventory or business equipment. These loans have a maximum loan-to-value ratio of 75.0 percent of the personal property.

Savings Institute has also been involved in consumer lending. Consumer loans originated consist primarily of home equity loans and lines of credit, which represented a total of $15.8 million or 84.1 percent of consumer loans at March 31, 2004, up from $6.5 million or 61.5 percent of consumer loans at December 31, 1999. Total consumer loans were $18.8 million or 4.7 percent of gross loans at March 31, 2004, and a lesser $10.6 million or 4.6 percent of gross loans at December 31, 1999. Savings Institute offers home equity loans and lines of credit with a maximum loan-to-value ratio of 100.0 percent, provided that loans in excess of 80.0 percent will be charged a higher rate of interest and require a guarantee. These loans have a term of five years with rates generally tied to the current prime rate.

Exhibit 13 provides a loan maturity schedule and breakdown and summary of Savings Institute’s fixed- and adjustable-rate loans, indicating a majority of fixed-rate loans. At March 31, 2004, 34.8 percent of the Bank’s loans due after March 31, 2005, were adjustable-rate and 65.2 percent were fixed-rate. The Bank has a lower 4.2 percent of its loans at March 31, 2004, due in one year or less with another 7.8 percent due in one to five years.

As indicated in Exhibit 14, Savings Institute experienced a significant increase in its one-to four-family loan originations and total loan originations from fiscal year 1999 to 2003. Total loan originations in fiscal year 1999 were $68.7 million compared to $207.7 million in fiscal year 2003, reflective of a higher level of real estate loans accented by higher levels of commercial business loans and consumer loans. The increase in real estate loan originations from 1999 to

22

Lending Activities (cont.)

2003 of $124.8 million constituted 89.8 percent of the $138.9 million aggregate increase in total loan originations from 1999 to 2003, with $138.9 commercial business loans increasing $6.5 million, representing 4.7 percent of the total increase in loan originations. Consumer loans increased $7.6 million from 1999 to 2003. Loan originations for the three months ended March 31, 2004, were $27.8 million, representing a lesser $111.4 million on an annualized basis, indicating a significant decrease in loan origination activity. Loan originations on residential real estate loans represented 81.7 percent of total loan originations in fiscal year 1999, and 87.1 percent in fiscal year 2003. Residential real estate loan originations decreased to 75.9 percent of total loan originations for the three months ended March 31, 2004, with the purchase of loans increasing. Consumer loans represented 13.2 percent of total loan originations in 1999 and a lesser 8.0 percent in 2003. For the three months ended March 31, 2004, these loans represented a larger 12.4 percent of total originations. Commercial business loans represented a modest 5.2 percent of total loan originations in 1999 and a lesser 4.8 percent in 2003. For the three months ended March 31, 2004, commercial business loans represented a larger 11.7 percent of total loan originations.

In addition to loan originations, the Bank had loan purchases in each of the periods. In fiscal 1999, loan purchases totaled $8.0 million and increased to $26.4 million in fiscal 2003. For the three months ended March 31, 2004, loan purchases totaled $3.6 million compared to $2.4 million for the three months ended March 31, 2003.

Overall, loan originations and purchases exceeded principal payments, loans sales, loan repayments and other deductions in each of the periods. In fiscal 1999, loan originations and purchases exceeded reductions by $16.6 million, increasing to $51.4 million in 2003. For the three months ended March 31, 2004, loan originations and purchases were greater than total reductions by $7.9 million with total loan sales representing $4.5 million.

23

NONPERFORMING ASSETS

Savings Institute understands asset quality risk and the direct relationship of such risk to delinquent loans and nonperforming assets, including real estate owned. The quality of assets has been a key concern to financial institutions throughout many regions of the country. A number of financial institutions have been confronted with rapid increases in their levels of nonperforming assets and have been forced to recognize significant losses, setting aside major valuation allowances. A sharp increase in nonperforming assets has often been related to specific regions of the country and has frequently been associated with higher risk loans, including purchased commercial real estate loans and multi-family loans. Savings Institute has not been faced with such problems in the past and has made a concerted effort to control its nonperforming assets, recognizing the depressed nature of its local economy, and has been successful.

Exhibit 15 provides a summary of Savings Institute’s delinquent loans at December 31, 2001 through 2003, and at March 31, 2004, indicating an overall increase in delinquent loans from December 31, 2001, to December 31, 2003, and then a decrease by March 31, 2004. The Bank had no loans delinquent 60 to 89 days at March 31, 2004. Loans delinquent 30 to 59 days totaled $387,000 at March 31, 2004, or 0.10 percent of gross loans with most of them real estate loans. At December 31, 2003, delinquent loans of 30 to 89 days totaled $861,000 or 0.22 percent of gross loans compared to a lesser $542,000 or 0.18 percent of gross loans at December 31, 2001.

Savings Institute’s board reviews most loans delinquent 30 days or more on a monthly basis, to assess their collectibility and to initiate any direct contact with borrowers. When a loan is delinquent 15 days, the Bank sends the borrower a late payment notice. The Bank then initiates both written and oral communication with the borrower if the loan remains delinquent and sends additional notices after 30 days and 60 days of delinquency. When the loan becomes delinquent at least 90 days, the Bank will normally commence foreclosure proceedings. The Bank does not normally accrue interest on loans past due 90 days or more unless the loan is adequately collateralized and in the process of collection. Most loans delinquent 90 days or more

24

Nonperforming Assets (cont.)

are placed on a nonaccrual status, and at that point in time the Bank pursues foreclosure procedures.

Exhibit 16 provides a summary of Savings Institute’s nonperforming assets at March 31, 2004, and at December 31, 1999 through 2003. Nonperforming assets normally consist of loans 90 days or more past due, nonaccruing loans and repossessed assets. The Bank had no loans 90 days or more past due at March 31, 2004. The Bank has normally carried a moderate level of nonperforming assets. Savings Institute’s level of nonperforming assets ranged from a high dollar amount of $2,291,000 or 0.54 percent of total assets at December 31, 2001, to a low dollar amount of $1,347,000 or 0.39 percent of assets at December 31, 1999. The Bank’s nonperforming assets totaled $1,623,000 at December 31, 2003, representing 0.31 percent of assets and a similar $1,695,000 at March 31, 2004, representing 0.32 percent of assets.

Savings Institute’s level of nonperforming assets was less than its level of classified assets. The Bank’s level of classified assets was $2,625,000 or 0.49 percent of assets at March 31, 2004 (reference Exhibit 17). The Bank’s classified assets consisted of $2,473,000 in substandard assets, $142,000 in assets classified as doubtful and $10,000 classified as loss.

Exhibit 18 shows Savings Institute’s allowance for loan losses at March 31, 2003 and 2004, and for fiscal years ended 1999 through 2003, indicating the activity and the resultant balances. Savings Institute has witnessed a modest increase in its balance of allowance for loan losses from $2,284,000 at December 31, 1999 to $2,688,000 at December 31, 2003. The balance in allowance for loan losses then increased further to $2,835,000 at March 31, 2004, with provisions of $300,000 in 1999, $290,000 in 2000, $440,000 in 2001, $537,000 in 2002, $1,602,000 in fiscal 2003, and $150,000 in the first three months ended March 31, 2004. The Bank had net charge-offs of $488,000 in fiscal 1999, $184,000 in fiscal 2001, $331,000 in 2002, $1,981,000 in 2003 and $3,000 for the three months ended March 31, 2004. The Bank’s ratio of allowance for loan losses to gross loans was 0.99 percent at December 31, 1999, and a lower 0.69 percent at December 31, 2003, due to higher net charge-offs. The allowance for loan losses

25

Nonperforming Assets (cont.)

to gross loans increased to 0.71 percent of loans at March 31, 2004, due to minimal net charge-offs. Allowance for loan losses to nonperforming assets was 169.6 percent at December 31, 1999, and a similar 165.5 percent at December 31, 2003. The ratio of allowance for loan losses to nonperforming assets was a slightly higher 167.2 percent at March 31, 2004.

INVESTMENTS

The investment and securities portfolio, excluding interest-bearing deposits, has been comprised of U.S. government and federal agency obligations, mortgage-backed securities, corporate debt securities, equity securities, municipal securities and other debt securities. Exhibit 19 provides a summary of Savings Institute’s investment portfolio at December 31, 2001, 2002 and 2003 and at March 31, 2004, excluding FHLB stock. The exhibit also provides a summary of the Bank’s mortgage-backed securities, which are held-to-maturity. Investment securities totaled $83.1 million at March 31, 2004, compared to $79.4 million at December 31, 2003, and $91.9 million at December 31, 2001. Included in these totals are $1.7 million in mortgage-backed securities that are held-to-maturity at March 31, 2004, a similar $1.7 million at December 31, 2003, and a greater $13.2 million at December 31, 2001. The primary component of investment securities at March 31, 2004, was U.S. government and federal agency obligations, representing 56.9 percent of total investments, excluding FHLB stock compared to a lesser 20.1 percent at December 31, 2001. The primary component of investment securities in 2001 was mortgage-backed securities that are available-for-sale which represented 39.5 percent of total investments. The Bank also had interest-bearing deposits totaling $17.8 million at March 31, 2004, and a lesser $10.9 million at December 31, 2001. The Bank had $3,350,000 in FHLB stock at March 31, 2004, and a lesser $2,134,000 at December 31, 2001. The weighted average yield on investment securities was 3.94 percent at March 31, 2004.

26

DEPOSIT ACTIVITIES

The mix of deposits by amount from December 31, 2001, to March 31, 2004, is provided in Exhibit 20. There has been a moderate change in both total deposits and in the deposit mix during this period. Total deposits have increased from $363.0 million at December 31, 2001, to $425.6 million at March 31, 2004, representing an increase of $62.6 million or 17.2 percent. Certificates of deposit have increased from $173.1 million at December 31, 2001, to $191.4 million at March 31, 2004, representing an increase of $18.3 million or 10.6 percent, while savings, NOW, MMDA and noninterest-bearing accounts have increased $44.3 million from $189.9 million at December 31, 2001, to $234.2 million at March 31, 2004 or 23.3 percent.

Certificates of deposit witnessed a decrease in their share of deposits, declining from a modest 47.7 percent of deposits at December 31, 2001, to a lower 45.0 percent of deposits at March 31, 2004. The major component of certificates at March 31, 2004, had rates between 1.01 percent and 2.00 percent and represented 37.2 percent of certificates. At December 31, 2001, the major component of certificates was the 4.01 percent to 5.00 percent category with a lesser 32.5 percent of certificates. The category witnessing the strongest growth from December 31, 2001, to March 31, 2004, was certificates with rates between 1.01 percent and 2.0 percent, which increased $71.2 million during this time period. The category witnessing the largest decrease from December 31, 2001, to March 31, 2004, was certificates with rates between 4.01 percent and 5.00 percent, which declined $33.3 million.

Exhibit 21 provides a breakdown of certificates by maturity as of March 31, 2004. A strong 54.3 percent of the Bank’s certificates of deposit mature in one year or less. The largest category of certificates based on interest rate was certificates with rates from 1.01 percent to 2.0 percent, totaling $71.2 million, representing 37.2 percent of certificates.

Exhibit 22 shows the Bank’s deposit activity for the three years ended December 31, 2001, 2002 and 2003, and for the three months ended March 31, 2003 and 2004. Excluding interest credited, Savings Institute experienced net increases in deposits in each fiscal year and for the three months ended March 31, 2003 and 2004. In fiscal year 2001, there was a net increase in

27

Deposit Activity (cont.)

deposits of $29.8 million, decreasing to $12.4 million in 2003 and to $6.8 million for the three months ended March 31, 2004. Including interest credited, there was a larger net increase in deposits. In fiscal year 2001, there was a net decrease in deposits of $41.2 million resulting in a 12.8 percent increase in deposits, including interest credited; and in 2003, there was a net increase in deposits of $19.0 million or 4.8 percent. For the three months ended March 31, 2004, a net increase in deposits of $8.3 million produced a net rise of 2.1 percent, or 8.4 percent, annualized.

BORROWINGS

Savings Institute has made regular use of FHLB advances from December 31, 1999, to March 31, 2004. The Bank had $65.0 million in FHLB advances at March 31, 2004, with an average rate of 4.14 percent compared to a lesser $35.2 million at December 31, 2001, with an average rate of 5.49 percent. The Bank also had $7.2 million in subordinated FHLB advances represented 12.1 percent of assets at March 31, 2004, compared to a lesser 8.2 percent at December 31, 2001 (reference Exhibit 23).

SUBSIDIARIES

Savings Institute had three wholly-owned subsidiaries at March 31, 2004, 803 Financial Corp., SI Realty Company, Inc., and SI Mortgage Company. 803 Financial Corp. was established in 1995 to maintain an ownership interest in a third party registered broker-dealer, Infinex Investments, Inc. Infinex operates an office at Savings Institute and offers a complete range of nondeposit investment products, including mutual funds, debt, equity and government securities, retirement accounts, insurance products and fixed and variable annuities. Savings Institute receives a share of the commissions from Infinex which represented $48,000 for the three months ended March 31, 2004. SI Realty was established in 1999 to hold real estate owned

28

Subsidiaries (cont.)

by Savings Institute, including foreclosure properties. At March 31, 2004, SI Realty had $560,000 in assets. SI Mortgage Company was also formed in 1999 to manage and hold loans secured by real property. SI Mortgage qualifies as a “passive investment company,” which exempts it from Connecticut income tax.

OFFICE PROPERTIES

Savings Institute had fifteen offices at March 31, 2004, located in Hartford, New Holland, Tolland and Windham Counties (reference Exhibit 24). Savings Institute owns two offices and leases thirteen offices. The Bank’s net investment in its office premises totaled $3.9 million or 0.70 percent of assets at March 31, 2004, and the Bank’s investment in fixed assets was $6.5 million or 1.2 percent of assets at March 31, 2004.

MANAGEMENT

The President and Chief Executive Officer of Savings Institute is Rheo A. Brouillard, who is also a director. Mr. Brouillard joined the Bank in 1995, serving the Bank as President. He was also appointed a director in 1995. Prior to joining Savings Institute, Mr. Brouillard was President of Danielson Federal Savings and Loan Association, Danielson, Connecticut, from 1989 to 1994 and served as Executive Vice President of New London Trust, the successor to Danielson Federal as the result of a merger, from 1994 to 1995. Brian J. Hull is Executive Vice President and Chief Financial Officer. He joined the Bank in 1997. Mr. Hull is also Executive Vice President, Chief Financial Officer and Treasurer of SI Financial Group and SI Bancorp, MHC. Prior to joining Savings Institute, Mr. Hull was Senior Vice President and Treasurer of First Bank of West Hartford from 1989 to 1997. Sonia M. Dudas is Senior Vice President and Senior Trust Officer. She joined the Bank in 1992 and is responsible for management of the Bank’s financial services group, including trust services, investment services and insurance services. Michael J. Moran is Senior Vice President and Senior Credit Officer. Mr. Moran joined the Bank in 1995.

29

II. DESCRIPTION OF PRIMARY MARKET AREA

Savings Institute’s retail market area encompasses all of Hartford, New London, Tolland and Windham Counties, Connecticut (“market area”) where the Bank’s offices are located with most of the Bank’s offices located in Windham County. The Bank has fifteen offices, one in Hartford County, five in New London County, two in Tolland County and seven in Windham County, including two offices in Willimantic with one being the main office of the Bank.

Exhibit 26 provides a summary of key demographic data and trends for the market area, Hartford, New London, Tolland and Windham Counties, Connecticut and the United States. Overall, from 1990 to 2000, population increased in all areas. The population increased by 1.8 percent in the market area, by 0.6 percent in Hartford County, 1.6 percent in New London County, 6.0 percent in Tolland County, 6.4 percent in Windham County, 3.6 percent in Connecticut and 13.2 percent in the United States. Future population projections indicate that population will continue to increase in all areas from 2000 through the year 2008. The market area’s population is projected to increase by 3.1 percent with the populations of Hartford, New London, Tolland and Windham Counties, Connecticut and the United States projected to increase by 2.5 percent, 1.9 percent, 8.1 percent, 3.9 percent, 3.6 percent and 9.9 percent, respectively.

Consistent with its slightly rising trend in population, the market area witnessed an increase in households (families) of 5.1 percent from 1990 to 2000. During that same time period, the number of households increased in Hartford County by 3.2 percent, in New London County by 6.7 percent, in Tolland County by 11.8 percent, in Windham County by 9.8 percent, in Connecticut by 5.8 percent and in the United States by 14.7 percent. From 2000 through the year 2008, the market area’s households are projected to continue to increase by 5.4 percent, while the number of households are expected to increase by 4.6 percent in Hartford County, 4.8 percent in New London County, 11.5 percent Tolland County, 6.5 percent in Windham County, 5.7 percent in Connecticut and by 11.0 percent in the United States.

30

Description of Primary Market Area (cont.)

In 1990, the per capita income in the market area and each market area county was lower than the per capita income in Connecticut but higher than the United States. The market area had a 1990 per capita income of $15,985, while Connecticut and the United States had 1990 per capita income levels of $20,189 and $14,420, respectively. From 1990 to 2000, per capita income increased in all areas, with New London County having the greatest percent increase of 47.8 percent to $24,678. The market area’s per capita income increased from 1990 to 2000 by 43.1 percent to $22,887. Per capita income increased by 37.2 percent in Hartford County to $26,047, by 42.7 percent in Tolland County to $25,474, by 40.8 percent in Windham County to $20,443, by 42.5 percent in Connecticut to $28,766 and by 49.7 percent to $21,587 in the United States.

The 1990 median household income of $36,1967 in the market area was lower than the median household income in Connecticut at $41,721 but higher than the United States at $30,056. Hartford County had a 1990 median household income of $40,609, which was higher than Windham County’s median household income of $33,851 and New London County’s $37,488, but lower than Tolland County’s median household income of $45,019. Connecticut’s median household income was $41,721 and the United States’ median household income was $30,056. From 1990 to 2000, median household income increased in all areas, with New London County indicating the highest rate of increase and Hartford County the lowest. Median household income increased by 32.9 percent to $49,146 in the market area, by 25.0 percent to $50,756 in Hartford County, by 35.1 percent to $50,646 in New London County, by 31.2 percent to $59,044 in Tolland County, by 33.3 percent in Windham County to $45,115, compared to a 29.3 percent increase to $53,935 in Connecticut and a 39.7 percent increase to $41,994 in the United States. From 2000 to 2008, median household income is projected to increase by 20.7 percent in the market area, by 26.3 percent in Hartford County, by 22.2 percent in New London County, by 23.1 percent in Tolland County, by 17.8 percent in Windham County, while increasing by 27.4 percent in Connecticut and 29.3 percent in the United States. Based on those rates of increase, by 2008, median household income is expected to be $59,328 in the market

31

Description of Primary Market Area (cont.)

area, $64,088 in Hartford County, $61,865 in New London County, $72,694 in Tolland County, $53,143 in Windham County, $68,740 in Connecticut, and $54,319 in the United States.

Exhibit 27 provides a summary of key housing data for the market area, Hartford, New London, Tolland and Windham Counties, Connecticut and the United States. In 1990, the market area had a rate of owner-occupancy of 66.4 percent, higher than Connecticut at 65.6 percent and higher than the United States at 64.2 percent, with Hartford County at 62.7 percent, New London County at 64.7 percent, Tolland County at 72.0 percent and Windham County at 66.6 percent. As a result, the market area supported a rate of renter-occupied housing of 33.6 percent, compared to 34.4 percent for Connecticut and 35.8 percent for the United States. In 2000, owner-occupied housing increased in all the areas to 67.8 percent, 64.2 percent, 66.7 percent, 73.5 percent, 67.4 percent, 66.8 percent and 66.2 percent in the market area, Hartford County, New London County, Tolland County, Windham County, Connecticut and the United States, respectively. Conversely, the renter-occupied rates decreased in all areas to levels of 32.2 percent, 35.8 percent, 33.3 percent, 26.5 percent, 32.6 percent, 33.2 percent and 33.8 percent in the market area, Hartford County, New London County, Tolland County, Windham County, Connecticut and the United States, respectively.

The market area’s 1990 median housing value of $141,661 was based on the four market area counties, with all counties being lower than Connecticut’s median housing value of $176,700. The 1990 average median rent of the market area was $536, which is below the median rent of all market area counties except Windham County at $488. Connecticut had a median rent of $598 and the United States had median a rent level of $374. In 2000, median housing value had decreased in the market area and Connecticut with Tolland County having the highest level of $151,600 and Windham County having the lowest at $117,200. The market area had a 2000 median housing value of $132,069 with Connecticut at $166,900 and the United States at $119,600. In contrast, median rent levels had risen from 1990 to 2000, with Tolland County continuing to have the highest level. The 2000 median rent levels were $602, $681 and $602 in the market area, Connecticut and the United States, respectively.

32

Description of Primary Market Area (cont.)

In 1990, the major source of employment for the market area by industry group, based on share of employment, was the services industry at 36.0 percent. The services industry was responsible for 35.7 percent of jobs in Windham County, 36.4 percent in Connecticut and 34.0 percent in the United States (reference Exhibit 28). The manufacturing industry was the second major employer in the market area at 19.8 percent and also the second leading employer at 24.8 percent in Windham County. In Connecticut, the manufacturing industry was also the second major employer with 20.5 percent but was third in the United States at 19.2 percent behind the wholesale/retail trade group. The wholesale/retail trade group was the third major overall employer in the market area at 19.0 percent and represented 18.7 percent of employment in Windham County. In Connecticut, the wholesale/retail trade group was also the third major employer, responsible for 19.6 percent and a stronger 27.5 percent in the United States. The construction group, finance, insurance and real estate group, transportation/utilities group, and the agriculture/mining groups combined to provide 25.2 percent of employment in the market area, 20.8 percent of employment in Windham County, 23.5 percent of employment in Connecticut and 19.3 percent in the United States.

In 2000, the services industry, manufacturing industry and wholesale/retail trade industry provided the first, second and third highest levels of employment, respectively, for the market area and Connecticut but not the United States where the services industry, wholesale/retail trade and manufacturing industries provided the first, second and third highest levels of employment. The services industry accounted for 47.6 percent, 47.3 percent and 46.7 percent in the market area, Connecticut and the United States, respectively. The manufacturing industry provided for 14.5 percent, 14.8 percent and 14.1 percent in the same respective areas. The wholesale/retail trade group provided 14.2 percent, 14.4 percent and 15.3 percent of employment in the market area, Connecticut and the United States, respectively.

The market area’s major employers were mostly in the services sector. Some of the largest employers in the area are the University of Connecticut, Pfizer, General Dynamics Defense, Foxwood Casinos, Hallmark, area hospitals and school systems.

33

Description of Primary Market Area (cont.)

The unemployment rate is another key economic indicator. Exhibit 29 shows the unemployment rates in the market area, the market area counties, Connecticut and the United States in 2000 through April 2004. The market area and most of its counties have been characterized by higher unemployment rates than Connecticut but less than the United States. In 2000, the market area had an unemployment rate of 2.7 percent, compared to unemployment rates of 2.2 percent in Connecticut and 4.0 percent in the United States. The market area’s unemployment rate increased in 2001 to 3.6 percent, compared to 3.3 percent in Connecticut and a higher 4.8 percent in the United States. In 2002, the market area again increased its rate of unemployment to 4.5 percent. Connecticut also increased to 4.3 percent, and the United States increased to 5.8 percent. In 2003, all areas had increases in their unemployment rates. The market area’s unemployment rate increased to 5.8 percent, and the unemployment rates in Connecticut and the United States increased to 5.5 percent and 6.0 percent, respectively. By April 2004, the unemployment rate decreased to 5.2 percent in the market area, decreased to 5.2 percent in Connecticut and decreased to 5.4 percent in the United States.

The market area is characterized by a lower than average level of income when compared to Connecticut and a level of housing value also lower than Connecticut but higher than the United States. In addition, unemployment rates in the market area have been consistently higher than Connecticut. In both the 1990 and the 2000 Census, the market area’s strongest employment categories were the services industry, the manufacturing industry and the wholesale/retail trade industry.

Exhibit 30 provides deposit data for banks and thrifts in the market area. Savings Institute’s deposit base in the market area was $420.9 million or a 2.9 percent share of the $14.6 billion total thrift deposits but only a 1.5 percent share of the total deposits, which were $27.3 billion as of June 30, 2003. It is evident from the size of the thrift deposits and bank deposits that the market area has a strong deposit base, with Savings Institute having a minimal level of market penetration for thrift deposits and also for total deposits.

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Description of Primary Market Area (cont.)

Exhibit 31 provides interest rate data for each quarter for the years 2001 through 2003 and for the first quarter of 2004. The interest rates tracked are the Prime Rate, as well as 90-Day, One-Year and Thirty-Year Treasury Bills. Short term interest rates experienced a declining trend in 2001 and 2002 and then a flat trend in 2003. This trend indicates some increase in One-Year Treasury Bills and 30-Year Treasury Notes in the first quarter of 2004.

SUMMARY

To summarize, the market area represents an area with slightly rising population and household trends during the 1990s and early 2000s. Such growth is projected to continue through 2008. The market area displayed a lower per capita income and lower household income than Connecticut. In 1990, the median rent level of the market area was lower than Connecticut’s median rent. By 2000, the median rent level of the market area was still lower than Connecticut’s median rent. In 1990, the market area’s median housing value was also lower than Connecticut’s but higher than in the United States, and in 2000, the market area’s median housing value was again lower than Connecticut’s median housing value but above the United States. The market area has had a modestly higher unemployment rate when compared to Connecticut. Finally, the market area is a very competitive financial institution market dominated by savings institutions and a total market deposit base for banks and thrifts in the market area that is $27.3 billion in deposits.

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III. COMPARABLE GROUP SELECTION

Introduction

Integral to the valuation of the Corporation is the selection of an appropriate group of publicly-traded thrift institutions, hereinafter referred to as the “comparable group”. This section identifies the comparable group and describes each parameter used in the selection of each institution in the group, resulting in a comparable group based on such specific and detailed parameters, current financials and recent trading prices. The various characteristics of the selected comparable group provide the primary basis for making the necessary adjustments to the Corporation’s pro forma value relative to the comparable group. There is also a recognition and consideration of financial comparisons with all publicly-traded, FDIC-insured thrifts in the United States and all publicly-traded, FDIC-insured thrifts in the New England region and in Connecticut.

Exhibits 32 and 33 present Thrift Stock Prices and Pricing Ratios and Key Financial Data and Ratios, respectively, both individually and in aggregate, for the universe of 233 publicly-traded, FDIC-insured thrifts in the United States (“all thrifts”), excluding mutual holding companies, used in the selection of the comparable group and other financial comparisons. Exhibits 32 and 33 also subclassify all thrifts by region, including the 16 publicly-traded New England thrifts (“New England thrifts”) and the 2 publicly-traded thrifts in Connecticut (“Connecticut thrifts”), and by trading exchange. Exhibit 34 presents prices, pricing ratios and price trends for all FDIC-insured thrifts completing their conversions between January 1, 2003, and May 21, 2004.

The selection of the comparable group was based on the establishment of both general and specific parameters using financial, operating and asset quality characteristics of Savings Institute as determinants for defining those parameters. The determination of parameters was also based on the uniqueness of each parameter as a normal indicator of a thrift institution’s operating philosophy and perspective. The parameters established and defined are considered to be both reasonable and reflective of Savings Institute’s basic operation.

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Introduction (cont.)

In as much as the comparable group must consist of at least ten institutions, the parameters relating to asset size and geographic location have been expanded as necessary in order to fulfill this requirement.

GENERAL PARAMETERS

Merger/Acquisition

The comparable group will not include any institution that is in the process of a merger or acquisition due to the price impact of such a pending transaction. The following thrift institutions were potential comparable group candidates but had to be eliminated due to their involvement in a merger/acquisition.

Institution	State
Falmouth Bancorp, Inc.	Massachusetts
First Security Fed Financial	Illinois
GA Financial, Inc.	Pennsylvania
Warwick Community Bancorp	New York

There are no pending merger/acquisition transactions involving thrift institutions in Savings Institute’s city, county or market area, as indicated in Exhibit 35.

Mutual Holding Companies

The comparable group will not include any mutual holding companies. The percentage of public ownership of individual mutual holding companies indicates a wide range from minimal to 49.0 percent, the largest permissible percentage, causing them to demonstrate certain

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Mutual Holding Companies (cont.)

varying individual characteristics different among themselves and from conventional, publicly-traded companies. A further reason for the elimination of mutual holding companies as potential comparable group candidates relates to the presence of a mid-tier, publicly-traded holding company in some, but not all, mutual holding company structures. The presence of mid-tier holding companies can also result in inconsistent and unreliable comparisons among the relatively small universe of 38 publicly-traded mutual holding companies as well between those 38 entities and the larger universe of conventional, publicly-traded thrift institutions. As a result of the foregoing and other factors, mutual holding companies typically demonstrate higher pricing ratios that relate to their minority ownership structure and are inconsistent in their derivation with those calculated for conventionally structured, publicly-traded institutions. In our opinion, it is appropriate to limit individual comparisons to institutions that are 100 percent publicly owned. Exhibit 37 presents pricing ratios and Exhibit 38 presents key financial data and ratios for the 38 publicly-traded, FDIC-insured mutual holding companies in the United States. The following thrift institutions were potential comparable group candidates, but were not considered due to their mutual holding company form:

Institution	State
AJS Bancorp Inc., MHC	Illinois
BCSB BankcorpInc., MHC	Maryland
Greater Delaware Valley, MHC	Pennsylvania
Greene County Bancorp, Inc., MHC	New York
Jacksonville Bancorp, MHC	Illinois
Mid-Southern Savings Bank, MHC	Indiana
New England Bancshares, MHC	Connecticut
Oneida Financial Corp., MHC	New York
Partners Trust Financial, MHC	New York
Rome Bancorp Inc., MHC	New York
Service Bancorp, Inc. MHC	Massachusetts
Westborough Financial Services, MHC	Massachusetts
Westfield Financial Inc., MHC	Massachusetts

38

Trading Exchange

It is necessary that each institution in the comparable group be listed on one of the three major stock exchanges, the New York Stock Exchange, the American Stock Exchange, or the National Association of Securities Dealers Automated Quotation System (NASDAQ). Such a listing indicates that an institution’s stock has demonstrated trading activity and is responsive to normal market conditions, which are requirements for listing. Of the 271 publicly-traded, FDIC-insured savings institutions, including the 38 mutual holding companies, 17 are traded on the New York Stock Exchange, 18 are traded on the American Stock Exchange and 180 are traded on NASDAQ. There were an additional 48 institutions traded on the OTC Bulletin Board and 8 listed in the Pink Sheets, but they were not considered for the comparable group selection.

IPO Date

Another general parameter for the selection of the comparable group is the initial public offering (“IPO”) date, which must be at least four quarterly periods prior to the trading date of May 21, 2004, used in this report, in order to insure at least four consecutive quarters of reported data as a publicly-traded institution. The resulting parameter is a required IPO date prior to March 31, 2003.

Geographic Location

The geographic location of an institution is a key parameter due to the impact of various economic and thrift industry conditions on the performance and trading prices of thrift institution stocks. Although geographic location and asset size are the two parameters that have been developed incrementally to fulfill the comparable group requirements, the geographic location parameter has nevertheless eliminated regions of the United States distant to Savings Institute, including the western, southwestern and southeastern states.

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Geographic Location (cont.)

The geographic location parameter consists of Connecticut and its surrounding states of Massachusetts, Rhode Island and New York, as well as the states of Delaware, Indiana, Illinois, Kentucky, Maryland, Maine, New Hampshire, New Jersey, Ohio, Pennsylvania and West Virginia for a total of sixteen states. To extend the geographic parameter beyond those states could result in the selection of similar thrift institutions with regard to financial conditions and operating characteristics, but with different pricing ratios due to their geographic regions. The result could then be an unrepresentative comparable group with regard to price relative to the parameters and, therefore, an inaccurate value.

Asset Size

Asset size was another key parameter used in the selection of the comparable group. The range of total assets for any potential comparable group institution was $100 million to $2.0 billion, due to the general similarity of asset mix and operating strategies of institutions within this asset range, compared to Savings Institute, with assets of approximately $537 million. Such an asset size parameter was necessary to obtain an appropriate comparable group of at least ten institutions.

In connection with asset size, we did not consider the number of offices or branches in selecting or eliminating candidates, since that characteristic is directly related to operating expenses, which are recognized as an operating performance parameter.

SUMMARY

Exhibits 38 and 39 show the 60 institutions considered as comparable group candidates after applying the general parameters, with the shaded lines denoting the institutions ultimately selected for the comparable group using the balance sheet, performance and asset quality parameters established in this section. It should be noted that the comparable group candidates may be members of either the Bank Insurance Fund (BIF) or the Savings Association Insurance Fund (SAIF), since many members of each fund hold significant balances of deposits insured by the other fund.

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BALANCE SHEET PARAMETERS

Introduction

The balance sheet parameters focused on seven balance sheet ratios as determinants for selecting a comparable group, as presented in Exhibit 38. The balance sheet ratios consist of the following:

1. Cash and investments to assets

2. Mortgage-backed securities to assets

3. One- to four-family loans to assets

4. Total net loans to assets

5. Total net loans and mortgage-backed securities to assets

6. Borrowed funds to assets

7. Equity to assets

The parameters enable the identification and elimination of thrift institutions that are distinctly and functionally different from Savings Institute with regard to asset mix. The balance sheet parameters also distinguish institutions with a significantly different capital position from Savings Institute. The ratio of deposits to assets was not used as a parameter as it is directly related to and affected by an institution’s equity and borrowed funds ratios, which are separate parameters.

Cash and Investments to Assets

The Bank’s ratio of cash and investments to assets was 18.9 percent at March 31, 2004, and reflects Savings Institute’s share of investments modestly higher than national and regional averages. The Bank’s investments have consisted primarily of U.S. government and federal agency securities, state and municipal obligations, debt securities, equity securities and federal funds sold. For its three most recent calendar years ended December 31, 2003, Savings

41

Cash and Investments to Assets (cont.)

Institute’s average ratio of cash and investments to assets was a similar 17.9 percent in 2003, ranging from a high of 19.4 percent in 2002 to a low of 17.1 percent in 2001, with minimal change. It should be noted that, for the purposes of comparable group selection, Savings Institute’s $3.4 million balance of Federal Home Loan Bank stock at March 31, 2004, is included in the other assets category, rather than in cash and investments, in order to be consistent with reporting requirements and sources of statistical and comparative analysis related to the universe of comparable group candidates and the final comparable group.

The parameter range for cash and investments is fairly broad, in spite of Savings Institute’s modestly higher balance of cash and investments, related to the general volatility of this parameter and institutions’ varying liquidity options and approaches, including the purchase of mortgage-backed and mortgage derivative securities. The range has been defined as 30.0 percent or less of assets, with a midpoint of 15.0 percent.

Mortgage-Backed Securities to Assets

At March 31, 2004, Savings Institute’s ratio of mortgage-backed securities to assets was a low 3.5 percent compared to the regional average of 11.5 percent and the national average of 12.5 percent for publicly-traded thrifts. The Bank’s three most recent calendar year average is 8.0 percent, also lower than industry averages. Inasmuch as many institutions purchase mortgage-backed securities as an alternative to both lending, relative to cyclical loan demand and prevailing interest rates, and other investment vehicles, this parameter is also fairly broad at 25.0 percent or less of assets and a midpoint of 12.5 percent.

42

One- to Four-Family Loans to Assets

Savings Institute’s lending activity is focused on the origination of residential mortgage loans secured by one- to four-family dwellings. One- to four-family loans, including construction loans, represented 42.54 percent of the Bank’s assets at March 31, 2004, which is modestly lower than the national average of 46.0 percent. The parameter for this characteristic requires any comparable group institution to have from 20.0 percent to 70.0 percent of its assets in one- to four-family loans with a midpoint of 45.0 percent.

Total Net Loans to Assets

At March 31, 2004, Savings Institute had a 73.4 percent ratio of total net loans to assets and a similar three calendar year average of 70.8 percent, both being higher than the national average of 67.6 percent and the regional average of 61.5 percent for publicly-traded thrifts. The Bank’s ratio of total net loans to assets has demonstrated a mild upward trend since 2001. The parameter for the selection of the comparable group is from 60.0 percent to 90.0 percent with a midpoint of 75.0 percent. The lower end of the parameter range relates to the fact that, as the referenced national and regional averages indicate, many institutions hold greater volumes of investment securities and/or mortgage-backed securities as cyclical alternatives to lending, but may otherwise be similar to Savings Institute.

Total Net Loans and Mortgage-Backed Securities to Assets

As discussed previously, Savings Institute’s shares of mortgage-backed securities to assets and total net loans to assets were 3.5 percent and 73.4 percent, respectively, for a combined share of 76.9 percent. Recognizing the industry and regional ratios of 12.5 percent and 11.5 percent, respectively, of mortgage-backed securities to assets, the parameter range for the comparable group in this category is 70.0 percent to 90.0 percent, with a midpoint of 80.0 percent.

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Borrowed Funds to Assets

Savings Institute had a $72.2 million balance of borrowed funds at March 31, 2004, consisting of FHLB advances and subordinated debt, representing 13.4 percent of assets. The average ratio of borrowed funds to assets for the past three years was 10.4 percent. The use of borrowed funds by some thrift institutions indicates an alternative to retail deposits and may provide a source of term funds for lending. The federal insurance premium on deposits has also increased the attractiveness of borrowed funds.

The use of borrowed funds by some institutions indicates an alternative to retail deposits and may provide a source of longer term funds. The federal insurance premium on deposits has also increased the attractiveness of borrowed funds. The institutional demand for borrowed funds increased overall from 1997 through 2003, due to the greater competition for deposits and higher interest rates, resulting in an increase in borrowed funds by many institutions as an alternative to higher cost and/or longer term certificates. In 2002 and 2003, however, lower interest rates resulted in some moderation of borrowings by financial institutions, particularly among nonpublicly-traded institutions. The ratio of borrowed funds to assets, therefore, does not typically indicate higher risk or more aggressive lending, but primarily an alternative to retail deposits.

The range of borrowed funds to assets is 30.0 percent or less with a midpoint of 15.0 percent.

Equity to Assets

Savings Institute’s equity to assets ratio was 6.5 percent at March 31, 2004, and 6.6 percent at December 31, 2003, averaging 6.5 percent for the three calendar years ended December 31, 2003. After conversion, based on the midpoint value of $85.0 million and a 40 percent minority public offering of $34.0 million, with 50.0 percent of the net proceeds of the public offering going to the Bank, Savings Institute’s equity is projected to stabilize in the

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Equity to Assets (cont.)

area of 9.3 percent of assets. Based on those equity ratios, we have defined the equity ratio parameter to be 5.0 percent to 15.0 percent with a midpoint ratio of 10.0 percent.

PERFORMANCE PARAMETERS

Introduction

Exhibit 39 presents five parameters identified as key indicators of Savings Institute’s earnings performance and the basis for such performance both historically and during the four quarters ended March 31, 2004. The primary performance indicator is the Bank’s core return on average assets (ROAA). The second performance indicator is the Bank’s core return on average equity (ROAE). To measure the Bank’s ability to generate net interest income, we have used net interest margin. The supplemental source of income for the Bank is noninterest income, and the parameter used to measure this factor is the ratio of noninterest income to average assets. The final performance indicator is the Bank’s ratio of operating expenses or noninterest expenses to average assets, a key factor in distinguishing different types of operations, particularly institutions that are aggressive in secondary market activities, which often results in much higher operating costs and overhead ratios.

Return on Average Assets

The key performance parameter is the core ROAA. For the twelve months ended March 31, 2004, Savings Institute’s core ROAA was 0.84 percent based on adjusted core earnings after taxes of $4,328,000, as detailed in Item I of this Report. The Bank’s average ROAA over its most recent five calendar years of 1999 to 2003, based on net earnings, was a lower 0.59 percent, ranging from a low of 0.44 percent in 1999 to a high of 0.68 percent in 2002.

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Return on Average Assets (cont.)

Considering the historical and current earnings performance of Savings Institute, the range for the ROAA parameter based on core income has been defined as 0.60 percent to a high of 1.15 percent with a midpoint of 0.88 percent.

Return on Average Equity

The ROAE has been used as a secondary parameter to eliminate any institutions with an unusually high or low ROAE that is inconsistent with the Bank’s position. This parameter does not provide as much meaning for a newly converted thrift institution as it does for established stock institutions, due to the unseasoned nature of the capital structure of the newly converted thrift and the inability to accurately reflect a mature ROAE for the newly converted thrift relative to other stock institutions.

Prior to conversion, the Bank’s core ROAE for the twelve months ended March 31, 2004, was 12.80 percent based on adjusted core income. In its most recent five calendar years, the Bank’s average ROAE, based on net earnings, was a lower 8.5 percent, ranging from a low of 6.5 percent in 1999 to a high of 10.5 percent in 2002.

The parameter range for ROAE for the comparable group, based on core income, is from 3.0 percent to 15.0 percent with a midpoint of 9.0 percent.

Net Interest Margin

Savings Institute had a net interest margin of 3.80 percent for the twelve months ended March 31, 2004, representing net interest income as a percentage of average interest-earning assets. The Bank’s net interest margin in calendar years 1999 through 2003 averaged 3.95 percent, indicating a rising trend from 2000 to 2002, followed by a downward trend in 2003.

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Net Interest Margin (cont.)

The parameter range for the selection of the comparable group is from a low of 2.75 percent to a high of 4.75 percent with a midpoint of 3.75 percent.

Operating Expenses to Assets

For the twelve months ended March 31, 2004, Savings Institute had a higher than average 3.29 percent ratio of operating expense to average assets. In fiscal year 2003, the Bank’s expense ratio was 3.30 percent, representing decreases from 3.38 percent in 2002, 3.67 percent in 2001, 3.70 percent in 2000 and 3.89 percent in 1999. For its five most recent calendar years ended December 31, 2003, Savings Institute’s operating expense ratio averaged 3.59 percent. It should be noted that the Bank’s operating expense ratio in 2003 was higher than the averages of 2.38 percent for all FDIC-insured savings institutions and 2.29 percent for all publicly-traded savings institutions.

The operating expense to assets parameter for the selection of the comparable group is from a low of 2.00 percent to a high of 4.00 percent with a midpoint of 3.00 percent.

Noninterest Income to Assets

Compared to publicly-traded thrifts, Savings Institute has historically experienced a lower but increasing average dependence on noninterest income as a source of additional income. Savings Institute’s ratio of noninterest income to average assets was 0.82 percent in 1999, 0.88 percent in 2000, 0.84 percent in 2001, 0.72 percent in 2002 and 0.94 percent in 2003, all of which are much lower than the 1.36 percent average for publicly-traded thrift institutions for the most recent four quarters.

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Noninterest Income to assets (cont.)

The range for this parameter for the selection of the comparable group is 1.75 percent of average assets or less, with a midpoint of 0.88 percent.

ASSET QUALITY PARAMETERS

Introduction

The final set of financial parameters used in the selection of the comparable group are asset quality parameters, also shown in Exhibit 39. The purpose of these parameters is to insure that any thrift institution in the comparable group has an asset quality position similar to that of Savings Institute. The three defined asset quality parameters are the ratios of nonperforming assets to total assets, repossessed assets to total assets and loan loss reserves to total assets at the end of the most recent period.

Nonperforming Assets to Assets

Savings Institute’s ratio of nonperforming assets to assets was 0.32 percent at March 31, 2004, which was much lower than the national average of 0.73 percent for publicly-traded thrifts but higher than the 0.10 percent for New England thrifts. Consistently lower than national averages, the Bank’s ratio of nonperforming assets to total assets was 0.39 percent in 1999, 0.44 percent in 2000, 0.54 percent in 2001, 0.39 percent in 2002 and 0.31 percent in 2003, averaging 0.41 percent for its five most recent calendar years ended December 31, 2003.

The parameter range for nonperforming assets to assets has been defined as 1.00 percent of assets or less with a midpoint of 0.50 percent.

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Repossessed Assets to Assets

Savings Institute had $328,000 in repossessed assets, representing 0.06 percent of assets. National and regional averages were 0.13 percent and 0.01 percent, respectively, for publicly-traded thrift institutions at March 31, 2004.

The range for the repossessed assets to total assets parameter is 0.25 percent of assets or less with a midpoint of 0.13 percent.

Loans Loss Reserves to Assets

Savings Institute had an allowance for loan losses of $2,835,000, representing a loan loss allowance to total assets ratio of 0.53 percent at March 31, 2004, which was slightly higher than its 0.52 percent ratio at December 31, 2003. For the five calendar years of 1999 to 2003, the Bank’s loan loss reserve averaged 0.64 percent of assets with a downward trend from a high of 0.69 percent in 2000 and 2001 to a low of 0.52 percent in 2003.

The loan loss allowance to assets parameter range used for the selection of the comparable group required a minimum ratio of 0.20 percent of assets.

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THE COMPARABLE GROUP

With the application of the parameters previously identified and applied, the final comparable group represents ten institutions identified in Exhibits 40, 41 and 42. The comparable group institutions range in size from $151.7 million to $1.8 billion with an average asset size of $812.0 million and have an average of 10.8 offices per institution. One of the comparable group institutions was converted in 1993, one in 1995, four in 1996, one in 1998, two in 1999 and one in 2000. Nine of the ten of the comparable group institutions are traded on NASDAQ with one traded on the American Stock Exchange. The comparable group institutions as a unit have a ratio of equity to assets of 10.5 percent, which is 25.6 percent higher than all publicly-traded thrift institutions in the United States but 7.7 percent lower than publicly-traded thrift institutions in Connecticut; and for the most recent four quarters indicated a core return on average assets of 0.91 percent, lower than all publicly-traded thrifts at 1.07 percent but higher than publicly-traded Connecticut thrifts at 0.82 percent.

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IV. ANALYSIS OF FINANCIAL PERFORMANCE

This section reviews and compares the financial performance of Savings Institute to all publicly-traded thrifts, to publicly-traded thrifts in the New England region and to Connecticut thrifts, as well as to the ten institutions constituting Savings Institute’s comparable group, as selected and described in the previous section. The comparative analysis focuses on financial condition, earning performance and pertinent ratios as presented in Exhibits 43 through 48.

As presented in Exhibits 43 and 44, at March 31, 2004, Savings Institute’s total equity of 6.53 percent of assets was lower than the 10.461 percent for the comparable group, the 8.33 percent for all thrifts, the 11.33 percent for New England thrifts and the 9.45 percent ratio for Connecticut thrifts. The Bank had a 73.44 percent share of net loans in its asset mix, slightly lower than the comparable group at 74.48 percent, all thrifts at 67.63 percent, New England thrifts at 61.49 percent and Connecticut thrifts at 47.22 percent. Savings Institute’s share of net loans, higher than industry averages, is primarily the result of its slightly higher 18.85 percent share of cash and investments but significantly lower than average 3.46 percent share of mortgage-backed securities. The comparable group had a modestly lower 13.06 percent share of cash and investments and a modestly higher 6.16 percent share of mortgage-backed securities. All thrifts had 12.54 percent of assets in mortgage-backed securities and 15.38 percent in cash and investments. Savings Institute’s 79.01 percent share of deposits was higher than the comparable group, all thrifts and New England thrifts but lower than Connecticut thrifts, reflecting the Bank’s lower than average 13.43 percent ratio of borrowed funds to assets. The comparable group had deposits of 67.21 percent and borrowings of 21.09 percent. All thrifts averaged a 56.66 percent share of deposits and 33.16 percent of borrowed funds, while New England thrifts had a 69.14 percent share of deposits and a 18.57 percent share of borrowed funds. Connecticut thrifts averaged an 80.44 percent share of deposits and an 8.93 percent share of borrowed funds. Savings Institute had 0.07 percent in intangible assets at March 31, 2004, compared to 0.46 percent for the comparable group, 0.50 percent for all thrifts, 0.56 percent for New England thrifts and 0.61 percent for Connecticut thrifts.

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Analysis of Financial Performance (cont.)

Operating performance indicators are summarized in Exhibits 45 and 46 and provide a synopsis of key sources of income and key expense items for Savings Institute in comparison to the comparable group, all thrifts, and regional thrifts for the trailing four quarters.

As shown in Exhibit 47, for the twelve months ended March 31, 2004, Savings Institute had a yield on average interest-earning assets slightly below the comparable group but higher than all thrifts, New England thrifts and Connecticut thrifts. The Bank’s yield on interest-earning assets was 5.66 percent compared to the comparable group at 5.75 percent, all thrifts at 5.09 percent, New England thrifts at 4.86 percent and Connecticut thrifts at 4.51 percent.

The Bank’s cost of funds for the twelve months ended March 31, 2004, was lower than the comparable group, all thrifts and Connecticut thrifts, but higher than Connecticut thrifts. Savings Institute had an average cost of interest-bearing liabilities of 1.93 percent compared to 2.71 percent for the comparable group, 2.40 percent for all thrifts, 2.69 percent for New England thrifts and 1.38 percent for Connecticut thrifts. The Bank’s similar yield on interest-earning assets and slightly lower interest cost resulted in a net interest spread of 3.73 percent, which was higher than the comparable group at 3.04 percent, moderately higher than all thrifts at 2.70 percent, higher than New England thrifts at 2.18 percent and Connecticut thrifts at 3.13 percent. Savings Institute generated a net interest margin of 3.80 percent for the twelve months ended March 31, 2004, based on its ratio of net interest income to average interest-earning assets, which was moderately higher than the comparable group ratio of 3.34 percent. All thrifts averaged a lower 3.07 percent net interest margin for the trailing four quarters, as did New England thrifts at 3.06 percent and Connecticut thrifts at 3.21 percent.

Savings Institute’s major source of earnings is interest income, as indicated by the operations ratios presented in Exhibit 46. The Bank made a $1.6 million in provision for loan losses during the twelve months ended March 31, 2004, equal to 0.31 percent of average assets. The comparable group indicated a provision representing 0.15 percent of assets, with all thrifts at 0.10 percent, New England thrifts at 0.09 percent and Connecticut thrifts at 0.01 percent.

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Analysis of Financial Performance (cont.)

The Bank’s noninterest income was $4.7 million or 0.92 percent of average assets for the twelve months ended March 31, 2004, including $532,000 in gains on the sale of assets. Such a ratio of noninterest income to average assets was similar to the comparable group, which had a ratio of 1.01 percent, with all thrifts at 1.36 percent, New England thrifts at 0.56 percent and Connecticut thrifts at 0.61 percent. For the twelve months ended March 31, 2004, Savings Institute’s operating expense ratio was 3.29 percent of average assets, which was higher than the comparable group at 2.58 percent and higher than all thrifts at 2.29 percent, New England thrifts at 2.27 percent and Connecticut thrifts at 2.43 percent.

The overall impact of Savings Institute’s income and expense ratios is reflected in the Bank’s net income and return on assets. For the twelve months ended March 31, 2004, the Bank had net ROAA of 0.63 percent and core ROAA of 0.84 percent. For its most recent four quarters, the comparable group had a higher net and core ROAA of 0.95 percent and 0.91 percent, respectively. All publicly-traded thrifts averaged a higher net ROAA of 1.27 percent and a lower 1.07 percent core ROAA, with New England thrifts at a 0.79 percent core ROAA and Connecticut thrifts at a 0.82 percent core ROAA.

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V. MARKET VALUE ADJUSTMENTS

This is a conclusive section where adjustments are made to determine the pro forma market value or appraised value of the Corporation based on a comparison of Savings Institute with the comparable group. These adjustments will take into consideration such key items as earnings performance, primary market area, financial condition, asset and deposit growth, dividend payments, subscription interest, liquidity of the stock to be issued, management, and market conditions or marketing of the issue. It must be noted that all of the institutions in the comparable group have their differences among themselves and relative to the Bank, and, as a result, such adjustments become necessary.

EARNINGS PERFORMANCE

In analyzing earnings performance, consideration was given to net interest income, the amount and volatility of interest income and interest expense relative to changes in market area conditions and to changes in overall interest rates, the quality of assets as it relates to the presence of problem assets which may result in adjustments to earnings, due to charge-offs, the balance of current and historical classified assets and real estate owned, the balance of valuation allowances to support any problem assets or nonperforming assets, the amount and volatility of noninterest income, and the amount and ratio of noninterest expenses.

As discussed earlier, the Bank’s historical business model has focused on increasing its net interest income and net income; maintaining its low ratio of nonperforming assets; monitoring and strengthening its ratio of interest sensitive assets relative to interest sensitive liabilities, thereby improving its sensitivity measure and its overall interest rate risk; and maintaining adequate allowances for loan losses to reduce the impact of any unforeseen charge-offs. The Bank has also closely monitored its higher than average overhead expenses in the context of its active branching strategy. Although its ratio of noninterest expense to average assets has indicated a very modestly decreasing trend during the past few years, that ratio remains substantially higher than comparable group, regional and industry averages. In the future, the

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Bank will focus on maintaining its higher net interest spread and net interest margin; increasing its non-interest income; increasing the amount and consistency of its net income; strengthening its lower return on assets; maintaining its lower balances of non-performing and classified assets; closely monitoring its ratio of interest sensitive assets relative to interest sensitive liabilities, and reducing its overhead expenses.

Earnings are often related to an institution’s ability to generate loans. The Bank was an active originator of both mortgage and non-mortgage loans in fiscal years 2002 and 2003 and during the three months ended March 31, 2004, with its highest volume of originations occurring in 2003, reflecting the very low interest rate environment. In 2003, the predominant component of the Bank’s one- to four-family residential mortgage loan originations was the refinancing of existing loans and consequently, its balance of such loans increased by a modest 6.1 percent or $13.1 million. Savings Institute’s overall loan growth was 14.8 percent in 2002 and 14.7 percent in 2003, with the greatest 2003 percentage increases in the categories of commercial business loans at 87.9 percent, home equity loans at 33.6 percent and commercial real estate loans at 20.0 percent. In dollars, 2003 loan increases were $3.5 million for home equity loans, $12.2 million for commercial real estate loans and $23.7 million for commercial business loans. For the three months ended March 31, 2004, total loan originations were considerably lower than in the first quarter of 2003, and annualized were also much lower than during 2003, with all real estate loans increasing $2.8 million or $11.2 million annualized, compared to $24.9 million in 2003. During the first quarter of 2004, commercial business loans increased by $3.8 million or $15.2 million annualized, compared to $23.7 million in 2003; and home equity loans increased by $1.4 million or $5.6 million annualized, compared to $3.5 million in 2003.

In 2002 and 2003, total loan originations were at $149.0 million and $207.7 million, respectively, decreasing to $27.8 million or $111.2 million annualized, during the three months ended March 31, 2004. For the three months ended March 31, 2004, real estate loans, commercial business loans and consumer loans, including home equity loans, represented 75.9 percent, 11.7 percent, and 12.4 percent, respectively, of total loan originations. In comparison, during 2003, real estate loans, commercial business loans and consumer loans represented 87.1 percent, 4.8 percent and 8.0 percent, respectively, of total loan originations, indicating a significant annualized decrease in real estate loans and increases in commercial business loans and home equity loans in the first quarter of 2004.

Total mortgage and non-mortgage loan originations were $27.8 million and loans purchased were $3.6 million in the three months ended March 31, 2004, reduced by repayments, loan sales and other adjustments of $23.5 million, resulting in an increase of $7.9 million in gross loans receivable to $397.1 million at March 31, 2004, compared to $389.2 million at December 31, 2003. In 2003, total loan originations were $207.7 million and loans purchased were $26.4 million, reduced by repayments, loan sales and other adjustments of $182.8 million, resulting in an increase of $51.3 million in gross loans receivable to $389.2 million at December 31, 2003, compared to $337.9 million at December 31, 2002.

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The impact of Savings Institute’s primary lending efforts has been to generate a yield on average interest-earning assets of 5.66 percent for the twelve months ended March 31, 2004, compared to a higher 5.75 percent for the comparable group, a lower 5.21 percent for all thrifts and a lower 5.07 percent for New England thrifts. The Bank’s ratio of interest income to average assets was 5.39 percent for the twelve months ended March 31, 2004, similar to the comparable group at 5.30 percent, but higher than all thrifts at 4.65 percent and New England thrifts at 4.62 percent, reflecting the Bank’s lower balance of nonperforming assets and higher ratio of interest-earning assets.

Savings Institute’s 1.93 percent cost of interest-bearing liabilities for the twelve months ended March 31, 2004, was lower than the comparable group at 2.71 percent and New England thrifts at 2.36 percent, but modestly higher than the two Connecticut thrifts at 1.72 percent. The Bank’s resulting net interest spread of 3.74 percent for the twelve months ended March 31, 2004, was higher than the comparable group at 3.04 percent, all thrifts at 2.91 percent and New England thrifts at 2.70. The Bank’s net interest margin of 3.80 percent, based on average interest-earning assets for the twelve months ended March 31, 2004, was higher than the comparable group at 3.34 percent, all thrifts at 3.14 percent and New England thrifts at 3.19 percent.

The Bank’s ratio of noninterest income to assets was 0.92 percent, including gains, for the twelve months ended March 31, 2004, modestly lower than the comparable group at 1.01 percent, and more notably lower than all thrifts at 1.36 percent, but higher than New England thrifts at 0.56 percent. A small 10.9 percent of the Bank’s noninterest income was comprised of gains on the sale of loans and other assets.

The Bank’s operating expenses were significantly higher than the comparable group, all thrifts and New England thrifts. For the twelve months ended March 31, 2004, Savings Institute had an operating expenses to assets ratio of 3.29 percent compared to 2.58 percent for the comparable group, 2.29 percent for all thrifts and 2.27 percent for New England thrifts. Such higher operating expenses relate in a significant measure to the Bank’s larger branch network and lower $28.3 million average deposits per branch, compared to the comparable group average of $50.0 million in deposits per branch.

For the twelve months ended March 31, 2004, Savings Institute generated a lower ratio of noninterest income, a higher ratio of noninterest expenses and a higher net interest margin relative to its comparable group. The Bank’s provision for loan losses was 0.31 percent of average assets, compared to 0.15 percent for the comparable group, 0.10 percent for all thrifts and 0.09 percent for New England thrifts. The Bank’s higher provision for loan losses during the twelve months ended March 31, 2004, reflected an increase in charge-offs in 2003, an increase in the size of the loan portfolio and the increased origination of commercial business loans, which carry a higher risk of default. As a result, the Bank’s net income and core income were lower than the comparable group for the twelve months ended March 31, 2004. Based on net earnings, the Bank had a return on average assets of 0.56 percent, 0.48 percent, 0.72 percent, 0.72 percent in 2000, 2001, 2002, and 2003, respectively, and 0.63 percent for the twelve months

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ended March 31, 2004. For the trailing twelve months, the comparable group had a higher net ROAA of 0.95 percent, while all thrifts indicated a still higher ROAA of 1.27 percent. The Bank’s core or normalized earnings, as shown in Exhibit 7, were higher than its net earnings and resulted in a 0.84 percent core return on assets for the twelve months ended March 31, 2004. That core ROAA was also lower than the comparable group at 0.91 percent and all thrifts at 1.07 percent, but very modestly higher than New England thrifts at 0.79 percent.

Savings Institute’s earnings stream will continue to be dependent on a combination of the overall trends in interest rates, the consistency, reliability and variation of its noninterest income and overhead expenses, its provisions for loan losses and any charge-offs that may be required. The Bank’s noninterest income has remained generally flat from December 31, 1999, through March 31, 2004, while overhead expenses indicate a very modest decrease during that period, nevertheless remaining significantly higher than industry averages. The Bank’s net interest margin, higher than the comparable group, has been the result of its higher yield on assets and lower cost of funds. The impact of this trend has been a generally stable net interest margin with moderate fluctuation during the last four years and the three months ended March 31, 2004.

The Bank’s balance of nonperforming assets indicates a modestly decreasing trend since 2000. Savings Institute had net charge-offs of $(31,000) in 2000, $184,000 in 2001, $331,000 in 2002 and $1,981,000 in 2003, with a nominal $3,000 during the first three months of 2004.

In recognition of the foregoing earnings related factors, with consideration of Savings Institute’s current performance measures, a downward adjustment has been made to the Corporation’s pro forma market value for earnings performance.

MARKET AREA

Savings Institute’s primary market area for both retail deposits and lending consists of the Conecticut counties of Hartford, New London, Tolland and Windham. As discussed in Section II, from 1990 to 2000, this primary market area experienced a very small increase in population and a modest increase in households. That population and household growth, accompanied by lower per capita income and household income, was lower than Connecticut and the United States and modestly lower than the comparable group markets. Between 2000 and 2008, the population of Savings Institute’s market area is projected to increase at a slightly more rapid rate and the market area’s median household income is projected to increase at a slower rate than during the previous decade. In both 1990 and 2000, the median housing value in the Bank’s market area was lower than in Connecticut, higher than in the United States and, although higher in dollar value than the comparable group markets due to regional characteristics, indicate lower growth relative to the the comparable group markets. The average unemployment rate in the Bank’s primary market area was 2.3 percent in 2000, compared to 2.2 percent in Connecticut and

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4.0 percent in the United States. By April, 2004, the primary market area’s unemployment rate increased to 5.2 percent, while Connecticut’s unemployment rate increased to an identical 5.2 percent and the rate in the United States increased to 5.4 percent. In April, 2004, the average unemployment of the comparable group markets was modestly lower than in the Bank’s market area.

Savings Institute’s primary market area is generally exurban with smaller towns and villages. Approximately 50 percent of the Bank’s offices and deposits are in Windham County, which indicates the lowest per capita income, median household income and housing values of its five market area counties. In the Bank’s primary market area, the services sector represented the primary source of employment in 2000, followed by the wholesale/retail and manufacturing sectors, generally consistent with both state and national proportions. The agriculture/mining and manufacturing sectors decreased modestly from 1990 to 2000.

The financial competition in Savings Institute’s primary market area, based on total deposits, is moderate, although competition is intense, with thrifts and commercial banks holding approximately equal shares of deposits. A large number of competing financial institution branches of varying sizes and characteristics operate in and around Savings Institute’s fifteen offices.

In recognition of the foregoing factors, we believe that a downward adjustment is warranted for the Bank’s primary market area relative to the comparable group.

FINANCIAL CONDITION

The financial condition of Savings Institute is discussed in Section I and shown in Exhibits 1, 2, 5, and 12 through 23, and is compared to the comparable group in Exhibits 42, 43 and 44. The Bank’s ratio of total equity to total assets was 6.53 percent at March 31, 2004, which was lower than the comparable group at 10.46 percent, all thrifts at 10.46 percent and New England thrifts at 11.33 percent. With the minority offering completed at the midpoint of the valuation range, the Corporation’s pro forma equity to assets ratio will increase to approximately 11.18 percent, and the Bank’s pro forma equity to assets ratio will increase to approximately 8.3 percent.

The Bank’s mix of assets and liabilities indicates both similarities to and variations from its comparable group. Savings Institute had a similar 73.4 percent ratio of net loans to total assets at March 31, 2004, compared to the comparable group at 74.5 percent. All thrifts indicated a lower 67.6 percent, as did New England thrifts at 61.5 percent. The Bank’s 18.9 percent share of cash and investments was higher than the comparable group at 13.1 percent, while all thrifts were at 15.4 percent and New England thrifts were at a higher 26.2 percent. Savings Institute’s 3.5 percent ratio of mortgage-backed securities to total assets was lower than the comparable group at 6.2 percent and more significantly lower than all thrifts at 12.5 percent. The Bank’s 79.0 percent ratio of deposits to total assets was higher than the comparable group at 67.2 percent, all thrifts at 56.7 percent and New England thrifts at 69.1 percent. Savings Institute’s 13.4 percent

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ratio of borrowed funds to assets was lower than the comparable group at 21.1 percent, much lower than all thrifts at 34.0 percent and somewhat lower than New England thrifts at 25.4 percent.

Savings Institute had intangible assets of 0.09 percent of assets, consisting of core deposit intangibles and a small balance of mortgage servicing rights, and had repossessed real estate of 0.06 percent of assets, compared to ratios of 0.46 percent and 0.04 percent of intangible assets and real estate owned, respectively, for the comparable group. All thrifts had intangible assets of 0.50 percent and real estate owned of 0.13 percent. The financial condition of Savings Institute is positively affected by its lower $1.7 million balance of nonperforming assets or 0.32 percent of assets at March 31, 2004, compared to a higher 0.68 percent for the comparable group, 0.73 percent for all thrifts and a lower 0.10 percent for New England thrifts. Historically, the Bank’s ratio of nonperforming assets to total assets has been lower than industry averages and has decreased modestly since December 31, 2000. The Bank’s ratio of nonperforming assets to total assets was 0.46 percent, 0.55 percent, 0.41 percent and 0.33 percent at December 31, 2000, 2001, 2002, and 2003, respectively, remaining virtually constant at 0.32 percent at March 31, 2004.

The Bank had a lower 14.08 percent share of high risk real estate loans, compared to 20.94 percent for the comparable group and 21.12 percent for all thrifts. The regulatory definition of high risk real estate loans is all mortgage loans other than those secured by one- to four-family residential properties.

At March 31, 2004, Savings Institute had $2,835,000 of allowances for loan losses, which represented 0.53 percent of assets and 0.71 percent of total loans. The comparable group indicated allowances equal to 0.63 percent of assets and a larger 0.91 percent of total loans. More significant, however, is an institution’s ratio of allowances for loan losses to nonperforming assets, since a portion of nonperforming assets might eventually be charged off. Savings Institute’s $2,835,000 of allowances for loan losses, represented 167.26 percent of nonperforming

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assets at March 31, 2004, compared to the comparable group’s similar 174.64 percent, with all thrifts at 183.19 percent and New England thrifts at a much higher 509.15 percent. Savings Institute’s ratio of net charge-offs to average total loans, moreover, was also a higher 0.46 percent for the twelve months ended March 31, 2004, compared to 0.14 percent for the comparable group, 0.22 percent for all thrifts and 0.06 percent for New England thrifts. This ratio reflects the Bank’s maintenance of a modestly lower average ratio of reserves to loans, and a similar ratio of reserves to nonperforming assets, notwithstanding the Bank’s larger share of higher risk loans and higher charge-offs in 2003. It should be noted, however, that the Bank’s net charge-offs of $1,981,000 in 2003, following lower net charge-offs of $331,000 in 2002, decreased sharply to $3,000 in the first three months of 2004. For the twelve months ended March 31, 2004, Savings Institute’s ratio of provision for loan losses to net charge-offs was a lower 89.96 percent, compared to the comparable group at 203.08 percent, all thrifts at 167.35 percent and New England thrifts at 151.21 percent.

Savings Institute has a minimal level of interest rate risk, evidenced by the modest decrease in its net portfolio value to assets ratio under conditions of rising interest rates. In order to minimize interest rate risk, the Bank’s strategy has been to originate and retain adjustable-rate loans as well as fixed-rate loans with maturities of fifteen years or less. Based on internal calculations, for the twelve months beginning March 31, 2004, the Bank’s net interest income is projected to decrease by 10.3 percent if interest rates increase 300 basis points; and net interest income is projected to decrease by 0.83 percent is interest rates decrease by 100 basis points. We deem such exposure to be minimal.

Compared to the comparable group, we believe that no adjustment is warranted for Savings Institute’s current financial condition.

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ASSET, LOAN AND DEPOSIT GROWTH

During its most recent five calendar years, Savings Institute has been characterized by similar average rates of growth in assets, loans and deposits relative to its comparable group. The Bank’s average annual asset growth rate from 1999 to 2003, was 9.1 percent, compared to a slightly higher 9.5 percent for the comparable group, a significantly higher 14.9 percent for all thrifts, and a modestly higher 10.6 percent for New England thrifts. The Bank’s somewhat lower asset growth rate is reflective primarily of its average increase in loans during that four year period slightly offset by lower earnings. The Bank’s loan portfolio indicates an average annual increase of 12.7 percent from 1999 to 2003, compared to average growth rates of 12.2 percent for the comparable group, 12.8 percent for all thrifts and 9.5 percent for New England thrifts.

Savings Institute’s deposits indicate an average annual increase of 10.1 percent from 1999 to 2003. Annual deposit growth was from a low of 2.9 percent in 1999 to a high of 12.8 percent in 2001, compared to average growth rates of 8.7 percent for the comparable group, 11.0 percent for all thrifts and 9.3 percent for New England thrifts. Notwithstanding its modestly higher rate of deposit growth, the Bank had a lower 8.7 percent five average ratio of borrowed funds to assets, compared to the comparable group at 20.0 percent.

The Bank’s ability to maintain its asset base and deposits in the future is, to a great extent, dependent on its being able to competitively price its loan and savings products, to maintain a high quality of service to its customers, to increase its market share and to continue its loan origination activity. Savings Institute’s primary market area has experienced a relatively modest increase rise in population and households between 1990 and 2000 and those increases are projected to continue at rates lower than state and national rates through 2008. The Bank’s primary market area indicates 2000 per capita income and median household income lower than Connecticut but higher than the United States. In 2000, housing values in Savings Institute’s market area were also lower than Connecticut but higher than the United States.

The Bank’s historical dependence on its current primary market area could result in lower asset growth in the future as a result of its competitive operating environment in a market area with very modest growth in population and households, projected to remain lower than state and national levels and growth in the future. Savings Institute’s internal projections indicate modest deposit growth in 2004, partially reflecting the outflow of deposits to purchase stock, followed by moderate growth in 2005 and 2006 based on increasing its market share in some new and existing branch markets. Total portfolio loans are projected to experience moderate growth in 2004, as conversion proceed are deployed in the second half of the year, with cash and investments remaining constant. Savings Institute’s competitive operating environment, together with its projected deposit growth during the next few years, combined with only moderate loan growth, should result in the continuation of similar asset, loan and deposit growth for the Bank relative to the comparable group.

Based on the foregoing factors, we have concluded that no adjustment to the Association’s pro forma value is warranted.

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DIVIDEND PAYMENTS

The Corporation has not committed to pay an initial cash dividend on its common stock. The future payment of cash dividends will depend upon such factors as earnings performance, financial condition, capital position, growth, asset quality and regulatory limitations. Each of the ten institutions in the comparable group paid cash dividends during the twelve months ended March 31, 2003, for an average dividend yield of 2.54 percent. The average dividend yield is 1.54 percent for Connecticut thrifts and 2.11 percent for all thrifts.

In our opinion, a downward adjustment to the pro forma market value of the Corporation is warranted related to dividend payments.

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SUBSCRIPTION INTEREST

In 2003, investors’ interest in new issues was generally positive and subscription levels were consistently high, although a few issues received a less than strong reaction from the marketplace. Overall, although the reaction of IPO investors appears generally to be related to a number of analytical factors, including the financial performance and condition of the converting thrift institution, the strength of the local economy, general market conditions, aftermarket price trends and the anticipation of continuing merger/acquisition activity in the thrift industry, the smaller number of offerings appears to have concentrated greater subscription activity beyond the stronger institutions.

Savings Institute will direct its offering primarily to depositors and residents in its market area. The board of directors and officers anticipate purchasing approximately $1.2 million or 3.5 percent of the stock offered to the public based on the appraised midpoint valuation. At all ranges of the offering, 2.0 percent of the shares issued to the public and to SI Bancorp, MHC will be contributed to SI Financial Group Foundation. The Association will form an ESOP, which plans to purchase 3.36 percent of the total shares issued in the current offering, including the shares issued to SI Bancorp, MHC and the charitable foundation. Additionally, the Prospectus restricts to 20,000 shares, based on the $10.00 per share purchase price, the total number of shares in the conversion that may be purchased by a single person, and to 30,000 shares by persons and associates acting in concert.

The Association has secured the services of Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) to assist in the marketing and sale of the conversion stock.

Based on the size of the offering, recent market movement and current market conditions, local market interest, the terms of the offering and recent subscription levels for initial mutual holding company offerings, we believe that an upward adjustment is warranted for the Association’s anticipated subscription interest.

LIQUIDITY OF THE STOCK

The Corporation will offer its shares through a subscription offering and, if required, a subsequent community offering with the assistance of Sandler O’Neill. The stock of the Corporation will trade on the NASDAQ National Market and the Corporation will pursue at least two market makers for its stock.

The Bank’s total public offering is considerably smaller in size to the average market value of the comparable group. The comparable group has an average market value of $119.1 million for the stock outstanding compared to a midpoint public offering of $34.0 million for the Corporation, less the ESOP and the estimated 120,000 shares to be purchased by officers and directors, which will reduce the Corporation’s public market capitalization to approximately $30.0 million. Of the ten institutions in the comparable group, nine trade on NASDAQ and one trades on the American Stock Exchange, with those ten institutions indicating an average daily trading volume of 7,526 shares during the last four quarters.

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In further examining and analyzing the market for publicly-traded thrift stocks, we compared various characteristics of the 38 mutual holding companies with the 233 stock companies. Our findings indicate that both entity types have generally similar average market capitalization, with mutual holding companies at $415 million and stock companies at $515 million; and that both entity types have a generally similar average number of shares outstanding, with mutual holding companies averaging 15.0 million shares and stock companies averaging 17.1 million shares. We find it significant, however, notwithstanding the foregoing similarities, that the average daily trading volume of mutual holding companies was 20,796 during the past twelve months, while stock companies indicated a much higher average daily volume of 76,757 shares.

Based on the average market capitalization, shares outstanding and daily trading volume of the comparable group, as well as the relative trading volume of publicly-traded mutual holding companies, we have concluded that a downward adjustment to the Corporation’s pro forma market value is warranted relative to the anticipated liquidity of its stock.

MANAGEMENT

The president and chief executive officer of Savings Institute is Rheo A. Brouillard, who is also a director. Mr. Brouillard joined the Bank as president in 1995 and was appointed a director in 1995. Prior to joining Savings Institute, Mr. Brouillard was president of Danielson Federal Savings and Loan Association, Danielson, Connecticut, from 1989 to 1994 and served as executive vice president of New London Trust, the successor to Danielson Federal as the result of a merger, from 1994 to 1995. Brian J. Hull, who joined the Bank in 1997, is executive vice president and chief financial officer. Mr. Hull is also executive vice president, chief financial officer and treasurer of SI Financial Group and SI Bancorp, MHC. Prior to joining Savings Institute, Mr. Hull was senior vice president and treasurer of First Bank of West Hartford from 1989 to 1997.

During the past four years and in the first quarter of 2004, Savings Institute has been able to increase its deposit base, total assets and total equity, maintain a stable net interest margin, control nonperforming assets, classified loans and charge-offs, maintain a minimal interest rate risk position, and maintain its market share in spite of intense competition. Although the Bank’s earnings and return on assets have been below comparable group and industry averages, and its operating expenses have been higher than such averages, management is confident that its branch network is well positioned for reasonable growth and enhanced profitability.

Overall, we believe the Bank to be professionally and knowledgeably managed, as are the comparable group institutions. It is our opinion that no adjustment to the pro forma market value of the Corporation is warranted for management.

MARKETING OF THE ISSUE

The necessity to build a new issue discount into the stock price of a converting thrift institution continues to be a closely examined issue in recognition of uncertainty among investors as a result of the thrift industry’s dependence on interest rate trends, recent volatility in the stock

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market and pending federal legislation related to the regulation of financial institutions. Increased merger/acquisition activity, as well as the presence of new competitors in the financial institution industry, such as de novo institutions, investment firms, insurance companies and mortgage companies, have resulted in increased pressure on an individual institution’s ability to attract retail deposits at normal rates rather than premium rates and to deploy new funds in a timely and profitable manner.

Although we believe that a new issue discount applied to the price to book valuation approach is appropriate and necessary in some public offerings, in our opinion, various characteristics of the Corporation’s reorganization transaction cause us to conclude that such a discount is not warranted in the case of this particular offering. Consequently, at this time we have made no adjustment to the Corporation’s pro forma market value related to a new issue discount.

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VI. VALUATION METHODS

Historically, the most frequently used method for determining the pro forma market value of common stock for thrift institutions by this firm has been the price to book value ratio method, due to the volatility of earnings in the thrift industry in the early to mid-1990s. As earnings in the thrift industry stabilized and improved in the late 1990s, more emphasis was placed on the price to earnings method, particularly considering increases in stock prices during those years. During the past few years, however, as decreasing interest rates have had varying effects on individual institutions, depending on the nature of their operations, the price to book value method has again become pertinent and meaningful in the objective of discerning commonality and comparability among institutions. In determining the pro forma market value of the Corporation, primary emphasis has been placed on the price to book value method, with additional analytical and correlative attention to the price to earnings and price to core earnings methods.

In recognition of the volatility and variance in earnings due to fluctuations in interest rates, the continued differences in asset and liability repricing and the frequent disparity in value between the price to book approach and the price to earnings approach, a third valuation method, the price to net assets method, has also been used. The price to assets method is used less often for valuing ongoing institutions, but becomes more useful in valuing converting institutions when the equity position and earnings performance of the institutions under consideration are different.

In addition to the pro forma market value, we have defined a valuation range with the minimum of the range being 85.0 percent of the pro forma market value, the maximum of the range being 115.0 percent of the pro forma market value, and a super maximum being 115.0 percent of the maximum. The pro forma market value or appraised value will also be referred to as the “midpoint value”. Inasmuch as the ownership of Savings Institute will remain in the mutual holding company form, the public offering of the Corporation will be based on the sale of shares to the public aggregating 40 percent of the fully converted pro forma market value of the Corporation at each of the valuation ranges defined in this Report with 2 percent

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Valuation Methods (cont.)

of the fully converted valuation being issued to the Foundation for a combined total of 42.0 percent issued to the public and to the Foundation.

It should be noted that the fewer number of shares offered to the public and the lower proceeds resulting from that offering will result in actual pricing ratios considerably higher than those determined in the fully converted valuation of the Corporation where higher proceeds are assumed; and it should be noted that such higher pricing ratios, presented in detail in the offering prospectus, are pertinent to the prospective minority shareholders and their evaluation of the offering.

In applying each of the valuation methods, consideration was given to the adjustments to the Bank’s pro forma market value discussed in Section V. Downward adjustments were made for the Bank’s earnings performance, market area, dividends and liquidity of the stock. No adjustments were made for the Bank’s financial condition, asset, loan and deposit growth, subscription interest, management and marketing of the issue.

PRICE TO BOOK VALUE METHOD

In the valuation of thrift institutions, the price to book value method focuses on an institution’s financial condition, and does not give as much consideration to the institution’s long term performance and value as measured by earnings. Due to the earnings volatility of many thrift stocks, the price to book value method is frequently used by investors who rely on an institution’s financial condition rather than earnings performance. Although this method is, under certain circumstances, considered somewhat less meaningful for institutions that provide a consistent earnings trend, it remains significant and reliable when an institution’s performance or general economic conditions are experiencing volatile or uncustomary trends related to internal or external factors, and serves as a complementary and correlative analysis to the price to earnings and price to assets approaches.

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Price to Book Value Method (cont.)

It should be noted that the prescribed formulary computation of value using the pro forma price to book value method returns a price to book value ratio below market value on a fully converting institution. As noted previously, however, in the case of an initial mutual holding company minority offering where a majority of the shares will not be held by the public, the application of the prescribed formulary computation to the sale of all the shares based on the full valuation of the institution necessarily returns a higher book value per share and a lower price to book value ratio than is reflective of the actual number of shares to be owned by the public and the proceeds generated by such a smaller offering. In most instances, nevertheless, such a value remains below current comparable market values.

Exhibit 50 shows the average and median price to book value ratios for the comparable group which were 135.32 percent and 122.18 percent, respectively. The full comparable group indicated a moderately wide range, from a low of 92.58 percent (Lincoln Bancorp) to a high of 217.96 percent (Ocean First Financial). The comparable group had modestly higher average and median price to tangible book value ratios of 141.16 percent and 131.66 percent, respectively, with the range of 95.15 percent to a higher 220.29 percent. Excluding the low and the high in the group, the comparable group’s price to book value range narrowed from a low of 109.77 percent to a high of 165.78 percent; and the comparable group’s price to tangible book value range also narrowed from a low of 109.77 percent to a high of 175.29.

Considering the foregoing factors in conjunction with the adjustments made in Section V, we have determined a fully converted pro forma price to book value ratio of 75.60 percent and a price to tangible book value ratio of 75.11 percent at the midpoint. The price to book value ratio increases from 71.71 percent at the minimum to 81.68 percent at the super maximum, while the price to tangible book value ratio increases from 71.22 percent at the minimum to 81.27 percent at the super maximum. The price to book value ratio increases to 75.62 percent without recognition of the 2.0 percent foundation and is a higher $88.0 million value at the midpoint.

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Price to Book Value Method (cont.)

The Corporation’s pro forma price to book value and price to tangible book value ratios of 71.71 percent and 71.22 percent, respectively, as calculated using the prescribed formulary computation indicated in Exhibit 49, are influenced by the Bank’s capitalization and local market, as well as subscription interest in thrift stocks and overall market and economic conditions. Further, the Corporation’s ratio of equity to assets after conversion at the midpoint of the valuation range will be approximately 9.44 percent compared to 10.46 percent for the comparable group. Based on the price to book value ratio and the Bank’s total equity of $35,079,000 at March 31, 2004, the indicated fully converted pro forma market value of the Corporation using this approach is $85,105,626 at the midpoint (reference Exhibit 49).

PRICE TO EARNINGS METHOD

The foundation of the price to earnings method is the determination of the earnings base to be used, followed by the determination of an appropriate price to earnings multiple. As indicated in Exhibit 3, Savings Institute’s after tax net earnings for the twelve months ended March 31, 2004, were $3,392,000, and the Bank’s core earnings for that period were a larger $4,328,000, based on the adjustment shown in Exhibit 7. To determine the pro forma market value of the Corporation by using the price to earnings method, we applied the core earnings base of $4,328,000.

In determining the price to core earnings multiple, we reviewed the range of price to core earnings and price to net earnings multiples for the comparable group and all publicly-traded thrifts. The average price to core earnings multiple for the comparable group was 15.76, while the median was 14.94. The average price to net earnings multiple was a similar 15.11 and the median multiple was 14.79. The comparable group’s price to core earnings multiple was lower than the 16.14 average multiple for all publicly-traded, FDIC-insured thrifts but higher than their median of 13.65. The range in the price to core earnings multiple for the comparable group was from a low of 11.68 (LSB Financial Corp.) to a high of 23.12 (Berkshire Hills Bancorp, Inc.).

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Price to Earning Method (cont.)

The range in the price to core earnings multiple for the comparable group, excluding the high and low ranges, was from a low multiple of 12.59 to a high of 19.02 times earnings for eight of the ten institutions in the group, indicating a modest narrowing of the range.

Consideration was given to the adjustments to the Corporation’s pro forma market value discussed in Section V. In recognition of those adjustments, we have determined a fully converted price to core earnings multiple of 18.89 at the midpoint, based on Savings Institute’s core earnings of $4,328,000 for twelve months ended March 31, 2004.

Based on the Bank’s core earnings base of $4,328,000 (reference Exhibit 49), the fully converted pro forma market value of the Corporation using the price to earnings method is $84,926,792 at the midpoint.

PRICE TO ASSETS METHOD

The final valuation method is the price to assets method. This method is not frequently used, since the calculation incorporates neither an institution’s equity position nor its earnings base. Additionally, the prescribed formulary computation of value using the pro forma price to net assets method does not recognize the runoff of deposits concurrently allocated to the purchase of conversion stock, returning a pro forma price to net assets ratio below its true level following conversion. Further, once again as previously noted, the prescribed formulary computation of fully converted pro forma value does not recognize the lower pro forma asset base resulting from small offering proceeds.

Exhibit 50 indicates that the average price to assets ratio for the comparable group was 13.71 percent and the median was 13.97 percent. The range in the price to assets ratios for the comparable group varied from a low of 9.75 percent (LSB Financial Corp.) to a high of 16.97

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Price to Assets Method (cont.)

percent (Ocean First Financial Corp.). The range narrows modestly with the elimination of the two extremes in the group to a low of 10.89 percent and a high of 16.32 percent.

Consistent with the previously noted adjustments, it is our opinion that an appropriate price to assets ratio for the Corporation is 13.87 percent at the midpoint, which ranges from a low of 11.99 percent at the minimum to 17.59 percent at the super maximum.

Based on the Bank’s March 31, 2004, asset base of $537,410,000, the indicated pro forma market value of the Corporation using the price to assets method is $85,235,027 at the midpoint (reference Exhibit 49).

VALUATION CONCLUSION

Exhibit 55 provides a summary of the valuation premium or discount for each of the valuation ranges when compared to the comparable group based on each of the fully converted valuation approaches. At the midpoint value, the fully converted price to book value ratio of 75.60 percent for the Corporation represents a discount of 44.13 percent relative to the comparable group and decreases to 39.64 percent at the super maximum. As presented Exhibits 51 through 54 of this Report and as further detailed in the offering prospectus, however, recognizing the lower actual proceeds to be realized by the offering to the public of only 40 percent of the pro forma fully converted shares, the Corporation’s pro forma book value and pro forma book value per share will be significantly lower and its corresponding price to book value ratio will be higher at the offering price of $10.00 per share. Specifically, the sale to the public of 40 percent of the shares, with 2 percent issued to the Foundation and the remaining 58 percent of the shares retained by the Corporation, results in a price to book value ratio of 122.70 percent, 134.59 percent, 144.93 percent and 155.28 percent at the minimum, midpoint, maximum and adjusted maximum of the actual offering range, respectively. Those ratios represent discounts at the minimum and midpoint and premiums at the maximum and adjusted maximum relative

71

Valuation Conclusion (cont.)

to the average of the comparable group of 9.31 percent and 0.53 percent for the discounts and 7.10 percent and 14.75 percent for the premiums at the minimum, midpoint, maximum and adjusted maximum of the actual offering range, respectively.

The price to core earnings multiple of 18.89 for the Corporation at the midpoint value indicates a premium of 19.87 percent, increasing to a premium of 56.54 percent at the super maximum. The price to assets ratio at the midpoint represents a premium of 1.21 percent, increasing to a premium of 28.31 percent at the super maximum.

It is our opinion that as of May 21, 2004, the fully converted pro forma market value of the Corporation, is $85,000,000 at the midpoint, representing 8,500,000 shares at $10.00 per share. The fully converted pro forma valuation range of the Corporation is from a minimum of $72,250,000 or 7,225,000 shares at $10.00 per share to a maximum of $97,750,000 or 9,775,000 shares at $10.00 per share, with such range being defined as 15 percent below the appraised value to 15 percent above the appraised value. The maximum, as adjusted, defined as 15 percent above the maximum of the range, is $112,412,500 or 11,241,250 shares at $10.00 per share (reference Exhibits 51 to 54).

The fully converted pro forma appraised value of SI Financial Group, Inc. as of May 21, 2004, is $85,000,000 at the midpoint.

72

EX-99.4

Exhibit 99.4

GIFT INSTRUMENT

CHARITABLE GIFT TO

SI FINANCIAL GROUP FOUNDATION, INC.

SI Financial Group, Inc. (the “Company”), desires to make a gift of its common stock to SI Financial Group Foundation, Inc. (the “Foundation”), a nonprofit corporation organized under the laws of the State of Delaware. The purpose of the donation is to establish a bond between the Company and the community in which it and its affiliates operate to enable the community to share in the potential growth and success of the Company and its affiliates over the long term. To that end, the Company now gives, transfers, and delivers to the Foundation                      shares of its common stock subject to the following conditions:

1. The Foundation shall use the donation solely for charitable purposes, including community development, in the communities in which the Company and its affiliates operate in accordance with the provisions of the Foundation’s Certificate of Incorporation; and

2. Consistent with the Company’s intent to form a long-term bond between the Company and the community, the amount of common stock that may be sold by the Foundation in any one year shall not exceed 5% of the market value of the assets held by the Foundation, except that this restriction shall not prohibit the board of directors of the Foundation from selling a greater amount of common stock in any one year if the board of directors of the Foundation determines that the failure to sell a greater amount of the common stock held by the Foundation would: (a) result in a long-term reduction of the value of the Foundation’s assets relative to their then current value that would jeopardize the Foundation’s capacity to carry out its charitable purposes; or (b) otherwise jeopardize the Foundation’s tax-exempt status.

3. The common stock contributed to the Foundation by the Company shall, for so long as such shares are held by the Foundation, be voted in the same ratio as all other shares of common stock of the Company which are voted on each and every proposal considered by the stockholders of the Company.

4. For a period of five years from the date of the organization of the Foundation: (i) one board seat shall be reserved for an individual who has experience with local community charitable organizations and grant making in Willimantic, Connecticut or its neighboring communities, who is not an officer and/or director of the Company or Savings Institute Bank and Trust Company (the “Bank”) and who is not an associate of any officer or director of the Company or its affiliates or subsidiaries and (ii) one board seat shall be reserved for an individual who is also a member of the board of directors of the Bank or a member of the board of directors of an acquiror or resulting institution in the event of a merger or acquisition of the Bank.

5. The Foundation shall comply with the following regulatory requirements imposed by the Office of Thrift Supervision (“OTS”):

(a) the OTS may examine the Foundation at the Foundation’s expense;

(b) the Foundation must comply with all supervisory directives that the OTS imposes;

(c) the Foundation must submit a copy of its Form 990-PF to the OTS on an annual basis;

(d) the Foundation must operate in accordance with written policies adopted by its Board of Directors, including a conflict of interest policy; and

(e) the Foundation may not engage in self-dealing, and must comply with all laws necessary to maintain its tax exempt status under the Internal Revenue Code.

Dated:                     , 2004		SI FINANCIAL GROUP, INC.
	By:

Agreed and Accepted

SI FINANCIAL GROUP FOUNDATION, INC.

By: