10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-50801

SI FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Federal	84-1655232
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

803 Main Street, Willimantic, Connecticut	06226
(Address of principal executive offices)	(Zip Code)

(860) 423-4581

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 12, 2004, there were 12,563,750 shares of the Registrant’s Common Stock outstanding.

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements of SI Financial Group, Inc. and Subsidiaries
	Consolidated Statements of Financial Condition at September 30, 2004 and December 31, 2003 (unaudited)	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2004 and 2003 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands)

	September 30, 2004			December 31, 2003
ASSETS:
Cash and due from banks:
Noninterest bearing deposits and cash	$	35,340		$	20,336
Interest bearing deposits		13,681			4,441
Federal funds sold		3,000			4,800
Cash and cash equivalents		52,021			29,577
Available for sale securities, at fair value (note 5)		97,461			77,693
Held to maturity securities, at cost (note 5)		—			1,728
Loans receivable, net (note 6)		422,952			386,924
Accrued interest receivable on loans		1,667			1,580
Accrued interest receivable on investment securities		773			658
Federal Home Loan Bank Stock, at cost		4,101			2,858
Cash surrender value of life insurance		7,487			7,258
Other real estate owned		—			328
Premises and equipment, net		6,463			6,675
Core deposit intangible		316			389
Deferred tax asset, net		944			601
Other assets		1,937			1,872
TOTAL ASSETS	$	596,122		$	518,141
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Liabilities:
Deposits: (note 7)
Noninterest bearing	$	44,741		$	40,371
Interest bearing		400,369			374,719
Total deposits		445,110			415,090
Mortgagors’ and investors’ escrow accounts		900			2,221
Federal Home Loan Bank advances (note 8)		60,851			57,168
Subordinated debt		7,217			7,217
Accrued expenses and other liabilities		2,155			2,346
TOTAL LIABILITIES		516,233			484,042
Commitments and contingencies		—			—
Stockholders’ Equity:
Preferred stock ($.01 par value; 1,000,000 shares authorized; none issued or outstanding)		—			—
Common stock ($.01 par value; 75,000,000 shares authorized; 12,563,750 shares issued and outstanding at September 30, 2004)		126			—
Additional paid-in capital		50,935			—
Unallocated common shares held by ESOP		(4,925	)		—
Retained earnings (including surplus of $1,000 at December 31, 2003)		33,768			33,582
Accumulated other comprehensive income (loss) (note 9)		(15	)		517
TOTAL STOCKHOLDERS’ EQUITY		79,889			34,099
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	596,122		$	518,141

See accompanying notes to unaudited interim consolidated financial statements.

2

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)

	For The Three Months Ended September 30,					For The Nine Months Ended September 30,
	2004			2003		2004			2003
Interest and dividend income:
Loans, including fees	$	6,115		$	6,171	$	17,980		$	18,066
Investment securities:
Taxable interest		880			906		2,572			2,912
Tax-exempt interest		6			6		18			20
Dividends		39			33		93			93
Other		111			26		174			133
TOTAL INTEREST AND DIVIDEND INCOME		7,151			7,142		20,837			21,224
Interest expense:
Deposits		1,614			1,606		4,647			5,100
Federal Home Loan advances		669			582		2,017			1,701
Subordinated debt		91			89		267			272
Other borrowings		—			18		—			55
TOTAL INTEREST EXPENSE		2,374			2,295		6,931			7,128
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		4,777			4,847		13,906			14,096
Provision for loan losses		100			340		400			1,482
NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR LOAN LOSSES		4,677			4,507		13,506			12,614
Noninterest income:
Service fees		818			796		2,423			2,336
Wealth management fees		240			210		727			626
Net gain (loss) on available for sale securities		(355	)		15		(169	)		129
Net gain (loss) on sale of loans		11			58		(9	)		245
Other		40			63		86			224
TOTAL NONINTEREST INCOME		754			1,142		3,058			3,560
Noninterest expenses:
Salaries and employee benefits		2,500			2,405		7,336			6,824
Occupancy		517			490		1,965			1,535
Furniture and equipment		215			211		723			701
Computer services		237			208		750			634
Electronic banking fees		168			140		495			413
Outside professional services		87			93		346			239
Marketing		143			81		364			289
Supplies		73			50		221			213
FDIC deposit insurance and state assessment		19			19		61			58
Impairment charge – other asset		—			—		51			—
Contribution to SI Financial Group Foundation		2,513			—		2,513			—
Other real estate operations		(73	)		13		12			1
Other		598			457		1,551			1,560
TOTAL NONINTEREST EXPENSES		6,997			4,167		16,388			12,467
INCOME (LOSS) BEFORE INCOME TAXES		(1,566	)		1,482		176			3,707
Income tax provision (benefit)		(556	)		503		(10	)		1,260
NET INCOME (LOSS)	$	(1,010	)	$	979	$	186		$	2,447
Net loss per share:
Basic	$	(7.40	)		N/A		N/A			N/A
Diluted	$	(7.40	)		N/A		N/A			N/A
Weighted-average shares outstanding:
Basic		136,563			N/A		N/A			N/A
Diluted		136,563			N/A		N/A			N/A

See accompanying notes to unaudited interim consolidated financial statements.

3

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(Dollar in Thousands, Except Per Share Amounts)

	Common Stock						Unallocated Common Shares Held by ESOP					Accumulated Other Comprehensive Income
	Shares	Dollars		Additional Paid-in Capital						Retained Earnings					Total Stockholders’ Equity
NINE MONTHS ENDED SEPTEMBER 30, 2004:
Balance at December 31, 2003	—	$	—	$	—		$	—		$	33,582	$	517		$	34,099
Issuance of common stock for initial public offering, net of expenses of $1.8 million (note 1)	5,025,500		50	$	48,430			—			—		—			48,480
Issuance of common stock to SI Bancorp, MHC	7,286,975		73		(73	)		—			—		—			—
Issuance of common stock to SI Financial Group Foundation including additional tax benefit due to higher basis for tax purposes	251,275		3		2,578			—			—		—			2,581
Shares purchased for ESOP	—		—		—			(4,925	)		—		—			(4,925	)
Comprehensive income:
Net income	—		—		—			—			186		—			186
Change in net unrealized loss on securities available for sale	—		—		—			—			—		(532	)		(532	)
Total comprehensive income	—		—		—			—			—		—			(346	)
Balance at September 30, 2004	12,563,750	$	126	$	50,935		$	(4,925	)	$	33,768	$	(15	)	$	79,889
NINE MONTHS ENDED SEPTEMBER 30, 2003:
Balance at December 31, 2002	—	$	—	$	—		$	—		$	30,197	$	1,211		$	31,408
Comprehensive income:
Net income	—		—		—			—			2,447		—			2,447
Change in net unrealized loss on securities available for sale	—		—		—			—			—		(498	)		(498	)
Total comprehensive income																1,949
Balance at September 30, 2003	—	$	—	$	—		$	—		$	32,644	$	713		$	33,357

See accompanying notes to unaudited interim consolidated financial statements.

4

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	For The Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	186		$	2,447
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		400			1,482
Contribution of common stock to charitable foundation		2,513			—
Amortization of investment premiums and discounts, net		89			410
Amortization and accretion of loan premiums and discounts, net		230			131
Depreciation and amortization of premises and equipment		802			780
Amortization of core deposit intangible		73			73
Amortization of deferred debt issuance costs		26			26
Net loss (gain) on available for sale securities		169			(129	)
Loans originated for sale		(14,251	)		(16,833	)
Proceeds from sale of loans		14,242			17,078
Net decrease in loans held for sale		—			1,939
Net loss (gain) on sale of loans		9			(245	)
Net loss on sale of other real estate owned		—			18
Write-down of other real estate owned		60			—
Increase in cash surrender value of life insurance		(229	)		(172	)
Impairment charge – long-lived assets		337			—
Impairment charge – other assets		51			—
Change in operating assets and liabilities:
Deferred loan costs, net of fees		(267	)		(540	)
Accrued interest receivable		(202	)		(28	)
Other assets		(142	)		(191	)
Accrued expenses and other liabilities		(191	)		383
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,905			6,629
Cash flows from investing activities:
Purchases of available for sale securities		(61,770	)		(40,558	)
Proceeds from sales of available for sale securities		22,596			11,461
Proceeds from maturities of and principal repayments on available for sale securities		18,693			32,156
Proceeds from maturities of and principal repayments on held to maturity securities		1,376			7,656
Net increase in loans		(36,391	)		(44,710	)
Purchases of Federal Home Loan Bank stock		(1,243	)		(331	)
Purchase of life insurance policies		—			(7,000	)
Proceeds from sales of other real estate owned		268			400
Purchases of bank premises and equipment		(927	)		(1,234	)
NET CASH USED IN INVESTING ACTIVITIES		(57,398	)		(42,160	)
Cash flows from financing activities:
Net increase in deposits		30,020			16,452
Net decrease in mortgagors’ and investors’ escrow accounts		(1,321	)		(1,126	)
Net decrease in collateralized borrowings		—			(851	)
Proceeds from Federal Home Loan Bank advances		21,687			14,695
Repayments of Federal Home Loan Bank advances		(18,004	)		(4,276	)
Net proceeds from common stock offering		48,480			—
Acquisition of common stock by ESOP		(4,925	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		75,937			24,894

5

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Nine Months Ended September 30,
	2004			2003
NET CHANGE IN CASH AND CASH EQUIVALENTS		22,444			(10,637	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		29,577			37,517
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	52,021		$	26,880
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid	$	6,874		$	7,117
Income Taxes Paid	$	921		$	1,550
NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized loss on securities arising during the period	$	(807	)	$	(755	)
Transfer of loans to other real estate owned		—		$	703

See accompanying notes to unaudited interim consolidated financial statements.

6

SI FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

On August 6, 2004, SI Financial Group, Inc. (the “Company”), a federally-chartered mid-tier stock holding company was formed. On that date, SI Bancorp, Inc. converted from a state-chartered mutual holding company to a federally-chartered mutual holding company operating under the name SI Bancorp, MHC (“MHC”). In addition, the Savings Institute Bank and Trust Company, formerly operating under the name Savings Institute (the “Bank”) completed its conversion from a state-chartered stock savings bank to a federally-chartered stock savings bank. SI Bancorp, Inc. transferred its ownership in all of the stock of Savings Institute Bank and Trust Company to SI Financial Group, Inc. in exchange for all of the outstanding shares of SI Financial Group, Inc. In addition, SI Financial Group, Inc. received all other assets and liabilities held by SI Bancorp, Inc., including $7.2 million of subordinated debt.

On September 30, 2004, the Company sold a total of 5,025,500 shares of its common stock, representing 40% of the outstanding common shares at $10.00 per share to eligible account holders, employee benefit plans of the Bank and certain other eligible subscribers in a subscription offering pursuant to subscription rights in order of priority as set forth in the Plan of Reorganization and Minority Stock Issuance (the “Plan”).

In connection with the offering, SI Financial Group, Inc. established SI Financial Group Foundation (the “Foundation”), a charitable foundation, dedicated to community activities and the promotion of charitable causes in areas in which the Bank operates. The Foundation was funded on September 30, 2004 with a contribution of 2%, or 251,275 shares, of the Company’s common stock. This contribution resulted in the recognition of a $2.5 million expense equal to the number of common shares at the offer price contributed during the quarter-ended September 30, 2004, net of related tax benefits. The Company realized an additional tax benefit of $68,000 that was recorded as an increase to stockholders’ equity because the basis of the contribution for tax purposes was the stock’s trading price on its first day of trading.

At the completion of the offering, SI Bancorp, MHC was issued 58% of the Company’s common stock. SI Bancorp, MHC does not conduct any business activity other than owning a majority of the common stock of SI Financial Group, Inc.

The Bank established an Employee Stock Ownership Plan (“ESOP”) for the benefit of its eligible employees. The Bank borrowed the necessary funds from the Company to purchase 3.92%, or 492,499 shares, of the common shares issued and outstanding. The Bank intends to make annual contributions adequate to fund the payment of regular debt service requirements attributable to the indebtedness of the ESOP.

The Bank’s deposits are insured under the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. The Bank 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.

SI Bancorp, Inc. was organized in 2000 as a Connecticut mutual holding company. On June 5, 2000, SI Bancorp, Inc. acquired all of the outstanding shares of SI-Stock Savings Bank, a then newly formed state-chartered capital stock bank. At that time, Savings Institute, formerly a Connecticut mutual savings bank, merged with and into SI-Stock Savings Bank to form a Connecticut stock savings bank operating under the name Savings Institute (the “Bank”).

On March 25, 2002, SI Bancorp, Inc. formed SI Capital Trust I for the purpose of issuing trust preferred securities and investing the proceeds in subordinated debentures issued by SI Bancorp, Inc., and on April 10, 2002, $7.2 million of debt securities were issued.

7

Basis of Financial Statement Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of SI Bancorp, Inc. and its subsidiaries at December 31, 2003 and the accounts of the Company and its subsidiaries, including its main subsidiary, The Savings Institute Bank and Trust Company, as of and for the three and the nine month periods ended September 30, 2004. All significant intercompany transactions and balances have been eliminated. Information in the accompanying interim consolidated financial statements and notes to the financial statements of the Company as of September 30, 2004 and for the three month and nine month periods ended September 30, 2004 and 2003 is unaudited. The interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures required by accounting principles generally accepted in the United States of America for complete financial statements have been omitted. These interim consolidated financial statements and related notes should be read in conjunction with the audited financial statements of the Company and accompanying notes for the year ended December 31, 2003 contained in the Company’s Registration Statement in Form S-1.

In the opinion of management, all adjustments considered necessary for a fair presentation of the financial condition, results of operations, changes in stockholders’ equity and cash flows as of and for the periods covered herein have been included. Such adjustments are the only adjustments reflected in the financial information contained in this Form 10-Q. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the operating results for all of 2004.

2. EARNINGS PER SHARE

Basic net income (loss) per common share is calculated by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed in a manner similar to basic net income (loss) per common share except that the weighted-average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock (i.e. stock options) were issued during the period. The Company had no dilutive or anti-dilutive common shares outstanding during the quarter ended September 30, 2004. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted income (loss) per common share.

The weighted-average shares and net loss per common share for the three months ended September 30, 2004 are presented below:

	For The Three Months Ended September 30, 2004
Net loss	$	(1,010	)
Weighted-average common shares outstanding		136,563
Net loss per common share:
Basic	$	(7.40	)
Diluted	$	(7.40	)

Per common share data for the nine months ended September 30, 2004 and for the three and the nine months ended September 30, 2003 is not presented as the Company had no shares outstanding prior to September 30, 2004.

8

3. EMPLOYEE STOCK OWNERSHIP PLAN

In September 2004, the Bank established an Employee Stock Ownership Plan (the “ESOP”) for the benefit of its eligible employees. The ESOP purchased 492,499 shares of the common shares outstanding. The transaction was financed from the proceeds of a $4.9 million loan from the Company. The loan to the ESOP will be repaid principally from the Bank’s contributions to the ESOP and dividends payable on the common stock held by the ESOP over the fifteen-year term of the loan. The interest rate for the ESOP is 4.75 percent. As the loan is repaid to the Company, shares will be released from collateral and will be allocated to the accounts of the participants. There have been no principal payments on the loan as of September 30, 2004. The Company accounts for these ESOP shares in accordance with Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans” (“SOP 93-6”). Under SOP 93-6, unearned ESOP shares are not considered outstanding for calculating net income (loss) per common share and are shown as a reduction of shareholders’ equity and presented as unearned common shares held by ESOP. During the period the ESOP shares are committed to be released, the Company will recognize compensation cost equal to the fair value of the ESOP shares, unearned common shares held by ESOP will be reduced by the cost of the ESOP shares and the differential between the fair value and the cost will be charged to additional paid-in capital. As of September 30, 2004, all of the ESOP shares remain unallocated and the Company has not recorded compensation expense in connection with the ESOP.

4. RECENT ACCOUNTING PRONOUNCEMENTS

On March 9, 2004, the United States Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB 105”). SAB 105 summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. The SEC staff believes that in recognizing a loan commitment, entities should not consider expected future cash flows related to the associated servicing of the loan until the servicing asset has been contractually separated from the underlying loan by sale or securitization of the loan with the servicing retained. The provisions of SAB 105 are applicable to all loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004. The Company may enter into such commitments in connection with residential mortgage loan applicants. The adoption of SAB 105 is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on the application of EITF Issue 03-1, “ The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” in determining when an investment is impaired, whether the impairment is other than temporary and the measurement of the impairment loss. This impairment is applicable to debt and equity securities that are within the scope of Financial Accounting Standards Board Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FASB No. 115”), Financial Accounting Standards Board Statement No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations” (“FASB No. 124”) and those equity securities outside of the scope of FASB No. 115 and accounted for under the cost method. The Company does not believe that the application of EITF Issue 03-1 will have a material impact on the Company’s consolidated financial statements.

In October 2004, FASB Staff Position No. EITF Issue 03-1-1 was issued to delay the effective date of the measurement and recognition provisions of EITF Issue 03-1 until the proposed FSP, which provides guidance on the application of the provisions, is issued in final form. This delay, however, does not eliminate the need to recognize other-than-temporary impairment losses as required by applicable authoritative pronouncements.

5. INVESTMENT 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 (loss), net of taxes.

9

The carrying and approximate fair values of investment securities at September 30, 2004 and December 31, 2003 are as follows:

	As of September 30, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
AVAILABLE FOR SALE SECURITIES:
Debt securities:
U.S. Government and agency obligations	$	63,244	$	311	$	(324	)	$	63,231
Mortgage-backed securities		27,651		88		(270	)		27,469
Corporate debt securities		2,997		110		—			3,107
Obligations of state and political subdivisions		2,499		50		—			2,549
Tax-exempt securities		630		—		—			630
Foreign government securities		75		—		—			75
TOTAL DEBT SECURITIES		97,096		559		(594	)		97,061
Equity securities:
Marketable equity securities		388		12		—			400
TOTAL AVAILABLE FOR SALE SECURITIES	$	97,484	$	571	$	(594	)	$	97,461

	As of December 31, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
AVAILABLE FOR SALE SECURITIES:
Debt securities:
U.S. Government and agency obligations	$	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		2,499		88		—			2,587
Tax-exempt securities		630		—		—			630
Foreign government securities		75		—		—			75
TOTAL DEBT SECURITIES		76,377		1,610		(881	)		77,106
Equity securities:
Marketable equity securities		531		56		—			587
TOTAL AVAILABLE FOR SALE SECURITIES		76,908		1,666		(881	)		77,693
HELD TO MATURITY SECURITIES:
Mortgage-backed securities		1,728		—		(384	)		1,344
TOTAL INVESTMENT SECURITIES	$	78,636	$	1,666	$	(1,265	)	$	79,037

10

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 September 30, 2004 and December 31, 2003:

	Less Than 12 Months				12 Months Or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2004:
U.S. Government and agency obligations	$	25,776	$	301	$	554	$	23	$	26,330	$	324
Mortgage-backed securities		10,596		81		7,824		189		18,420		270
TOTAL	$	36,372	$	382	$	8,378	$	212	$	44,750	$	594

	Less Than 12 Months				12 Months Or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2003:
U.S. Government and agency obligations	$	8,351	$	84	$	1,291	$	24	$	9,642	$	108
Mortgage-backed securities		11,772		744		2,768		413		14,540		1,157
TOTAL	$	20,123	$	828	$	4,059	$	437	$	24,182	$	1,265

At September 30, 2004 and December 31, 2003, unrealized losses on securities that have existed for a period of twelve months or more totaled $212,000 and $437,000, 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.

6. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable are stated at current unpaid principal balances, net of the allowances 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 pay-off.

In the normal course of business, the Company grants loans to officers, directors and other related parties. These loans are made on substantially the same terms including interest rates and collateral, as those prevailing at the time for comparable transactions with customers, and do not involve more than the normal risk of collectibility. The aggregate balance of outstanding loans receivable was $4.3 million at September 30, 2004 and $4.4 million at December 31, 2003.

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A summary of the Company’s loan portfolio at September 30, 2004 and December 31, 2003 is as follows:

	September 30, 2004			December 31, 2003
Real estate loans:
Residential – 1 to 4 family	$	242,949		$	226,881
Commercial		77,294			73,428
Construction		29,268			20,652
TOTAL REAL ESTATE LOANS		349,511			320,961
Commercial loans		55,646			50,746
Consumer loans		20,197			17,518
TOTAL LOANS		425,354			389,225
Deferred loan origination costs, net of deferred fees		654			387
Allowance for loan losses		(3,056	)		(2,688	)
LOANS, NET	$	422,952		$	386,924

Allowance for Loan Losses

The provision for loan losses is based on management’s periodic assessment of the adequacy of the allowance for loan losses based upon the loan portfolio composition, historical and current levels in delinquency and impaired loans, amount of charge-offs and recoveries, adverse situations affecting the borrower’s ability to repay, estimated value of the underlying collateral and economic conditions. Management believes that the current allowance for loan losses is adequate to cover the losses inherent in the current loan portfolio.

The allowance for loan losses consists of a specific allowance for identified nonperforming loans and a general allowance for current performing loans. For specific loans that are 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 the loan. The general allowance component is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties inherent in management’s underlying assumptions used in estimating specific and general loan losses.

The following table summarizes the activity in the allowance for loan losses for the three and nine months ended September 30, 2004 and 2003.

	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2004			2003			2004			2003
ALLOWANCE AT BEGINNING OF PERIOD	$	2,967		$	3,108		$	2,688		$	3,067
Provision for loan losses		100			340			400			1,482
Charge-offs		(18	)		(85	)		(63	)		(1,285	)
Recoveries		7			16			31			115
NET CHARGE-OFFS		(11	)		(69	)		(32	)		(1,170	)
ALLOWANCE AT END OF PERIOD	$	3,056		$	3,379		$	3,056		$	3,379

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7. DEPOSITS

A summary of the Company’s deposits at September 30, 2004 and December 31, 2003 is as follows:

	September 30, 2004		December 31, 2003
Noninterest bearing demand deposits	$	44,741	$	40,371
Interest bearing accounts:
NOW and money market		110,349		101,852
Savings		91,429		87,625
Certificates of deposit (1)		198,591		185,242
TOTAL INTEREST BEARING ACCOUNTS		400,369		374,719
TOTAL DEPOSITS	$	445,110	$	415,090

⁽¹⁾ Includes brokered deposits of $5.0 million at both September 30, 2004 and December 31, 2003.

8. FEDERAL HOME LOAN BANK BORROWINGS

The Bank is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). At September 30, 2004 and December 31, 2003, the Bank had access to a pre-approved secured line of credit with the FHLBB of $6.2 million 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 September 30, 2004 and December 31, 2003, there were no advances outstanding under the line of credit. Other outstanding advances from the FHLBB aggregated $60.9 million at September 30, 2004, at interest rates ranging from 1.87% to 5.84%, and $57.2 million at December 31, 2003, at interest rates ranging from 1.89% to 5.84%.

As of September 30, 2004, $11.0 million of FHLBB borrowings were to mature in less than one year. The balance of $49.9 million is due at various maturity dates in 2005 through 2012.

9. OTHER COMPREHENSIVE INCOME

The following tables summarize components, which is comprised solely of the change in unrealized gains and losses on available for sale securities net of taxes, for the periods ended September 30, 2004 and 2003.

	Three Months Ended September 30, 2004
	Before Tax Amount		Tax Benefit (Expense)			Net of Tax Amount
Unrealized holding gains arising during the period	$	54	$	(18	)	$	36
Reclassification adjustment for losses recognized in net loss		355		(121	)		234
UNREALIZED HOLDING GAINS ON AVAILABLE FOR SALE SECURITIES, NET OF TAXES	$	409	$	(139	)	$	270

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	Three Months Ended September 30, 2003
	Before Tax Amount			Tax Benefit (Expense)		Net of Tax Amount
Unrealized holding losses arising during the period	$	(303	)	$	104	$	(199	)
Reclassification adjustment for gains recognized in net income		(15	)		5		(10	)
UNREALIZED HOLDING LOSSES ON AVAILABLE FOR SALE SECURITIES, NET OF TAXES	$	(318	)	$	109	$	(209	)

	Nine Months Ended September 30, 2004
	Before Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
Unrealized holding losses arising during the period	$	(976	)	$	333		($	643	)
Reclassification adjustment for losses recognized in net income		169			(58	)		111
UNREALIZED HOLDING LOSSES ON AVAILABLE FOR SALE SECURITIES, NET OF TAXES	$	(807	)	$	275		$	(532	)

	Nine Months Ended September 30, 2003
	Before Tax Amount			Tax Benefit (Expense)		Net of Tax Amount
Unrealized holding losses arising during the period	$	(626	)	$	213	$	(413	)
Reclassification adjustment for gains recognized in net income		(129	)		44		(85	)
UNREALIZED HOLDING LOSSES ON AVAILABLE FOR SALE SECURITIES, NET OF TAXES	$	(755	)	$	257	$	(498	)

10. DEFERRED TAXES

The Company had transactions in which the related tax effect was recorded directly to stockholders’ equity instead of operations. Transactions in which the tax effect was recorded directly to stockholders’ equity included the tax effects of unrealized gains and losses on available for sale securities and the tax benefit for the difference between the book and tax basis of the contribution to SI Financial Group Foundation. The Company had a net deferred tax asset of $944,000 as of September 30, 2004, an increase of $343,000, from $601,000 as of December 31, 2003 as a result of these items charged to stockholders’ equity. The increase in the tax benefit of $343,000 includes $275,000 for unrealized gains and losses on available for sale securities and $68,000 related to the contribution to the Foundation.

11. REGULATORY MATTERS

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 September 30, 2004, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. As a savings and loan holding company regulated by the Office of Thrift Supervision, the Company is not subject to any separate regulatory capital requirements.

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The following is a summary of the Bank’s regulatory capital amounts and ratios as of September 30, 2004 and December 31, 2003 compared to the Office of Thrift Supervision and FDIC requirements for classification as a well-capitalized institution and for minimum capital adequacy.

The Savings Institute Bank and Trust Company at September 30, 2004:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	61,973	18.47	%	$	26,843	8.00	%	$	33,553	10.00	%
Tier I Capital to Risk Weighted Assets		58,906	17.56	%		13,418	4.00	%		20,127	6.00	%
Tier I Capital to Total Assets (1)		58,906	10.13	%		23,260	4.00	%		29,075	5.00	%
Tangible Equity Ratio		58,906	10.13	%		8,723	1.50	%		N/A	N/A

⁽¹⁾ Office of Thrift Supervision reporting requirement includes “Total Assets.”

The Savings Institute Bank and Trust Company at December 31, 2003:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	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 (1)		34,679	6.81	%		20,369	4.00	%		25,462	5.00	%

⁽¹⁾ FDIC reporting requirement includes “Total Average Assets.”

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, and changes in relevant accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

The Company considers 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 and the impairment of long-lived assets to be our critical accounting policies.

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Allowance for Loan Losses. Determining the amount of 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 the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectibility of the loan portfolio. The level of the allowance for loan losses fluctuates primarily due to changes in the size and composition of the loan portfolio and in the level of nonperforming loans, classified assets and charge-offs. A portion of the allowance is established by segregating the loans by loan category and assigning allocation percentages based on our historical loss experience and delinquency trends. The applied allocation percentages are reevaluated annually to ensure their relevance in the current real estate environment. Accordingly, increases in the size of the loan portfolio and the increased emphasis on commercial real estate and commercial business loans, which carry a higher degree of risk of default and, thus, a higher allocation percentage, increases the allowance. Additionally, a portion of the allowance is established based on the level of specific nonperforming loans, classified assets or charged-off loans.

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 the Bank’s primary regulator upon its conversion to a federal savings bank on August 6, 2004 and has not yet examined the Bank’s allowance for loan losses. 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.

Impairment of Long-Lived Assets. The Company is required to record certain assets we have acquired, including identifiable intangible assets such as core deposit intangibles, and certain liabilities that we have assumed at fair value, which may involve making estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Further, long-lived assets, including intangible assets and premises and equipment, that are held and used by us, are presumed to have a useful life. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization period for such intangible and long-lived assets. Additionally, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the 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. Testing for impairment is a subjective process, the application of which could result in different evaluations of impairment.

The following analysis discusses changes in the financial condition as of September 30, 2004 and December 31, 2003 and the results of operations at and for the three and nine months ended September 30, 2004 and 2003, and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, appearing in Part I, Item 1 of this document.

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

Summary:

The Company’s total assets increased $78.0 million, or 15.1%, to $596.1 million at September 30, 2004, as compared to $518.1 million at December 31, 2003, due to the increase in cash and cash equivalents, investment securities and loans receivable. Cash and cash equivalents increased $22.4 million, or 75.9%, mainly as a result of net proceeds from the initial public offering which have not yet been fully invested. Net loans receivable increased $36.0 million, or 9.3%, to $423.0 million at September 30, 2004 primarily due to an increase in one-to-four-family residential mortgages and to a lesser extent, an increase in both consumer and commercial lending. Securities available-for-sale increased $19.8 million, or 25.4%, to $97.5 million as management invested a portion of the proceeds from the stock offering into investment securities. Federal Home Loan Bank of Boston stock increased $1.2 million, or 43.5%, to $4.1 million at September 30, 2004, resulting from the implementation of FHLBB’s new capital plan and to support a higher level of borrowings.

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Deposits, excluding mortgagors’ and investors’ escrow accounts, increased $30.0 million, or 7.2%, to $445.1 million at September 30, 2004. The Company experienced increases in interest-bearing accounts, such as NOW and money market, savings and time deposits, due to competitive pricing and marketing efforts. In addition, noninterest bearing deposits increased as a result of commercial deposit volume. Federal Home Loan Bank advances increased $3.7 million, or 6.4%, to $60.9 million at September 30, 2004. The Federal Home Loan Bank borrowing increases were longer term fixed rate advances used to fund loan demand.

Total stockholders’ equity increased $45.8 million, or 134.3%, to $79.9 million at September 30, 2004. The increase in equity was primarily attributable to the initial public offering which resulted in the issuance of common stock and the receipt of additional paid-in capital during the third quarter, offset by a reduction in equity, resulting from the establishment of the Bank’s ESOP, a charge to earnings for the contribution of common shares to the Foundation and a decrease in other comprehensive income.

Investment Activities:

At September 30, 2004, the Company’s investment portfolio, consisting solely of available for sale securities, amounted to $97.5 million, or 16.4% of assets. At December 31, 2003, the Company had both available for sale securities and held to maturity securities totaling $79.4 million, or 15.3% of assets. The increase in available for sale securities of $19.8 million, or 25.4%, was primarily due to the purchases of mortgage-backed securities and U.S. Government and agency obligations with durations of less than 5 years, partially offset by a decrease in corporate debt securities.

Lending Activities:

At September 30, 2004, the Company’s net loan portfolio was $423.0 million, or 71.0% of total assets. The following table summarizes the composition of the Company’s loan portfolio in dollar amounts and as a percentage of the total portfolio as of the dates indicated.

	As of September 30, 2004					As of December 31, 2003
(Dollars in Thousands)	Amount			Percent of Total		Amount			Percent of Total
Real estate loans:
Residential – 1 to 4 family	$	242,949		57.1	%	$	226,881		58.3	%
Commercial		77,294		18.2	%		73,428		18.9	%
Construction		29,268		6.9	%		20,652		5.3	%
TOTAL REAL ESTATE LOANS		349,511		82.2	%		320,961		82.5	%
Consumer loans:
Home equity		17,325		4.0	%		14,411		3.7	%
Other		2,872		0.7	%		3,107		0.8	%
TOTAL CONSUMER LOANS		20,197		4.7	%		17,518		4.5	%
Commercial loans		55,646		13.1	%		50,746		13.0	%
TOTAL LOANS		425,354		100.0	%		389,225		100.0	%
Deferred loan origination costs, net of fees		654					387
Allowance for loan losses		(3,056	)				(2,688	)
LOANS, NET	$	422,952				$	386,924

The Company’s net loan portfolio increased $36.0 million, or 9.3%, during the first nine months of 2004 largely as a result of an increase in real estate loans and to a lesser extent, commercial and consumer loans. One-to four-family loans increased $16.1 million, or 7.1%, due primarily to a lower rate of prepayments because of increasing interest rates during the period and continued strong originations due to increased home purchases in our market area. Construction loans increased $8.6 million, or 41.7%, primarily due to new housing development in our market area. Commercial loans, including commercial real estate and commercial business loans, increased $8.8 million, or 7.1%, due to our continued emphasis on these types of loans and the expansion of our commercial lending staff. Consumer

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loans increased $2.7 million, or 15.3%, due to the increase in home equity loans resulting from an aggressive marketing campaign. The Company’s level of loan closings was strong as a result of several factors including promotional and sales activities, a strong housing market and a relatively stable local economy. The factors responsible for the increase in loans receivable were somewhat mitigated by the amortization of the existing loan portfolio of $230,000 and the sale of $14.3 million of longer-term fixed rate one-to-four-family residential loans. The sale of loans is expected to help reduce the Company’s exposure to interest rate risk while improving liquidity.

NonPerforming Assets:

When a loan becomes 90 days delinquent, the loan is placed on nonaccrual status, at which time the accrual of interest ceases and an allowance for any uncollectible accrued interest is established and charged against operations. Typically, payments received on nonaccrual loans are applied to the outstanding principal and interest as determined at the time of collection of the loan. The Company considers repossessed assets and loans that are 90 days or more delinquent to be nonperforming assets.

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

(Dollars in Thousands)	September 30, 2004			December 31, 2003
Nonaccrual loans:
Real estate	$	1,526		$	1,230
Commercial business		—			65
Consumer		12			—
TOTAL NONPERFORMING LOANS		1,538			1,295
Real estate owned, net		—			328
TOTAL NONPERFORMING ASSETS		1,538			1,623
Troubled debt restructurings		76			77
TROUBLED DEBT RESTRUCTURINGS AND NONPERFORMING ASSETS	$	1,614		$	1,700
Total nonperforming loans to total loans		0.36	%		0.33	%
Total nonperforming loans to total assets		0.26	%		0.25	%
Total nonperforming assets and troubled debt restructurings to total assets		0.27	%		0.33	%

Other than those loans disclosed in the above table, there are no other loans at September 30, 2004 that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Allowance for Loan Losses:

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. The allowance is established as estimated losses are determined to have occurred through a provision for loan losses and a corresponding charge to earnings. Actual loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company evaluates the allowance for loan losses on a monthly basis.

The methodology for assessing the appropriateness of the allowance for loan losses consists of three key elements: (1) specific allowances for identified problem loans, including certain impaired or collateral-dependent loans; (2) a general valuation allowance on certain identified problem loans; and (3) a general valuation allowance on the remainder of the loan portfolio.

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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: (1) 60 or more days delinquent; (2) with anticipated losses; (3) loans referred to attorneys for collection or in the process of foreclosure; (4) nonaccrual loans; (5) 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 (6) troubled debt restructurings and other nonperforming loans.

The watched asset committee, consisting of six of the Company’s officers, 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.

We also review and establish, if necessary, an allowance 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.

General Valuation Allowance on Certain Identified Problem Loans. The Company establishes a general allowance for watch list loans that do not have an individual allowance. 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. The Company establishes another general allowance 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 and delinquency trends. 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, change 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.

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 that of the Company.

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 management believes 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.

The allowance for loan losses increased $367,000, or 13.7%, to $3.1 million at September 30, 2004 as compared to $2.7 million at December 31, 2003. The increase in the allowance resulted principally from a provision for loan losses of $400,000 for the nine months ended September 30, 2004. The increase in the allowance was deemed necessary by management in light of the increase in loans receivable.

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At September 30, 2004, the allowance for loan losses represented 0.72% of total loans and 198.7% of nonperforming loans compared to 0.69% of total loans and 207.6% of nonperforming loans as of December 31, 2003.

Deposits:

The following table displays the Company’s deposit accounts as of the dates indicated.

(Dollars in Thousands)	September 30, 2004		December 31, 2003		Change
Noninterest bearing demand	$	44,741	$	40,371	$	4,370
NOW and money market		110,349		101,852		8,497
Savings		91,429		87,625		3,804
Brokered		5,000		5,000		—
Certificates of deposit		193,591		180,242		13,349
TOTAL DEPOSITS	$	445,110	$	415,090	$	30,020

Deposits, excluding mortgagors’ and investors’ escrow accounts, increased $30.0 million, or 7.2%, to $445.1 million at September 30, 2004. Interest bearing deposits increased $25.7 million, or 6.8%, primarily due to a promotion on individual retirement accounts, aggressive pricing on certificates of deposit to attract additional funds, and efforts to capitalize on opportunities to increase deposits due to the consolidation of financial institutions in our market area. Additionally, noninterest bearing demand deposits increased $4.4 million, or 10.8%, primarily due to an increase in commercial deposits.

Results of Operations for the Three Months and Nine Months Ended September 30, 2004 and 2003

Summary:

The Company recorded a net loss of $1.0 million for the three months ended September 30, 2004 as compared to net income of $979,000 for the three months ended September 30, 2003, primarily due to an increase in noninterest expenses and a decrease in net interest income and noninterest income, which was offset by a lower provision for loan losses and an income tax benefit.

Net income for the nine months ended September 30, 2004, decreased $2.3 million, or 92.4%, to $186,000, compared with net income of $2.4 million for the nine months ended September 30, 2003, primarily due to a decrease in net interest income and noninterest income and an increase in noninterest expenses, partly mitigated by a decrease in the provision for loan losses and an income tax benefit.

For both the three and the nine month periods ended September 30, 2004, noninterest expenses include a $2.5 million contribution of common stock to SI Financial Group Foundation, resulting in a charge to earnings of $1.7 million after taxes. The Company established SI Financial Group Foundation, a charitable foundation, dedicated to community activities and the promotion of charitable causes in the areas in which the Bank operates. In connection with the offering, the Foundation was funded with 2%, or 251,275 shares, of the Company’s common stock.

Net Interest Income:

Net interest income represents the amount of interest and fees on interest-earnings assets, such as investments and loans, that exceed the cost of interest-bearing liabilities, such as interest paid on deposits and external borrowings. Net interest margin equals net interest income as a percent of interest-earning assets.

As shown in the following table, net interest income before the provision for loan losses was $4.8 million for the three months ended September 30, 2004 and September 30, 2003. For the nine months ended September 30, 2004, net interest income before the provision for loan losses decreased $190,000, or 1.3%, to $13.9 million compared to $14.1 million for the nine months ended September 30, 2003. Although the average yields decreased, interest and dividend income increased slightly for the three months ended September 30, 2004 compared to the three months ended September 30, 2003 based on a greater average volume of interest-earning assets. However, interest and dividend income decreased for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 as a result of lower average yields despite the increase in the average interest-earning assets. Although average yields declined, the cost of funds increased for the three months ended September 30, 2004 as a result of increases in

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the average interest-bearing liabilities but decreased for the nine months ended September 30, 2004 compared to the same periods in 2003.

The following tables present certain information concerning the average interest-earning assets and interest-bearing liabilities and their associated interest income and expense and average yields for the periods presented.

	Three Months Ended September 30,
	2004							2003
(Dollars in Thousands)	Average Balance			Interest & Dividends		Average Yield/Rate		Average Balance			Interest & Dividends		Average Yield/Rate
ASSETS:
INTEREST-EARNING ASSETS:
Loans (1)(3)	$	416,175		$	6,115	5.85	%	$	370,062		$	6,171	6.62	%
Investment securities		92,710			925	3.97			89,172			944	4.20
Other interest-earning assets		30,855			111	1.43			10,861			27	0.99
TOTAL INTEREST-EARNING ASSETS		539,740			7,151	5.27			470,095			7,142	6.03
Noninterest earning assets		42,541							41,713
TOTAL ASSETS	$	582,281						$	511,808
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market	$	113,089			101	0.36		$	101,810			96	0.37
Savings (2)		92,711			183	0.79			88,814			151	0.67
Certificates of deposit		194,750			1,330	2.72			185,386			1,359	2.91
Total interest-bearing deposits		400,550			1,614	1.60			376,010			1,606	1.69
FHLB advances		66,194			669	4.02			50,508			582	4.57
Subordinated debt		7,217			91	5.02			7,217			89	4.89
Other borrowings		—			—	—			1,101			18	6.49
TOTAL INTEREST-BEARING LIABILITIES		473,961			2,374	1.99			434,836			2,295	2.09
Noninterest bearing liabilities		72,721							44,126
TOTAL LIABILITIES		546,682							478,962
TOTAL STOCKHOLDERS’ EQUITY		35,599							32,846
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	582,281						$	511,808
NET INTEREST-EARNING ASSETS	$	65,779						$	35,259
NET INTEREST INCOME				$	4,777						$	4,847
Interest rate spread						3.28	%						3.94	%
Net interest margin						3.52	%						4.09	%
Average of interest-earning assets to average interest-bearing liabilities		113.88	%						108.11	%

⁽¹⁾ Amount is net of deferred loan origination costs. Average balance includes nonaccrual loans.

⁽²⁾ Includes mortgagors’ and investors’ escrow.

⁽³⁾ Loan fees are included in interest income and are insignificant.

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	Nine Months Ended September 30,
	2004							2003
(Dollars in Thousands)	Average Balance			Interest & Dividends		Average Yield/Rate		Average Balance			Interest & Dividends		Average Yield/Rate
ASSETS:
INTEREST-EARNING ASSETS:
Loans (1)(3)	$	403,800		$	17,980	5.95	%	$	353,735		$	18,066	6.83	%
Investment securities		89,169			2,683	4.02			93,401			3,024	4.33
Other interest-earning assets		19,220			174	1.21			15,797			134	1.13
TOTAL INTEREST-EARNING ASSETS		512,189			20,837	5.43			462,933			21,224	6.13
Noninterest earning assets		39,367							36,745
TOTAL ASSETS	$	551,556						$	499,678
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market	$	108,593			283	0.35		$	96,991			329	0.45	%
Savings (2)		90,871			454	0.67			87,119			519	0.80
Certificates of deposit		191,754			3,910	2.72			185,703			4,252	3.06
Total interest-bearing deposits		391,218			4,647	1.59			369,813			5,100	1.84
FHLB advances		64,583			2,017	4.17			47,795			1,701	4.76
Subordinated debt		7,217			267	4.94			7,217			272	5.04
Other borrowings		—			—	—			1,282			55	5.74
TOTAL INTEREST-BEARING LIABILITIES		463,018			6,931	2.00			426,107			7,128	2.24
Noninterest bearing liabilities		53,448							41,189
TOTAL LIABILITIES		516,466							467,296
TOTAL STOCKHOLDERS’ EQUITY		35,090							32,382
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	551,556						$	499,678
NET INTEREST-EARNING ASSETS	$	49,171						$	36,826
NET INTEREST INCOME				$	13,906						$	14,096
Interest rate spread						3.43	%						3.89	%
Net interest margin						3.63	%						4.07	%
Average of interest-earning assets to average interest-bearing liabilities		110.62	%						108.64	%

⁽¹⁾ Amount is net of deferred loan origination costs. Average balance includes nonaccrual loans.

⁽²⁾ Includes mortgagors’ and investors’ escrow.

⁽³⁾ Loan fees are included in interest income and are insignificant.

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The following table presents the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have impacted the Company’s interest income and interest expense for the periods presented. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the change attributable to both rate and volume, which has been allocated to (i) and (ii) based on the absolute dollar amount of each.

	Three Months Ended September 30, 2004 Compared to September 30, 2003									Nine Months Ended September 30, 2004 Compared to September 30, 2003
	Increase (Decrease) Due To									Increase (Decrease) Due To
(Dollars in Thousands)	Rate			Volume			Net			Rate			Volume			Net
INTEREST-EARNING ASSETS:
Loans (1)(3)	$	(2,975	)	$	2,919		$	(56	)	$	(3,301	)	$	3,215		$	(86	)
Investment securities		(152	)		133			(19	)		(209	)		(132	)		(341	)
Other interest-earning assets		16			68			84			9			31			40
TOTAL INTEREST-EARNING ASSETS		(3,111	)		3,120			9			(3,501	)		3,114			(387	)
INTEREST-BEARING LIABILITIES:
Deposits:
NOW and money market		(25	)		30			5			(98	)		52			(46	)
Savings (2)		25			7			32			(91	)		26			(65	)
Certificates of deposit		(278	)		249			(29	)		(504	)		162			(342	)
Total interest-bearing deposits		(278	)		286			8			(693	)		240			(453	)
FHLB advances		(376	)		463			87			(333	)		649			316
Subordinated debt		2			—			2			(5	)		—			(5	)
Other borrowings		(9	)		(9	)		(18	)		(28	)		(27	)		(55	)
TOTAL INTEREST-BEARING LIABILITIES		(661	)		740			79			(1,059	)		862			(197	)
CHANGE IN NET INTEREST INCOME	$	(2,450	)	$	2,380		$	(70	)	$	(2,442	)	$	2,252		$	(190	)

⁽¹⁾ Amount is net of deferred loan origination costs. Average balance includes nonaccrual loans.

⁽²⁾ Includes mortgagors’ and investors’ escrow.

⁽³⁾ Loan fees are included in interest income and are insignificant.

Total interest and dividend income increased $9,000, or 0.1%, for the three months ended September 30, 2004, despite a decrease in the average yield on interest-earning assets from 6.03% to 5.27%, as a result of an increase in the average balance of interest-earning assets from $470.1 million to $539.7 million. Total interest and dividend income decreased $387,000, or 1.8%, for the nine months ended September 30, 2004 due to a decrease in the average yield on interest-earning assets from 6.13% to 5.43%, which more than offset an increase in the average balance of interest-earning assets from $462.9 million to $512.2 million. Interest on investment securities decreased during the three and nine months ended September 30, 2004 due to a decrease in the average yield, as a result of the unfavorable interest rate environment, and a lower average balance of investment securities for the nine months ended September 30, 2004 compared to the same periods of the prior year. Interest on loans decreased during both the three and the nine months ended September 30, 2004 due to a decline in the average yield, despite an increase in the average amount of loans outstanding.

Interest expense increased $79,000, or 3.4%, for the three months ended September 30, 2004 due to a $39.1 million increase in average interest-bearing liabilities. Although average interest-bearing liabilities increased $36.9 million, interest expense decreased $197,000, or 2.8%, for the nine months ended September 30, 2004 as the average rate paid declined 24 basis points to 2.0%. The decline in the average cost of interest-bearing liabilities for the nine month period ended September 30, 2004 reflects the prevailing lower interest rate environment.

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Provision for Loan Losses:

The provision for loan losses decreased $240,000, or 70.6%, from $340,000 for the three months ended September 30, 2003 to $100,000 for the three months ended September 30, 2004. The provision for loan losses decreased $1.1 million, or 73.0%, from $1.5 million for the nine months ended September 30, 2003 to $400,000 for the nine months ended September 30, 2004. The lower provisions for the three and nine months ended September 30, 2004 reflects a significantly lower level of charge-offs in 2004 as compared to 2003. In addition, the higher charge-offs in 2003 resulted from a $1.6 million write-off of a large commercial real estate loan.

Noninterest Income:

The following table summarizes noninterest income for the three and nine months ended September 30, 2004 and 2003.

	Three Months Ended September 30,							Nine Months Ended September 30,
(Dollars in Thousands)	2004			2003		% Change		2004			2003		% Change
Service fees	$	818		$	796	2.8	%	$	2,423		$	2,336	3.7	%
Wealth management fees		240			210	14.3			727			626	16.1
Net gain (loss) on sale of securities		(355	)		15	(2,466.7	)		(169	)		129	(231.0	)
Net gain (loss) on sale of loans		11			58	(81.0	)		(9	)		245	(103.7	)
Other		40			63	(36.5	)		86			224	(61.6	)
TOTAL NONINTEREST INCOME	$	754		$	1,142	(34.0	)	$	3,058		$	3,560	(14.1	)

For the three months ended September 30, 2004, noninterest income decreased $388,000, or 34.0%, primarily due to a decrease of $47,000, or 81.0%, in the net gain on the sale of loans and the net loss on the sale of securities of $355,000 as compared to a net gain of $15,000 for the same period during the prior year, offset by increases in service fees and wealth management fees. For the nine months ended September 30, 2004, noninterest income decreased $502,000, or 14.1%, primarily due to a net loss on the sale of loans of $9,000, compared to a net gain of $245,000 for the same period during 2003, a net loss on the sale of securities of $169,000 compared with a net gain of $129,000 in the prior year and a decrease of $138,000 in other income compared with the nine months ended September 30, 2003. The loss on the sale of loans for the nine months ended September 30, 2004 reflects the impact on the sale of a number of loans with below market interest rates. More loans were sold in 2003 as part of our interest rate risk and liquidity management strategies. The loss on the sale of securities was the result of management’s decision to mitigate the Bank’s exposure to corporate and non-agency mortgage-backed securities. Other income decreased due to non-recurring credits associated with a discontinued employee benefit plan recognized in 2003. These decreases were offset by a $101,000, or 16.1%, increase in wealth management fees as a result of the increased balance of assets under management and an $87,000, or 3.7%, increase in service fees which includes the fees assessed to customers for electronic banking services.

Noninterest Expense:

The following table summarizes noninterest expense for the three and nine months ended September 30, 2004 and 2003.

	Three Months Ended September 30,							Nine Months Ended September 30,
(Dollars in Thousands)	2004			2003		% Change		2004		2003		% Change
Salaries and employee benefits	$	2,500		$	2,405	4.0	%	$	7,336	$	6,824	7.5	%
Occupancy		517			490	5.5			1,965		1,535	28.0
Furniture and equipment		215			211	1.9			723		701	3.1
Computer services		237			208	13.9			750		634	18.3
Electronic banking fees		168			140	20.0			495		413	19.9
Outside professional services		87			93	(6.5	)		346		239	44.8
Marketing		143			81	76.5			364		289	26.0
Supplies		73			50	46.0			221		213	3.8
FDIC deposit insurance and state assessment		19			19	—			61		58	5.2
Impairment charge – other assets		—			—	—			51		—	—
Contribution to Foundation		2,513			—	—			2,513		—	—
Other real estate operations		(73	)		13	(661.5	)		12		1	1,100.0
Other		598			457	30.9			1,551		1,560	(0.6	)
TOTAL NONINTEREST EXPENSE	$	6,997		$	4,167	67.9		$	16,388	$	12,467	31.5

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The primary reason for the increase in noninterest expenses for both the three and the nine months ended September 30, 2004 was attributable to the $2.5 million contribution of common shares to SI Financial Group Foundation. Salary and employee benefits increased for both the three and the nine month periods in 2004 due to increases in compensation costs related to an increase in employees and higher payroll taxes and pension expense as a result of greater salary expense. In addition, we accrued $86,000 in our second quarter for future benefits payable to two directors who retired in April 2004. Electronic banking fees and marketing costs both experienced increases during the three and nine months ended September 30, 2004 as compared to the same periods ended September 30, 2003. The electronic banking fee increase reflects a rising trend of customers’ use of electronic banking services. Marketing costs increased resulting from an aggressive marketing campaign to promote the Bank’s products and services to our target market. For the nine months ended September 30, 2004, occupancy expenses, computer services and professional services were additional contributors to the increase in noninterest expenses. Occupancy increased primarily due to an impairment charge of $337,000 to reduce the carrying value on a former branch facility to its estimated net market value. Computer services expense increased due to increased fees and services. Outside professional services expense was higher primarily due to costs associated with our conversion to a federally-chartered mutual holding company structure.

Provision for Income Taxes:

The Company’s income tax expense decreased $1.3 million, or 100.8%, to a tax benefit of $10,000 for the nine months ended September 30, 2004 compared to a tax provision of $1.3 million in 2003 based on a net loss before taxes.

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 and sales, 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 20.0% of total assets. Excess liquid assets are generally invested 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 September 30, 2004, cash and cash equivalents totaled $52.0 million, including interest-bearing deposits of $16.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $97.5 million at September 30, 2004. In addition, at September 30, 2004, we had the ability to borrow a total of approximately $119.0 million from the Federal Home Loan Bank of Boston. On that date, we had advances outstanding of $60.9 million. Additionally, 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.

The Company believes that the Bank’s most liquid assets combined with the available line from the Federal Home Loan Bank provides adequate liquidity to meet its current financial obligations.

At September 30, 2004, we had $93.9 million in loan commitments outstanding, which included $24.4 million in undisbursed construction loans, $18.0 million in unused home equity lines of credit, $7.6 million in commercial lines of credit and $1.2 million in standby letters of credit. Certificates of deposit due within one year of September 30, 2004 totaled $99.3 million, or 22.3% of total deposits. Management believes that the amount of deposits in shorter-term certificates of deposit reflects customers’ hesitancy to invest their funds in long-term certificates of deposit in the current low interest rate environment. To compensate, we have increased the duration of our borrowings with the Federal Home Loan Bank of Boston. If these maturing certificates of deposit 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. Additionally, we maintain a shorter duration in our securities portfolio to provide necessary liquidity to compensate for any deposit outflows. We believe, however, based on past experience, that a

25

significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by favorably adjusting the interest rates offered to our customers.

Our primary investing activities are the origination of loans and the purchase of securities. For the nine months ended September 30, 2004, we originated $128.8 million of loans and purchased $61.8 million of securities. In fiscal 2003, we originated $207.7 million of loans and purchased $45.1 million of securities.

Financing activities consist primarily of activity in deposit accounts and in Federal Home Loan Bank advances. Asset growth has outpaced deposit growth during the last three years. The increased liquidity needed to fund asset growth over the last three years has been provided through increased Federal Home Loan Bank borrowings and raising capital through the issuance of trust preferred securities. We experienced a net increase in total deposits of $30.0 million, $19.0 million, $35.3 million and $41.2 million for the nine months ended September 30, 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 $3.7 million, $13.3 million, $8.7 million and $9.5 million for the nine months ended September 30, 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.

Our initial stock offering increased the Company’s capital and liquidity. However, over time, our liquidity will be reduced as net proceeds from the stock offering are deployed. 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. In the future, we may use capital management tools such as cash dividends and common share repurchases. However, under Office of Thrift Supervision regulations, we will not be allowed to repurchase any shares during the first year following the offering, except to fund the restricted stock awards under any stock-based benefit plans, unless extraordinary circumstances exist and we receive regulatory approval.

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 September 30, 2004, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. As a savings and loan holding company regulated by the Office of Thrift Supervision, the Company is not subject to any separate regulatory capital requirements.

The following is a summary of the Bank’s regulatory capital amounts and ratios as of September 30, 2004 and December 31, 2003 compared to the Office of Thrift Supervision and FDIC requirements for classification as a well-capitalized institution and for minimum capital adequacy.

The Savings Institute Bank and Trust Company at September 30, 2004:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital to Risk Weighted Assets	$	61,973	18.47	%	$	26,843	8.00	%	$	33,553	10.00	%
Tier I Capital to Risk Weighted Assets		58,906	17.56	%		13,418	4.00	%		20,127	6.00	%
Tier I Capital to Total Assets (1)		58,906	10.13	%		23,260	4.00	%		29,075	5.00	%
Tangible Equity Ratio		58,906	10.13	%		8,723	1.50	%		N/A	N/A

⁽¹⁾ Office of Thrift Supervision reporting requirement includes “Total Assets.”

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The Savings Institute Bank and Trust Company at December 31, 2003:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	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 (1)		34,679	6.81	%		20,369	4.00	%		25,462	5.00	%

⁽¹⁾ FDIC reporting requirement includes “Total Average Assets.”

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.

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 at September 30, 2004 and December 31, 2003 are as follows:

(Dollars in Thousands)	September 30, 2004		December 31, 2003
Commitments to extend credit:
Future loan commitments	$	41,687	$	22,224
Undisbursed construction loans		24,395		15,193
Undisbursed home equity lines of credit		17,967		15,577
Undisbursed commercial lines of credit		7,555		7,360
Overdraft protection lines		1,065		1,012
Standby letters of credit		1,200		718
TOTAL COMMITMENTS	$	93,869	$	62,084

For the nine months ended September 30, 2004, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Qualitative Aspects:

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

27

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:

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 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 that changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The tables below set 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 September 30, 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 affect the rate sensitivity position. The prepayment rates on investment securities are assumed to fluctuate between 9% and 18% in a flat interest rate environment and 18% and 36% in a decreasing interest rate environment and between 6% and 15% in an increasing interest rate environment, depending on the type of security. Loan prepayment rates are assumed to fluctuate between 6% and 36% in a flat or decreasing interest rate environment and between 6% and 24% in a flat interest rate environment and 6% and 24% in an increasing interest rate environment, depending on the type of loan. As evidenced by these assumptions, when interest rates rise, prepayments tend to slow and when interest rates fall, prepayments tend to increase. 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.

	Percent Change in Estimated Net Interest Income Over
As of September 30, 2004:	12 Months		24 Months
300 basis point increase in rates	(7.30	%)	(8.30	%)
125 basis point increase in rates	(1.84	%)	(4.65	%)
100 basis point decrease in rates	(1.17	%)	(3.60	%)

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	Percent Change in Estimated Net Interest Income Over
As of December 31, 2003:	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 reevaluated on a periodic basis (not less than annually) and may be modified, as appropriate.”

Management generally simulates changes to net interest income using three different interest rate scenarios. One scenario anticipates the maximum foreseeable increase in rates over the next 12 months; management currently assumes this to be 300 basis points. A second scenario anticipates the maximum foreseeable decrease in rates over the next 12 months; management’s current assumption is 100 basis points. The third scenario anticipates management’s view of the most likely change in interest rates over the next 12 months. At September 30, 2004, management utilized a 125 basis point increase in rates. At December 31, 2003, management utilized a 100 basis point increase in rates. Management periodically reviews its rate assumptions based on existing and projected economic conditions.

The 300, 125 and 100 basis point change in rates in the above table at September 30, 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 125 or 300 basis points or in a declining rate environment. Using data at September 30, 2004, for each percentage point change in net interest income, the effect on annual net income would be $126,000, 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 September 30, 2004 and December 31, 2003 reflects management’s belief that the economy is entering a phase of increasing interest rates.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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There were no changes in the Company’s internal control over financial reporting as identified in connection with the evaluation described above that occurred during the Company’s fiscal quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company, including its subsidiaries, is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Management believes that such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Company’s financial condition, results of operations and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following information is provided with the Company’s sale of its common stock as part of the Conversion.

a. The effective date of the Registration Statement on Form S-1 (File No. 333-116381) was August 12, 2004.

b. The offering was consummated on August 20, 2004 with the sale of all securities registered pursuant to the Registration Statement. Sandler O’Neill & Partners, L.P. acted as marketing agent for the offering.

c. The class of securities registered was common stock, par value of $0.01 per share. The aggregate amount of such securities registered was 5,276,775 shares which represented an aggregate amount of $52.8 million. The amount included 5,025,500 shares (or $50.3 million) sold in the offering and 251,275 shares (or $2.5 million) issued to SI Financial Group Foundation.

d. A reasonable estimate of expenses incurred in connection with the stock offering was $1.8 million, including expenses paid to and for underwriters of $506,000, attorney and accounting fees of $703,000 and other expenses of $591,000. The net proceeds resulting from the offering after deducting expenses was $48.5 million.

e. The net proceeds are invested in available for sale securities, including mortgage-backed securities and U.S. Government and agency obligations, and in other cash equivalent investments.

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5. Other Information

None

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Item 6. Exhibits

3.1	Charter of SI Financial Group, Inc. (1)
3.2	Bylaws of SI Financial Group, Inc. (1)
4.0	Stock Certificate of SI Financial Group, Inc. (1)
10.1	Employment Agreement by and among SI Financial Group, Inc. and Savings Institute Bank and Trust Company and Rheo A. Brouillard
10.2	Employment Agreement by and among SI Financial Group, Inc. and Savings Institute Bank and Trust Company and Brian J. Hull
10.3	Change in Control Agreement by and among Savings Institute Bank and Trust Company and Michael J. Moran
10.4	Form of Saving Institute Bank and Trust Company Employee Severance Compensation Plan (1)
10.5	Savings Institute Directors Retirement Plan (1)
10.6	Form of Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan (1)
10.7	Savings Institute Group Term Replacement Plan (1)
10.8	Form of Savings Institute Executive Supplemental Retirement Plan – Defined Benefit (1)
10.9	Form of Savings Institute Director Deferred Fee Agreement (1)
10.10	Form of Saving Institute Director Consultation Plan (1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

⁽¹⁾ Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form S-1, and any amendments thereto, Registration No. 333-116381.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SI FINANCIAL GROUP, INC.
November 12, 2004	By:	/s/ Rheo A. Brouillard
		Rheo A. Brouillard President and Chief Executive Officer (principal executive officer)

November 12, 2004	By:	/s/ Brian J. Hull
		Brian J. Hull Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer)

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this 30^th day of September, 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 RHEO A. BROUILLARD (“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 President and Chief Executive Officer of the Company and the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of President and Chief Executive Officer or which, consistent with those offices, are delegated to him by the Board of Directors. 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 third 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 thirty-six (36) 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 and the Company (the “Boards”) 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 Executive shall receive notice 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 $253,000 per year, payable in accordance with customary payroll practices.

b. The Board of the Bank 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.

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

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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 information concerning the Company and the Bank to which he may be exposed

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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

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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 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. 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 stated duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or 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 Boards, 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 Boards, 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 or the Bank that provide health (including

6

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 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 of Directors of the Bank or the Company;

(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.

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iv. Notwithstanding the foregoing, a reduction or elimination of the Executive’s benefits under one or more benefit plans maintained by the Company or 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 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

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persons who were stockholders of the Company immediately before the merger or consolidation.

(ii) Acquisition of Significant Share Ownership: There is filed or required to be filed 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 reorganization of the Bank from the mutual holding company form of organization to the full stock holding company form of organization (including the elimination of the mutual holding company) constitute a “Change in Control” for purposes of this Agreement.

a. Termination. If within the period ending two (2) 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 2.99 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

9

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(a) 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 a thirty-six (36) 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 (2) 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

10

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 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

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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 of such payments and benefits being deductible to the Company and the Bank and not 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.

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

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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.

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.

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26.1 The Bank’s board of directors 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 11(d) hereinabove.

a. 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.

b. 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.

c. 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.

26.2 All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank: (i) by the Director of the OTS (or his designee), 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.

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26.3 Any payments made to employees pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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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.
/s/ Laurie L. Gervais	By:	/s/ Henry P. Hinckley
		Chairman of the Board of Directors
Attest:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
/s/ Laurie L. Gervais	By:	/s/ Henry P. Hinckley
		Chairman of the Board of Directors
Witness:	EXECUTIVE
/s/ Laurie L. Gervais	/s/ Rheo A. Brouillard
	Rheo A. Brouillard

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this 30^th day of September, 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 BRIAN J. HULL (“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 Executive Vice President, Chief Financial Officer and Treasurer of the Company and the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of Executive Vice President, Chief Financial Officer and Treasurer or which, consistent with those offices, are delegated to him by the Chief Executive Officer of the Bank or the Company. 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 third 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 thirty-six (36) 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 and the Company (the “Boards”) 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 Executive shall receive notice 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 $150,000 per year, payable in accordance with customary payroll practices.

b. The Board and the Bank 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.

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

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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 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

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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 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

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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. 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 stated duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

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.

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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 Boards, 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 Boards, 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 or 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 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;

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(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) 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;

(4) 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;

(5) 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

(6) liquidation or dissolution of the Company or the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of the Executive’s benefits under one or more benefit plans maintained by the Company or 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 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

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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: There is filed or required to be filed 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 Agreement to the contrary, in no event shall reorganization of the Bank from the mutual holding company form or organization to the full stock holding company form of organization (including the elimination of the mutual holding company) constitute a “Change in Control” for purposes of this Agreement.

a. Termination. If within the period ending three (3) 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 2.99 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(a) 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 a thirty-six (36) 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 the Bank 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 (2) years following a Change in Control.

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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 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

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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 of such payments and benefits being deductible to the Company and the Bank and not 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.

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

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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.

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.

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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’s board of directors 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 II(d) 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.

e. All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank: (i) by the Director of the OTS (or his designee), at the time 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.

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f. Any payments made to employees pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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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.
/s/ Laurie L. Gervais	By:	/s/ Henry P. Hinckley
		Chairman of the Board of Directors
Attest:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
/s/ Laurie L. Gervais	By:	/s/ Henry P. Hinckley
		Chairman of the Board of Directors
Witness:	EXECUTIVE
/s/ Laurie L. Gervais	/s/ Brian J. Hull
	Brian J. Hull

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EX-10.3

Exhibit 10.3

SAVINGS INSTITUTE BANK AND TRUST COMPANY

CHANGE IN CONTROL AGREEMENT

This AGREEMENT (“Agreement”) is hereby entered into as of September 30, 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, Michael J. Moran (“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 second 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 shall apply. Upon the occurrence of a Change in Control, Executive shall have the right to elect to

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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 twenty-five (25) 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.

(ii) Acquisition of Significant Share Ownership: There is filed or required to be filed a report on Schedule 13D or another form or schedule (other than

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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 reorganization of the Bank from the mutual holding company form of organization to the full stock holding company form of organization (including the elimination of the mutual 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 subsidiary or affiliate thereof, vest. At the Date of Termination, such stock options and any such

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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 two (2) years of a Change in Control, Executive shall receive:

(i) a lump sum cash payment equal to two (2) 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 twenty-four (24) 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 Association 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.

16. Required Provisions.

In the event any of the foregoing provisions of this Section 16 are in conflict with the terms of this Agreement, this Section 16 shall prevail.

a. The Bank’s board of directors 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.

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.

e. All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued

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operation of the Bank: (i) by the Director of the OTS (or his designee), at the time 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 employees Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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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 30^th day of September, 2004.

ATTEST:	SAVINGS INSTITUTE BANK AND TRUST COMPANY
/s/ Sandra M. Mitchell	By:	/s/ Rheo A. Brouillard
Corporate Secretary		For the Entire Board of Directors

ATTEST:	SI FINANCIAL GROUP, INC.
	(Guarantor)
/s/ Sandra M. Mitchell	By:	/s/ Rheo A. Brouillard
Corporate Secretary		For the Entire Board of Directors

[SEAL]
WITNESS:	EXECUTIVE
/s/ Sandra M. Mitchell	/s/ Michael J. Moran
Corporate Secretary	Michael J. Moran

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EX-31.1

Exhibit 31.1

Certification

I, Rheo A. Brouillard, President and Chief Executive Officer of SI Financial Group, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of SI Financial Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 12, 2004	/s/ Rheo A. Brouillard
	Rheo A. Brouillard President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Brian J. Hull, Executive Vice President, Treasurer and Chief Financial Officer of SI Financial Group, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of SI Financial Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 12, 2004	/s/ Brian J. Hull
	Brian J. Hull Executive Vice President, Treasurer and Chief Financial Officer

EX-32

Exhibit 32.0

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SI Financial Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2004, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this Report fairly presents, in all material respects, the consolidated financial condition and results of the Company as of and for the period covered by this Report.

By:	/s/ Rheo A. Brouillard
	Rheo A. Brouillard President and Chief Executive Officer November 12, 2004

By:	/s/ Brian J. Hull
	Brian J. Hull Executive Vice President, Treasurer and Chief Financial Officer November 12, 2004