10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2012

o 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:  0-54241

SI FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Maryland	80-0643149
(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of Exchange on which registered
Common stock, par value $0.01 per share	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes oNoý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  oNoý

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   ýNoo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ýNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated FileroAccelerated Filer ý

Non-Accelerated Filer  oSmaller Reporting Company Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)   Yes oNo ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $113.4 million, which was computed by reference to the closing price of $11.50, at which the common equity was sold as of June 30, 2012.  Solely for the purposes of this calculation, the shares held by the directors and officers of the registrant are deemed to be affiliates.

As of March 1, 2013, there were10,112,310 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Annual Report to Shareholders and the Proxy Statement for the 2013 Annual Meeting of Shareholders are incorporated by reference into Parts II and III of this Form 10-K.

SI FINANCIAL GROUP, INC.

TABLE OF CONTENTS

PART I.		Page No.
Item 1.	Business	3
Item 1A.	Risk Factors	37
Item 1B.	Unresolved Staff Comments	42
Item 2.	Properties	42
Item 3.	Legal Proceedings	42
Item 4.	Mine Safety Disclosures	43
PART II.
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	43
Item 6.	Selected Financial Data	43
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A.	Controls and Procedures	45
Item 9B.	Other Information	46
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	46
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions and Director Independence	47
Item 14.	Principal Accountant Fees and Services	47
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	47
	Signatures	50

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Forward-Looking Statements

This report may contain certain “forward-looking statements” within the meaning of the federal securities laws, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are not historical facts; rather, they are statements based on management’s current expectations regarding our business strategies, intended results and future performance.  Forward-looking statements are generally preceded by terms such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “projects” and similar expressions.  Management’s ability to predict results of the effect of future plans or strategies is inherently uncertain.  Factors that could have a material adverse effect on the operations of SI Financial Group, Inc. (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 United States government, including policies of the United States Treasury and the Federal Reserve Board, the quality and composition of the loan and investment portfolios, demand for 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.  Additional factors that may affect the Company’s results are discussed in Item 1A. “Risk Factors” in this annual report on Form 10-K and in other reports filed with the Securities and Exchange Commission.  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.

PART I.

Item 1.  Business.

General

In certain instances where appropriate, the terms “we,” “us” and “our” refer to SI Financial Group, Inc. or Savings Institute Bank and Trust Company, or both.

SI Financial Group, Inc. is the successor to the former federally-chartered SI Financial Group, Inc., which was the parent holding company for Savings Institute Bank and Trust Company (the "Bank") during the time the Bank was organized in the mutual holding company form of organization.

On January 12, 2011, the Company completed its public stock offering and the concurrent "second step" conversion of the Bank from the mutual holding company structure to a stock holding company structure (the "Conversion").  A total of 6,544,493 shares of common stock were sold at $8.00 per share, including 392,670 shares purchased by the Bank’s Employee Stock Ownership Plan.  Additional shares totaling 4,032,356 were issued in exchange for shares of the former federally-chartered SI Financial Group, Inc., at an exchange ratio of 0.8981. Following the Conversion, the Company had 10,576,849 shares of common stock outstanding.

The Bank is a wholly-owned subsidiary of the Company and management of the Company and the Bank are substantially similar.  The Company neither owns nor leases any property, but instead uses the premises, equipment and other property of the Bank with the payment of appropriate rental fees, as required by applicable law and regulations.  Thus, the financial information anddiscussion contained herein primarily relates to the activities of the Bank.

The Bank operates as a community-oriented financial institution offering a full range of financial services to consumers and businesses in its market area, including insurance, trust and investment services.  The Bank attracts deposits from the general public and uses those funds to originate one- to four-family residential, multi-family and commercial real estate, commercial business and consumer loans.  Since 2008, substantially all of the fixed-rate one- to four-family residential conforming loans the Bank originates have been sold in the secondary market with

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the servicing retained.  Such sales generate mortgage banking fee income.  The remainder of the Bank’s loan portfolio is originated for investment.

Availability of Information

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on the Company’s website,www.mysifi.com, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (the “SEC”).  The information on the Company’s website shall not be considered as incorporated by reference into this Form 10-K.

Market Area and Competition

The Company is headquartered in Willimantic, Connecticut, which is located in eastern Connecticut approximately 30 miles east of Hartford.  The Bank operates 20 full-service offices throughout Windham, New London, Tolland, Hartford and Middlesex counties in Connecticut.  The Bank’s primary lending area is eastern Connecticut and most of the Bank’s deposit customers reside in the areas surrounding the Bank’s branch offices.  The economy in the Company’s market area is relatively diverse and primarily oriented to the educational, service, entertainment, manufacturing and retail industries.  The major employers in the area include several institutions of higher education, the Mohegan Sun and Foxwoods casinos, General Dynamics Defense Systems and Pfizer, Inc.  In addition, there are also many small to mid-sized businesses that support the local economy.

Notwithstanding the recent economic downturn, our primary market area has remained a relatively stable banking market.  Windham, New London, Tolland, Hartford and Middlesex counties have a total population of 1.6 million and 625,000 total households according to SNL Financial.  For 2011, median household income levels ranged from $54,000 to $74,000 in the five counties we maintain branch offices, compared to $65,000 for Connecticut as a whole and $50,000 for the United States according to published statistics.

The Bank faces significant competition for the attraction of deposits and origination of loans.  The most direct competition for deposits has historically come from the several financial institutions operating in the Bank’s market area and, to a lesser extent, from other financial service companies, such as brokerage firms, credit unions and insurance companies.  The Bank also faces competition for investors’ funds from money market funds and other corporate and government securities.  At June 30, 2012, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation (the “FDIC”), the Bank held 21.04% of the deposits in Windham County, which is the largest market share out of 10 financial institutions with offices in this county.  Also, at June 30, 2012, the Bank held 0.94% of the deposits in New London, Tolland, Hartford and Middlesex counties, which is the 15th market share out of 36 financial institutions with offices in these counties.  Bank of America Corp., Webster Bank Financial Corporation, The Toronto-Dominion Bank, People’s United Financial, Inc. and Banco Santander, S.A., all of which are large national or regional bank holding companies, also operate in the Bank’s market area.  These institutions are significantly larger and, therefore, have significantly greater resources than the Bank does and may offer products and services that the Bank does not provide.

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

The Bank expects competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms

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and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit the Company’s growth in the future.

Lending Activities

General. The Bank’s loan portfolio consists primarily of one- to four-family residential mortgage loans, multi-family and commercial real estate loans and commercial business loans. To a much lesser extent, the loan portfolio includes construction and consumer loans.  At December 31, 2012, the Bank had loans held for sale totaling $5.1 million.

The following table summarizes the composition of the Bank’s loan portfolio at the dates indicated.

	At December 31,
	2012					2011					2010					2009					2008
	Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total
Real estate loans:	(Dollars in Thousands)
Residential - 1 to 4 family	$	230,664		33.44	%	$	247,426		39.79	%	$	270,923		44.46	%	$	306,244		50.12	%	$	332,399		53.46	%
Multi-family and commercial	201,951			29.28		158,384			25.47		160,015			26.26		159,781			26.15		158,693			25.52
Construction	3,284			0.48		12,290			1.98		6,952			1.14		11,400			1.87		27,892			4.49
Total real estate loans	435,899			63.20		418,100			67.24		437,890			71.86		477,425			78.14		518,984			83.47
Commercial business loans:
SBA and USDA guaranteed	148,385			21.51		127,359			20.48		116,492			19.11		77,310			12.65		45,704			7.35
Other	65,142			9.44		40,442			6.50		26,310			4.32		30,239			4.95		34,945			5.62
Total commercial business loans	213,527			30.95		167,801			26.98		142,802			23.43		107,549			17.60		80,649			12.97
Consumer loans:
Home equity	28,375			4.11		27,425			4.41		25,533			4.19		22,573			3.69		18,762			3.02
Indirect automobile	9,652			1.40		5,733			0.92		—			—		—			—		—			—
Other	2,353			0.34		2,824			0.45		3,167			0.52		3,513			0.57		3,345			0.54
Total consumer loans	40,380			5.85		35,982			5.78		28,700			4.71		26,086			4.26		22,107			3.56
Total loans	689,806			100.00	%	621,883			100.00	%	609,392			100.00	%	611,060			100.00	%	621,740			100.00	%
Deferred loan origination costs, net of deferred fees	1,744					1,713					1,621					1,523					1,570
Allowance for loan losses	(6,387		)			(4,970		)			(4,799		)			(4,891		)			(6,047		)
Loans receivable, net	$	685,163				$	618,626				$	606,214				$	607,692				$	617,263

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

The Bank offers fixed-rate loans with terms of 10, 15, 20 or 30 years.  The Bank’s adjustable-rate mortgage loans are based primarily on 30-year amortization schedules.  Interest rates and payments on adjustable-rate mortgage loans adjust annually after a one, three, five, seven or ten-year initial fixed period. Interest rates and payments on adjustable-rate loans are adjusted to a rate typically equal to 2.75% (2.875% for jumbo loans) above the one-year constant maturity Treasury index.  The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 6% over the initial interest rate of the loan.

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

In an effort to provide financing for moderate income and first-time buyers, the Bank offers loans insured by the Federal Housing Administration and the Veterans Administration and participates in the Connecticut Housing Finance Authority Program.  The Bank also offers Guaranteed Rural Housing Loans through the United States Department of Agriculture ("USDA"). The Bank offers fixed-rate residential mortgage loans through these programs to qualified individuals and originates the loans using modified underwriting guidelines.

Multi-Family and Commercial Real Estate Loans.  The Bank originates multi-family and commercial real estate ("CRE") loans throughout its market area for the purpose of acquiring, developing, improving or refinancing multi-family and commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary repayment source.  The Bank offers fixed-rate and adjustable-rate mortgage loans secured by multi-family and commercial real estate.  The Bank’s multi-family and commercial real estate loans are generally secured by owner-occupied properties, including churches and retail facilities.  The Bank intends to continue to emphasize this segment of its loan portfolio, as market conditions permit, as such loans produce yields that are generally higher than one- to four-family residential loans and are more sensitive to changes in market interest rates.

The Bank has established a specialized lending strategy which includes an Out-of-Market CRE Market Lending Program. The primary focus of this program is to develop greater investment in real estate loans in the metro-Boston and the surrounding region. The Bank employs a highly seasoned senior commercial real estate loan officer and a senior commercial real estate underwriter with significant expertise in this type of lending. Loans originated in this lending area comprise income producing properties representing office, flex, industrial, retail, single credit tenant and residential apartments. These properties have strong income support, favorable demographics and are owned and managed by experienced and financially strong property managers. These loans are predominately shorter-term loan facilities (generally 5-year maturities) which are structured to provide the Bank with strong asset growth, coupled with a focus on credit quality. At December 31, 2012, the Bank's exposure in Out-of-Market CRE Market Lending was $48.8 million.

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The Bank originates adjustable-rate multi-family and commercial real estate loans for amortization periods up to 25 years.  Interest rates and payments on these loans typically adjust every five years after a five-year initial fixed-rate period.  Interest rates and payments on adjustable-rate loans are adjusted to a rate typically 2.5-3.0% above the classic advance rates offered by the Federal Home Loan Bank of Boston (the “FHLB”). There are no adjustment period or lifetime interest rate caps. Loans are secured by first mortgages that generally do not exceed 75% of the property’s appraised value.  At December 31, 2012, the largest outstanding multi-family or commercial real estate loan was $8.6 million.  This loan is secured by an office building and was performing according to its terms at December 31, 2012.

Construction and Land Loans.  The Bank originates loans to individuals, and to a lesser extent, builders, to finance the construction of residential dwellings.  The Bank also originates construction loans for commercial development projects, including condominiums, apartment buildings, single-family subdivisions as well as owner-occupied properties used for businesses.  Residential construction loans generally provide for the payment of interest only during the construction phase, which is usually twelve months.  At the end of the construction phase, the loan generally converts to a permanent mortgage loan.  Commercial construction loans generally provide for the payment of interest only during the construction phase which may range from three to twenty-four months.  Loans generally can be made with a maximum loan-to-value ratio of 80% on residential construction, 75% on construction for nonresidential properties and 80% of the lesser of the appraised value or cost of the project on multi-family construction.  At December 31, 2012, the largest outstanding commercial construction loan commitment was $600,000 for the construction of a multi-tenant retail building, of which $50,000 was outstanding and the largest residential construction loan commitment was $544,000 of which $425,000 was outstanding.  These loans were performing according to their terms at December 31, 2012.  Primarily all commitments to fund construction loans require an appraisal of the property by a board approved independent licensed appraiser.  Also, inspections of the property are required before the disbursement of funds during the term of the construction loan.

The Bank also originates land loans to individuals, local contractors and developers only for making improvements on approved building lots, subdivisions and condominium projects within two years of the date of the loan.  Such loans to individuals generally are written with a maximum loan-to-value ratio based upon the appraised value or purchase price of the land.  Maximum loan-to-value ratio on raw land is 50%, while the maximum loan-to-value ratio for land development loans involving approved projects is 65%.  The Bank offers fixed-rate land loans and variable-rate land loans that adjust annually.  Interest rates and payments on adjustable-rate land loans are adjusted to a rate typically equal to the then current prime rate as reported in The Wall Street Journal plus a 1.0–2.0% margin.  The maximum amount by which the interest rate may be increased or decreased is generally 2% annually and the lifetime interest rate cap is generally 6% over the initial rate of the loan.  Land loans totaled $231,000 at December 31, 2012.

Commercial Business Loans. The Bank originates commercial business loans to a variety of professionals, sole proprietorships and small businesses primarily in its market area.  The Bank offers a variety of commercial lending products, the maximum amount of which is limited by the Bank’s in-house loans to one borrower limit.  At December 31, 2012, the largest commercial loan was a $7.3 million loan, which is secured by the assignment of a diverse portfolio of consumer account receivables related to the time share industry.  This loan was performing according to its terms at December 31, 2012.

The Bank offers loans secured by business assets other than real estate, such as business equipment and inventory. These loans are originated with maximum loan-to-value ratios of 75% of the value of the personal property.  The Bank originates lines of credit to finance the working capital needs of businesses to be repaid by seasonal cash flows or to provide a period of time during which the business can borrow funds for planned equipment purchases.  These loans convert to a term loan at the expiration of a draw period, which is not to exceed twelve months, and will be paid over a pre-defined amortization period.  Additional products such as time notes, letters of credit and equipment lease financing are offered.  Additionally, the Bank purchases the portion of commercial business loans that are fully guaranteed by the Small Business Administration (“SBA”) and the

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USDA.  At December 31, 2012, purchased SBA and USDA loans totaled $148.4 million.

Under the direction of a seasoned loan officer with experience in this field, the Bank's Commercial Lending Department maintains a program to finance capital improvements for residential and commercial condominium associations. The loans are secured with the assigned right to levy special assessments and collect the special assessments from the individual unit owners. The portfolio consists of 45 loans totaling $15.5 million as of December 31, 2012.

The Bank has initiated a specialized lending program supporting the time share industry. The Bank provides financing for investors but is not involved with the development of time share resorts. The loan is secured by diverse consumer receivables. The Bank employs an experienced loan officer who specializes in this area of lending. The Bank's exposure in time share lending was $28.0 million at December 31, 2012.

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

Consumer Loans.  The Bank offers a variety of consumer loans, primarily home equity lines of credit, and, to a lesser extent, loans secured by marketable securities, passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, as well as unsecured loans.  Generally, the Bank offers automobile loans with a maximum loan-to-value ratio of 100% of the purchase price for new vehicles.  Unsecured loans generally have a maximum borrowing limit of $10,000 and a maximum term of five years.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and their ability to meet existing obligations and payments on the proposed loans. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.  Home equity lines of credit have adjustable rates of interest that are indexed to the prime rate as reported in The Wall Street Journal.  A home equity line of credit may be drawn down by the borrower for an initial period of five years from the date of the loan agreement.  During this period, the borrower has the option of paying, on a monthly basis, either principal and interest or only interest.  If the draw period is not extended at the option of the Bank for an additional 4 years and 10 months, the borrower has to pay back the amount outstanding under the line of credit over a term not to exceed ten years, beginning at the end of the five-year period.  The Bank will offer home equity loans with a maximum combined loan-to-value ratio of 80%.

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

Loans secured by multi-family and commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans.  Of primary concern in multi-family and commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income-producing properties often depend on the successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income-producing properties, the Bank generally requires borrowers and loan guarantors to provide annual financial statements and/or tax returns.  In reaching a decision on whether to make a multi-family or commercial real estate loan, consideration is given to the net operating income of the property, the borrower’s

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expertise, credit history and the profitability and value of the underlying property.  The Bank generally requires that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.20.  Environmental screens, surveys and inspections are obtained when circumstances suggest the possibility of the presence of hazardous materials. Further, in connection with our ongoing monitoring of the loan, the Bank typically reviews the property, the underlying loan and guarantors annually.

Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.  Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction, the estimated cost (including interest) of construction and the ability of the project to be sold upon completion.  During the construction phase, a number of factors could result in delays and cost overruns.  If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the building.  If the estimate of value proves to be inaccurate, the Bank may be confronted, at or before the maturity of the loan, with a building having a value that is insufficient to assure full repayment.  If the Bank is forced to foreclose on a building before or at completion due to a borrower default, the Bank may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.

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

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

Loan Originations, Purchases, Sales and Servicing.  Loan originations come from a number of sources.  The primary source of loan originations are the Bank’s in-house loan originators, and to a lesser extent, advertising and referrals from customers.

The Bank purchases the portions of loans fully guaranteed by the SBA and the USDA.  The loans are primarily for commercial and agricultural properties located throughout the United States.  The Bank purchased $42.9 million and $41.2 million in such loans during 2012 and 2011, respectively. During 2011, proceeds from the sale of SBA and USDA loans totaled $8.0 million. No SBA and USDA loans were sold during 2012.

Additionally, the Bank enters into participation loans with other institutions.  The Bank generally performs its own underwriting analysis before participating in a loan and therefore, believes there should not be a greater risk of default on these obligations compared to loans the Bank originates itself.  However, in a purchased participation loan, the Bank does not service the loan and thus is subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings. At December 31, 2012, the Bank was a participating lender on four loans totaling $5.1 million, which are secured by commercial real estate, which are serviced by other institutions as the lead lenders. 

During 2012, the Bank purchased an additional indirect automobile portfolio totaling $6.9 million. The characteristics of the portfolio include minimum FICO scores for the applicant, acceptable debt to income ratios,

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qualified collateral and Vendor's Single Interest ("VSI") coverage on each automobile. At December 31, 2012, the indirect automobile portfolio amounted to $9.7 million.

The Bank originates conventional conforming one- to four-family loans which meet Fannie Mae underwriting standards.  Since 2008, substantially all of the fixed-rate one- to four-family residential conforming loans have been sold in the secondary market on a servicing retained basis.  Such loans are sold to Fannie Mae, the Connecticut Housing Finance Authority and the FHLB under the Mortgage Partnership Finance Program (“MPF”).  The decision to sell loans in the secondary market is based on prevailing market interest rate conditions, an analysis of the composition and risk of the loan portfolio, liquidity needs and interest rate risk management.  Generally, loans are sold without recourse.  The Bank utilizes the proceeds from these sales primarily to meet liquidity needs. Proceeds from the sale of one- to four-family loans totaled $55.3 million and $49.1 million for the years ended December 31, 2012 and 2011, respectively. The Bank intends to continue to originate these types of loans for sale in the secondary market in the future to increase its noninterest income.

At December 31, 2012, the Bank retained the servicing rights on $203.4 million of loans for others, consisting primarily of fixed-rate mortgage loans sold with or without recourse to third parties.  Loan repurchase commitments are agreements to repurchase loans previously sold upon the occurrence of conditions established in the contract, including default by the underlying borrower.  At December 31, 2012, the balance of loans sold with recourse totaled $14,000.  Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, processing insurance and tax payments on behalf of borrowers, assisting in foreclosures and property dispositions when necessary and general administration of loans.

The following table sets forth the Bank’s loan originations, loan purchases, loan sales, principal repayments, net charge-offs and other reductions on loans for the years indicated.

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Loans at beginning of year	$	621,883	$	609,392	$	611,060
Originations:
Real estate loans	159,887		119,684		104,497
Commercial business loans	42,490		16,651		5,337
Consumer loans	10,319		10,898		12,210
Total loan originations	212,696		147,233		122,044
Purchases:
SBA and USDA guaranteed	42,907		41,197		53,953
Indirect automobile	6,861		5,802		—
Total purchases	49,768		46,999		53,953
Deductions:
Principal loan repayments, prepayments and other, net	135,677		122,087		125,719
Loan sales	55,260		57,047		49,107
Loan charge-offs	1,817		1,726		1,015
Transfers to other real estate owned	1,787		881		1,824
Total deductions	194,541		181,741		177,665
Net increase (decrease) in loans	67,923		12,491		(1,668		)
Loans at end of year	$	689,806	$	621,883	$	609,392

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Loan Maturity.  The following table shows the contractual maturity of the Bank’s loan portfolio at December 31, 2012.  The table does not reflect any estimate of prepayments, which significantly shortens the average life of all loans and may cause actual repayment experience to differ from that shown below.  Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.  The amounts shown below exclude deferred loan fees and costs.

	Amounts Due In
	One Year or Less		More Than One Year to Five Years		More Than Five Years		Total Amount Due
Real estate loans:	(In Thousands)
Residential - 1 to 4 family	$	311	$	4,573	$	225,780	$	230,664
Multi-family and commercial	1,097		35,368		165,486		201,951
Construction	174		—		3,110		3,284
Total real estate loans	1,582		39,941		394,376		435,899
Commercial business loans:
SBA and USDA guaranteed	—		2,796		145,589		148,385
Other	17,618		19,399		28,125		65,142
Total commercial business loans	17,618		22,195		173,714		213,527
Consumer loans:
Home equity	—		73		28,302		28,375
Indirect automobile	6		6,221		3,425		9,652
Other	81		989		1,283		2,353
Total consumer loans	87		7,283		33,010		40,380
Total loans	$	19,287	$	69,419	$	601,100	$	689,806

While one- to four-family residential real estate loans are normally originated with terms of up to 30 years, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon the sale of the property pledged as security or upon refinancing the original loan.  Therefore, average loan maturity is a function of, among other factors, the level of purchase, sale and refinancing activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

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The following table sets forth the dollar amount of all scheduled maturities of loans at December 31, 2012 that are due after December 31, 2013, and have either fixed interest rates or adjustable interest rates.

	Due After December 31, 2013
	Fixed Rates		Floating or Adjustable Rates		Total
Real estate loans:	(In Thousands)
Residential - 1 to 4 family	$	160,599	$	69,754	$	230,353
Multi-family and commercial	66,695		134,159		200,854
Construction	2,708		402		3,110
Total real estate loans	230,002		204,315		434,317
Commercial business loans:
SBA and USDA guaranteed	63,593		84,792		148,385
Other	22,353		25,171		47,524
Total commercial business loans	85,946		109,963		195,909
Consumer loans:
Home equity	6,572		21,803		28,375
Indirect automobile	9,646		—		9,646
Other	1,229		1,043		2,272
Total consumer loans	17,447		22,846		40,293
Total loans	$	333,395	$	337,124	$	670,519

Loan Approval Procedures and Authority.  The Bank’s lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by the Company’s Board of Directors and management.  All residential mortgages and home equity lines of credit in excess of $6.0 million or all commercial loans and other consumer loans in excess of $2.0 million require the approval of the Board of Directors.  The Loan Committee of the Board of Directors has the authority to approve:  (1) residential mortgage loans and consumer home equity lines of credit up to $6.0 million and (2) commercial and other consumer loans up to $2.0 million. The President and the Senior Credit Officer have approval for:  (1) residential mortgage loans that conform to Fannie Mae and Freddie Mac standards up to $2.0 million or $417,000 for those that are non-conforming and (2) consumer and commercial loans up to $250,000 individually or $2.0 million jointly for home equity lines of credit or $1.0 million jointly for commercial and other consumer loans.  Additionally, certain loan and branch personnel have the authority to approve residential mortgage loans, home equity lines and consumer loans up to certain limits as specified in the Bank's loan policy.

Loans to One Borrower.  The maximum amount that the Bank may lend to one borrower and the borrower’s related entities is limited, by regulation, to 15% of the Bank’s stated capital and reserves.  At December 31, 2012, the Bank’s general regulatory limit on loans to one borrower was approximately $16.5 million.  At that date, the Bank’s largest lending relationship was $14.0 million, representing commercial real estate loans on three office buildings.  These loans were performing according to their original terms at December 31, 2012.

Loan Commitments.  The Bank issues commitments for fixed- and adjustable-rate mortgage loans conditioned upon the occurrence of certain events.  Commitments to originate mortgage loans are legally binding agreements to lend to customers.  Generally, our mortgage loan commitments expire in 60 days or less from the date of the application.

Delinquencies.  When a borrower fails to make a required loan payment, the Bank takes a number of steps to have the borrower cure the delinquency and restore the loan to current status.  The Bank makes initial contact with the borrower when the loan becomes 15 days past due.  If payment is not then received by the 30th day of delinquency, additional letters and phone calls generally are made. When the loan becomes 90 days past due, a

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letter is sent notifying the borrower that foreclosure proceedings will commence if the loan is not brought current within 30 days.  Generally, when the loan becomes 120 days past due, the Bank will commence foreclosure proceedings against any real property that secures the loan or attempt to repossess any personal property that secures a consumer or commercial loan.  If a foreclosure action is instituted and the loan is not brought current, paid in full or refinanced before the foreclosure sale, the real property securing the loan is typically sold at foreclosure.  The Bank may consider loan repayment arrangements with certain borrowers under certain circumstances.

Management reports monthly to the Board of Directors or a committee of the Board regarding the amount of loans delinquent 30 days or more, all loans in foreclosure and all foreclosed and repossessed property that the Bank owns.

The following table provides information about delinquencies in the Bank’s loan portfolio at the dates indicated.

	December 31, 2012						December 31, 2011
	60-89 Days			90 Days or More			60-89 Days			90 Days or More
	Number of Loans	Principal Balance of Loans		Number of Loans	Principal Balance of Loans		Number of Loans	Principal Balance of Loans		Number of Loans	Principal Balance of Loans
Real estate loans:	(Dollars in Thousands)
Residential - 1 to 4 family	13	$	1,725	24	$	3,285	5	$	995	24	$	3,835
Multi-family and commercial	—	—		3	1,266		—	—		4	1,703
Total real estate loans	13	1,725		27	4,551		5	995		28	5,538
Commercial business loans:
SBA and USDA guaranteed	1	1,087		—	—		1	327		—	—
Other	—	—		2	541		—	—		1	623
Total commercial business loans	1	1,087		2	541		1	327		1	623
Consumer loans:
Home equity	—	—		3	361		—	—		2	269
Total consumer loans	—	—		3	361		—	—		2	269
Total delinquent loans	14	$	2,812	32	$	5,453	6	$	1,322	31	$	6,430

Classified Assets.  Management of the Bank, including the Managed Asset Committee, consisting of a number of the Bank’s officers, review and classify the assets of the Bank on a monthly basis and the Board of Directors reviews the results of the reports on a quarterly basis.  Federal regulations and the Bank’s internal policies require that management utilize an internal asset classification system to monitor and evaluate the credit risk inherent in its loan portfolio.  In addition, the Bank's regulator has the authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets; substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.  “Doubtful assets” have all the weaknesses inherent in those classified as “substandard” with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high probability of loss.  Assets classified as “loss” are those assets considered uncollectible and of such little value that continuance as assets of the institution are not warranted.  The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to

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warrant classification but do possess credit deficiencies or potential weakness deserving close attention.  If the Bank classifies an asset as a loss, a loan loss allowance in the amount of 100% of the portion of the asset classified as a loss is established.

The following table shows the aggregate amounts of the Bank’s criticized and classified assets as of December 31, 2012.

							Special
	Loss		Doubtful		Substandard		Mention
Real estate loans:	(In Thousands)
Residential - 1 to 4 family	$	—	$	—	$	7,679	$	723
Multi-family and commercial	—		—		11,489		5,321
Construction	—		—		—		—
Total real estate loans	—		—		19,168		6,044
Commercial business loans:
Other	—		—		696		3,399
Total commercial business loans	—		—		696		3,399
Consumer loans:
Home equity	—		—		415		—
Total consumer loans	—		—		415		—
Total classified loans	—		—		20,279		9,443
Investment securities:
Non-agency mortgage-backed	—		—		1,731		—
Collateralized debt obligations	—		—		5,993		—
Total classified investment securities	—		—		7,724		—
Total criticized and classified assets	$	—	$	—	$	28,003	$	9,443

At December 31, 2012, total classified assets comprised forty-one commercial real estate loans totaling $16.8 million, fifty-seven residential mortgage loans totaling $8.4 million, seventeen commercial business loans totaling $4.1 million, five home equity loans totaling $415,000 and six investment securities with a carrying value totaling $7.7 million.  Substandard assets include $20.3 million of substandard loans, of which $7.7 million were nonperforming at December 31, 2012.  Of the $7.7 million in nonperforming loans, residential real estate loans totaling $5.0 million, commercial real estate loans totaling $1.8 million, commercial business loans (other) totaling $542,000 and consumer loans (home equity) totaling $366,000 were 90 days or more past due.  The substandard assets also included four collateralized debt obligations totaling $6.0 million and two non-agency mortgage-backed securities totaling $1.7 million.  Of the $9.4 million of special mention loans, one residential real estate loan totaling $37,000 was 60 days or more past due at December 31, 2012.

Other than disclosed in the above tables, there are no other loans at December 31, 2012 that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Nonperforming Assets and Restructured Loans.   The Bank considers repossessed assets and loans that are 90 days or more past due to be nonperforming assets.  Loans are generally placed on nonaccrual status when they become 90 days delinquent at which time the accrual of interest ceases and any previously recorded interest is reversed and recorded as a reduction of loan interest and fee income.  Typically, payments received on a nonaccrual loan are applied to the outstanding principal and interest balance as determined at the time of collection of the loan.

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The Bank periodically may agree to modify the contractual terms of loans.  When a loan is modified and concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments, due to the borrower’s financial condition, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired. The Bank adheres to the nonaccrual policy for all TDR loans. Loans that are current prior to modification would not require nonaccrual status subsequent to the modification. If the accrual of interest was suspended on the loan prior to the modification or if the payment amount significantly increased subsequent to the modification, the loan would remain on nonaccrual status until the borrower demonstrates the willingness and the ability to make the restructured loan payments for a period of six consecutive months.

Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as a foreclosed asset until it is sold.  When property is acquired, it is recorded at fair value, net of estimated selling expenses.  Holding costs and declines in fair value after acquisition of the property result in charges against income.

The following table provides information with respect to the Bank’s nonperforming assets and TDRs as of the dates indicated.  The Company had no accruing loans past due 90 days or more at any of the dates indicated.

	At December 31,
	2012			2011			2010			2009			2008
Nonaccrual loans:	(Dollars in Thousands)
Real estate loans:
Residential - 1 to 4 family	$	4,988		$	5,590		$	2,901		$	2,597		$	2,795
Multi-family and commercial	1,758			4,031			1,775			—			832
Construction	—			—			82			375			5,483
Total real estate loans	6,746			9,621			4,758			2,972			9,110
Commercial business loans	542			654			116			35			217
Consumer loans:
Home equity	366			316			50			—			—
Other	—			—			1			—			1
Total consumer loans	366			316			51			—			1
Total nonaccrual loans	7,654			10,591			4,925			3,007			9,328
Other real estate owned, net (1)	1,293			976			1,285			3,680			—
Total nonperforming assets	8,947			11,567			6,210			6,687			9,328
Accruing troubled debt restructurings	3,826			4,620			5,261			67			69
Total nonperforming assets and troubled debt restructurings	$	12,773		$	16,187		$	11,471		$	6,754		$	9,397
Total nonperforming loans to total loans	1.11		%	1.70		%	0.81		%	0.49		%	1.50		%
Total nonperforming loans to total assets	0.80			1.11			0.53			0.34			1.09
Total nonperforming assets and troubled debt restructurings to total assets	1.34			1.69			1.24			0.77			1.10

⁽¹⁾   Other real estate owned balances are shown net of related write-downs or valuation allowance.

The decrease in nonperforming assets was due to a decrease in nonaccrual loans, offset by an increase in other real estate owned.  A decrease in nonperforming commercial mortgage and residential mortgage loans of $2.3 million and $601,000, respectively, contributed to the lower balance of nonperforming loans at December 31, 2012. Nonaccrual loans consisted of thirty-nine residential one- to four-family loans, four commercial real estate loans, two commercial business loans and four consumer loans.

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Other real estate owned increased $317,000 from December 31, 2011 to December 31, 2012.  During 2012, the Bank acquired two commercial and five residential properties with a net carrying value of $1.8 million, sold three commercial and six residential properties with a net carrying value of $1.4 million and reduced the carrying value of one residential property in the amount of $28,000.

At December 31, 2012 and 2011, troubled debt restructurings totaled $4.3 million and $5.1 million, respectively, as a result of interest rate concessions, deferral of principal payments, extension of maturity or a combination of these items.  Of the troubled debt restructurings of $4.3 million at December 31, 2012, $3.8 million continued to accrue interest under the restructured terms of their agreements while the accrual of interest was suspended on loans totaling $504,000. As of December 31, 2012, all borrowers were performing in accordance with the terms of their restructured loan agreements and the Bank anticipates that these borrowers will repay all contractual principal and interest.

Interest income that would have been recorded for the year ended December 31, 2012 had nonaccruing loans and troubled debt restructurings been current in accordance with their original terms and had been outstanding throughout the period amounted to $603,000.  The amount of interest recognized on these loans was $419,000 for the year ended December 31, 2012.

Allowance for Loan Losses.  The allowance for loan losses, a material estimate which could change significantly in the near-term, is established through a provision for loan losses charged to earnings to account for losses that are inherent in the loan portfolio and estimated to occur, and is maintained at a level that management considers adequate to absorb losses in the loan portfolio.  Loan losses are charged against the allowance for loan losses when management believes that the uncollectibility of the principal loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses when received.  In the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, when necessary.

Management's judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan losses is evaluated on a monthly basis by management and is based on the evaluation of the known and inherent risk characteristics and size and composition of the loan portfolio, the assessment of current economic and real estate market conditions, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, historical loan loss experience, level of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

The allowance for loan losses consists of the following key elements:

◦ Specific allowance for identified impaired loans.  For loans that are identified as impaired, an allowance is established when the present value of expected cash flows (or observable market price of the loan or fair value of the collateral if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan.

◦ General valuation allowance.  The general component represents a valuation allowance on the remainder of the loan portfolio, after excluding impaired loans.  For this portion of the allowance, loans are segregated by category and assigned an allowance percentage based on historical loan loss experience adjusted for qualitative factors stratified by the following loan segments:  residential one- to four-family, multi-family and commercial real estate, construction, commercial business and consumer.   Management uses a rolling average of historical losses based on the time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies, classified loans and nonaccrual loans; level of loan charge-offs; trends in volume, nature and terms of loans; existence and effect of/or changes in the level of credit concentrations; effects of changes in risk selection, underwriting standards and other changes in lending policies, procedures and practices; experience/ability and depth of lending management and staff and national and local economic trends and conditions and impact on value of underlying collateral for collateral dependent

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loans.

In computing the allowance for loan losses, we do not assign a general valuation allowance to the SBA and USDA loans that we purchase as such loans are fully guaranteed.  Such loans accounted for $148.4 million, or 21.5% of the loan portfolio at December 31, 2012.

The majority of the Company's loans are collateralized by real estate located in eastern Connecticut. To a lesser extent, certain commercial real estate loans are secured by collateral located outside of our primary market area. Accordingly, the collateral value of a substantial portion of the Company's loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.

Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  Furthermore, while management believes it has established the allowance for loan losses in conformity with U.S. generally accepted accounting principles, our regulators, in reviewing the loan portfolio, may require the Company to increase its allowance for loan losses based on judgments different from those of the Company.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate or increases may 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 would adversely affect the Company’s financial condition and results of operations.

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

	December 31,
	2012						2011						2010
	Amount		% of Allowance in each Category to Total Allowance		% of Loans in each Category to Total Loans		Amount		% of Allowance in each Category to Total Allowance		% of Loans in each Category to Total Loans		Amount		% of Allowance in each Category to Total Allowance		% of Loans in each Category to Total Loans
Real estate loans:	(Dollars in Thousands)
Residential - 1 to 4 family	$	1,125	17.61	%	33.44	%	$	759	15.27	%	39.79	%	$	915	19.06	%	44.46	%
Multi-family and commercial	3,028		47.41		29.28		2,337		47.01		25.47		2,700		56.27		26.26
Construction	22		0.34		0.48		280		5.63		1.98		64		1.34		1.14
Commercial business	1,735		27.17		30.95		1,148		23.09		26.98		790		16.45		23.43
Consumer loans:
Home equity	350		5.48		4.11		344		6.92		4.41		265		5.53		4.19
Indirect automobile	68		1.06		1.40		40		0.81		0.92		—		—		—
Other	59		0.93		0.34		62		1.27		0.45		65		1.35		0.52
Total allowance for loan losses	$	6,387	100.00	%	100.00	%	$	4,970	100.00	%	100.00	%	$	4,799	100.00	%	100.00	%

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	December 31,
	2009						2008
	Amount		% of Allowance in each Category to Total Allowance		% of Loans in each Category to Total Loans		Amount		% of Allowance in each Category to Total Allowance		% of Loans in each Category to Total Loans
Real estate loans:	(Dollars in Thousands)
Residential - 1 to 4 family	$	1,028	21.02	%	50.12	%	$	906	14.98	%	53.46	%
Multi-family and commercial	2,443		49.95		26.15		2,358		38.99		25.52
Construction	221		4.51		1.87		1,533		25.36		4.49
Commercial business	906		18.53		17.60		1,097		18.13		12.97
Consumer loans:
Home equity	230		4.71		3.69		94		1.56		3.02
Other	63		1.28		0.57		59		0.98		0.54
Total allowance for loan losses	$	4,891	100.00	%	100.00	%	$	6,047	100.00	%	100.00	%

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The following table sets forth an analysis of the allowance for loan losses for the years indicated.

	Years Ended December 31,
	2012			2011			2010			2009			2008
	(Dollars in Thousands)
Allowance at beginning of year	$	4,970		$	4,799		$	4,891		$	6,047		$	5,245
Provision for loan losses	2,896			1,558			902			2,830			1,369
Charge-offs:
Real estate loans:
Residential - 1 to 4 family	(299		)	(686		)	(285		)	(257		)	(80		)
Multi-family and commercial	(1,267		)	(606		)	(221		)	(149		)	(42		)
Construction	—			(83		)	(293		)	(2,927		)	(41		)
Commercial business loans	—			(267		)	(166		)	(645		)	(359		)
Consumer loans:
Home equity	(125		)	(15		)	—			—			—
Indirect automobile	(68		)	—			—			—			—
Other	(58		)	(69		)	(50		)	(97		)	(75		)
Total charge-offs	(1,817		)	(1,726		)	(1,015		)	(4,075		)	(597		)
Recoveries:
Real estate loans:
Residential - 1 to 4 family	104			—			1			43			4
Multi-family and commercial	140			15			14			—			—
Construction	—			284			—			—			—
Commercial business loans	31			37			3			37			21
Consumer loans:
Indirect automobile	55			—			—			—			—
Other	8			3			3			9			5
Total recoveries	338			339			21			89			30
Net charge-offs	(1,479		)	(1,387		)	(994		)	(3,986		)	(567		)
Allowance at end of year	$	6,387		$	4,970		$	4,799		$	4,891		$	6,047
Ratios:
Allowance to total loans outstanding at year end	0.93		%	0.80		%	0.79		%	0.80		%	0.97		%
Allowance to nonperforming loans	83.45			46.93			97.44			162.65			64.83
Net charge-offs to average loans outstanding during the year	0.22			0.22			0.16			0.64			0.09

The allowance as a percentage of total loans increased to 0.93% at December 31, 2012 compared to 0.80% at December 31, 2011.  The higher provision for 2012 resulted from an increase in net loan charge-offs, predominately commercial real estate loans, increases in the required specific allowance for impaired loans and allowance for loan losses required with the growing commercial portfolio, offset by a decrease in nonperforming loans.  Two commercial loan relationships contributed to the higher level of loan charge-offs for 2012. At December 31, 2012, nonperforming loans totaled $7.7 million, compared to $10.6 million at December 31, 2011. A decrease in nonperforming commercial mortgage and residential mortgage loans of $2.3 million and $601,000, respectively, contributed to the lower balance of nonperforming loans at December 31, 2012. Specific loan loss allowances relating to impaired loans increased to $581,000 at December 31, 2012 compared to $245,000 at December 31, 2011.  While the Company has no direct exposure to sub-prime mortgages in its loan portfolio, economic conditions have negatively impacted the residential and commercial real estate markets and contributed to the decrease in credit quality for residential and commercial mortgage loans.

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Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available for sale securities, that are accounted for on a mark-to-market basis. Other risks that the Company faces are operational risks, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers or for the Company to pay its obligations as they become due as a result of unforeseen circumstances. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in the Company’s customer base or revenue.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. Further, the Company has strengthened its oversight of problem assets by maintaining a Managed Assets Committee. The Committee, which consists of our Chief Executive Officer, Chief Financial Officer and other loan and credit administration officers, meets monthly to review classified and watch list credits to ensure the appropriateness of the current classification and to attempt to identify any new problem loans. The Board of Directors reviews the committee’s reports on a quarterly basis.

Investment Activities

The Company has legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, government-sponsored enterprises, state and municipal governments, mortgage-backed securities and certificates of deposit of federally-insured institutions. Within certain regulatory limits, the Company also may invest a portion of its assets in corporate securities and mutual funds.  The Company is also required to maintain an investment in FHLB stock. While the Company has the authority under applicable law and its investment policies to invest in derivative securities, the Company had no such investments at December 31, 2012.

The Company’s primary source of income continues to be derived from its loan portfolio.  The investment portfolio is mainly used to meet the cash flow needs of the Company, provide adequate liquidity for the protection of customer deposits and yield a favorable return on excess funds.  The type of securities and the maturity periods are dependent on the composition of the loan portfolio, interest rate risk, liquidity position and tax strategies of the Company.  The Company’s investment objectives are to provide and maintain liquidity, to maintain a balance of high quality, diversified investments to minimize risk, to provide collateral for pledging requirements, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak, to generate a favorable return and to assist in the financing needs of various local public entities, subject to credit quality review and liquidity concerns.

The Company’s Board of Directors has the overall responsibility for the investment portfolio, including approval of the Company’s Investment Policy and appointment of the Investment Committee.  The Investment Committee is responsible for the approval of investment strategies and monitoring investment performance.  The execution of specific investment initiatives and the day-to-day oversight of the Company’s investment portfolio is the responsibility of the Chief Executive Officer and the Chief Financial Officer.  These officers, and others designated by the Board, are authorized to execute investment transactions up to specified limits based on the type of security without prior approval of the Investment Committee. Transactions exceeding these limitations require the approval of two of these officers, one of whom must be either the Chief Executive Officer or the Chief Financial Officer. Individual investment transactions are reviewed and approved by the Board of Directors on a monthly basis, while portfolio composition and performance are reviewed at least quarterly by the Investment Committee. Management

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determines the appropriate classification of securities at the date individual securities are acquired, and the appropriateness of such classification is reassessed at each balance sheet 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.  Securities purchased and held principally for trading in the near term are classified as “trading securities.” These securities are carried at fair value, with unrealized gains and losses recognized in earnings.  Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of taxes.

At December 31, 2012, the Company’s investment portfolio consisted of available for sale securities, totaling $176.5 million, representing 18.5% of assets.  The Company’s available for sale securities consisted primarily of “agency” mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with stated final maturities of 30 years or less, U.S. government and agency obligations, government-sponsored enterprise securities with maturities of 20 years or less, corporate debt securities and “private-label” mortgage-backed securities with maturities of 30 years or less.

During the third quarter of 2010, the Company elected to fair value two collateralized debt obligations, previously reported as available for sale securities, and reclassified them to trading securities in accordance with applicable guidance.  These securities had amortized costs of $248,000 and $1.7 million and fair values of $248,000 and $739,000 at December 31, 2010 and 2009, respectively.  Cumulative unrealized losses at the date of election totaling $652,000 were reclassified from accumulated other comprehensive loss to retained earnings as a cumulative effect adjustment resulting from a change in accounting principle.  These securities were sold during the quarter ended June 30, 2011. The Company does not purchase securities with the intent of selling them in the near term, thus there are no securities in the trading portfolio.  For the year ended December 31, 2011, the net gain in fair value on trading securities was $182,000, compared to a net gain in fair value on trading securities of $408,000 for the year ended December 31, 2010.

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The following table sets forth the amortized costs and fair values of the Company’s securities portfolio at the dates indicated.

	December 31,
	2012				2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale securities:	(In Thousands)
U.S. Government and agency obligations	$	55,027	$	56,259	$	88,917	$	89,587	$	23,399	$	23,583
Government-sponsored enterprises	23,388		23,967		17,204		17,666		29,912		29,993
Mortgage-backed securities: (1)
Agency - residential	69,399		71,544		85,552		88,444		84,408		87,370
Non-agency - residential	4,784		4,712		7,766		6,888		11,039		10,455
Non-agency - HELOC	2,555		2,477		3,097		2,538		3,797		3,199
Corporate debt securities	7,555		7,694		14,094		14,047		14,502		14,717
Collateralized debt obligations	5,993		4,396		6,275		2,917		6,466		2,532
Obligations of state and political subdivisions	5,152		5,414		6,488		6,766		6,800		6,905
Tax-exempt securities	—		—		70		71		140		144
Foreign government securities	50		50		75		75		100		100
Total debt securities	173,903		176,513		229,538		228,999		180,563		178,998
Equity securities - financial services	—		—		228		205		1,024		1,038
Equity securities - other	—		—		1,609		1,610		—		—
Total equity securities	—		—		1,837		1,815		1,024		1,038
Total available for sale securities	173,903		176,513		231,375		230,814		181,587		180,036
Trading securities:
Collateralized debt obligations	—		—		—		—		248		248
Total securities	$	173,903	$	176,513	$	231,375	$	230,814	$	181,835	$	180,284

⁽¹⁾  Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

The Company had no individual investments that had an aggregate book value in excess of 10% of the Company's shareholders’ equity at December 31, 2012.

The following table sets forth the amortized cost, weighted average yields and contractual maturities of available for sale securities at December 31, 2012.  Weighted average yields on tax-exempt securities are not presented on a tax equivalent basis because the impact would be insignificant.  Certain mortgage-backed securities and collateralized debt obligations have adjustable interest rates and will reprice periodically within the various maturity ranges.  These repricing schedules are not reflected in the following table below.  At December 31, 2012, the amortized cost of mortgage-backed securities with adjustable rates totaled $14.9 million.

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	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
	(Dollars in Thousands)
U.S. Government and agency obligations	$	—	—	%	$	2,383	2.29	%	$	13,776	2.85	%	$	38,868	2.77	%	$	55,027	2.77	%
Government-sponsored enterprises	3,182		1.78		18,255		1.58		1,951		1.87		—		—		23,388		1.63
Mortgage-backed securities:
Agency - residential	—		—		2,389		3.50		7,157		3.95		59,853		3.12		69,399		3.22
Non-agency -residential	—		—		—		—		2,463		2.78		2,321		5.24		4,784		3.97
Non-agency - HELOC	—		—		—		—		—		—		2,555		1.03		2,555		1.03
Corporate debt securities	2,820		1.43		2,739		2.86		996		5.09		1,000		4.68		7,555		2.86
Collateralized debt obligations	—		—		—		—		—		—		5,993		1.55		5,993		1.55
Obligations of state and political subdivisions	2,355		5.02		2,297		1.99		500		2.95		—		—		5,152		3.47
Foreign government securities	25		2.37		25		1.53		—		—		—		—		50		1.95
Total available for sale securities	$	8,382	2.57	%	$	28,088	1.96	%	$	26,843	3.15	%	$	110,590	2.92	%	$	173,903	2.79	%

Each reporting period, the Company evaluates securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to have other-than-temporary impairment ("OTTI").  The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an OTTI condition, such as the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuers.  OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other-than-temporary, the declines in fair value are reflected in earnings as realized losses.  For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings.  For all other impaired debt securities, credit-related OTTI is recognized through earnings and noncredit-related OTTI is recognized in other comprehensive income, net of applicable taxes.  During 2012, the Company recognized OTTI for credit losses on debt securities of $123,000.  See Notes 3 and 15 in the Company’s Consolidated Financial Statements included in the Company’s Annual Report to Shareholders, attached hereto as Exhibit 13, for more details.

Deposit Activities and Other Sources of Funds

General.  Deposits, other borrowings, repayments and sale of loans and investment securities are the major sources of the Company’s funds for lending and other investment purposes.  Loan and investment security repayments are a relatively stable source of funds, while deposit inflows and loan and investment security prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts.  Substantially all of the Bank’s depositors are residents of the State of Connecticut.  The Bank attracts deposits in its market areas through advertising and through the offering of a broad selection of deposit instruments, including noninterest-bearing demand accounts (such as checking accounts) and interest-bearing accounts (such as NOW and money market accounts, regular savings accounts and certificates of deposit).  CDARS deposits, which are generally offered to in-market retail and commercial customers, offer our customers the ability

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to receive FDIC insurance on deposits up to $50.0 million.  The Bank also utilizes brokered deposits, which were $4.2 million at December 31, 2012, $2.2 million of which were CDARS deposits.   Brokered deposits, which are deposits sold by brokers to banks, are generally out-of-market, thus, they are less likely to remain with the institution after their maturity, which may require us to replace these deposits with higher cost alternative funds. Also, because they generally have larger balances, they often are accompanied by a higher interest rate.  The Bank does not currently utilize brokered deposits as a primary funding source.  Rather, the Bank occasionally maintains a minimal amount of such deposits to ensure access to another liquidity source should the need arise.  Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rates, among other factors. In determining the terms of the Bank’s deposit accounts, the Bank considers the rates offered by its competition, liquidity needs, profitability, matching deposit and loan products and customer preferences and concerns.  The Bank generally reviews its deposit mix and pricing weekly. The Bank’s current strategy is to offer competitive rates, but not be the market leader in every account type and maturity.

The following table sets forth the average balance of deposits by type and weighted average rates paid thereon at the dates indicated.

	December 31,
	2012				2011				2010
	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
	(Dollars in Thousands)
Noninterest-bearing demand deposits	$	87,438	—	%	$	73,790	—	%	$	65,189	—	%
Interest-bearing demand deposits	35		0.05		—		—		—		—
NOW and money market accounts	305,784		0.17		286,000		0.37		240,592		0.59
Savings accounts (1)	40,348		0.19		48,413		0.28		64,415		0.32
Certificates of deposit (2)	277,052		1.23		278,687		2.00		302,706		2.19
Total deposits	$	710,657	0.79	%	$	686,890	0.95	%	$	672,902	1.21	%

⁽¹⁾  Includes mortgagors’ and investors’ escrow accounts in the amount of $1.9 million, $1.9 million and $2.1 million at December 31, 2012, 2011 and 2010, respectively.

⁽²⁾  Includes brokered deposits of $4.2 million, $4.3 million and $3.0 million at December 31, 2012, 2011 and 2010, respectively.

The Bank had $112.4 million of certificates of deposit of $100,000 or more outstanding as of December 31, 2012, maturing as follows:

	Amount		Weighted Average Rate
Maturity Period:	(Dollars in Thousands)
Three months or less	$	9,402	1.53%
Over three through six months	21,857		1.43
Over six through twelve months	28,171		1.97
Over twelve months	53,016		2.09
Total	$	112,446	1.89%

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The following table sets forth certificates of deposit accounts classified by the rates at December 31, 2012.

	Less Than One Year		One to Two Years		Two to Three Years		Three to Four Years		More than Four Years		Total		Percent of Total Certificate Accounts
	(Dollars in Thousands)
0.15 - 1.00%	$	57,856	$	12,634	$	4,251	$	17	$	—	$	74,758	26.97	%
1.01 - 2.00%	9,702		17,232		26,380		1,983		6,690		61,987		22.36
2.01 - 3.00%	60,056		18,257		16,023		13,044		13,738		121,118		43.69
3.01 - 4.00%	1,370		8,485		2,619		258		34		12,766		4.60
4.01 - 5.00%	5,827		67		295		116		—		6,305		2.27
5.01 - 5.36%	302		—		—		—		—		302		0.11
Total	$	135,113	$	56,675	$	49,568	$	15,418	$	20,462	$	277,236	100.00	%

Cash Management Services. The Bank offers a variety of deposit accounts designed for the businesses operating in its market area. The Bank's business banking deposit products include a commercial checking account and checking accounts specifically designed for small businesses and non-profit organizations. The Bank also offers remote capture products, sweep accounts and money market accounts for its business customers in an effort to increase its commercial deposits through the offering of these types of cash management products.

FHLB Borrowings.  The Bank utilizes advances from the FHLB to supplement its supply of lendable funds and to meet deposit withdrawal requirements.  As of December 31, 2012, the Bank had outstanding borrowings with the FHLB of $98.1 million.

The FHLB functions as a central reserve bank providing credit for member financial institutions.  As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain mortgage loans and other assets (principally mortgage related securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the FHLB’s assessment of the institution’s creditworthiness.

Junior Subordinated Debt Owed to Unconsolidated Trust.  In 2006, SI Capital Trust II (the “Trust”), a business trust, issued $8.0 million of trust preferred securities in a private placement and issued approximately 248 shares of common stock at $1,000 par value to the Company. The Trust has no independent assets or operations and was formed to issue trust preferred securities and invest the proceeds in an equivalent amount of junior subordinated debentures issued by the Company.  The trust preferred securities mature in 30 years and bear interest at three-month LIBOR plus 1.70%.  The interest rate on these securities at December 31, 2012 was 2.01%.  After receipt of regulatory approval, the Company may redeem the trust preferred securities, in whole or in part, on a quarterly basis.

On July 1, 2010, the Company entered into an interest rate swap agreement with a third-party financial institution with a notional amount of $8.0 million whereby the counterparty will pay a variable rate equal to three-month LIBOR and the Company will pay a fixed rate of 2.44%.  The agreement became effective on December 15, 2010 and terminates on December 15, 2015.  This agreement was designated as a cash flow hedge against the trust preferred securities issued by the Trust.  This effectively fixes the interest rate on the $8.0 million of trust preferred securities at 4.14% for the period December 15, 2010 through December 15, 2015.

The debentures are the sole assets of the Trust and are subordinate to all of the Company’s existing and future obligations for borrowed money, its obligations under letters of credit and certain derivative contracts and any guarantees by the Company of any such obligations.  The trust preferred securities generally rank equal to the trust common securities in priority of payment, but rank before the trust common securities if and so long as the

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Company fails to make principal or interest payments on the debentures.  Concurrently with the issuance of the debentures and the trust preferred and common securities, the Company issued a guarantee related to the trust securities for the benefit of the holders.  The Company’s obligations under the guarantee and the Company’s obligations under the debentures, the related indentures and the trust agreement relating to the trust securities, constitute a full and unconditional guarantee by the Company of the obligations of the Trust under the trust preferred securities.  If the Company defers interest payments on the junior subordinated debt, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders.

The following table sets forth information regarding the Company’s borrowings at and for the years indicated.

	At or For the Years Ended December 31,
	2012			2011			2010
	(Dollars in Thousands)
Maximum amount of advances outstanding at any month-end during the year:
FHLB advances	$	100,069		$	114,169		$	121,100
Subordinated debt	8,248			8,248			8,248
Average balance outstanding during the year:
FHLB advances	$	95,776		$	107,555		$	115,152
Subordinated debt	8,248			8,248			8,248
Weighted average interest rate during the year:
FHLB advances	3.42		%	3.51		%	3.66		%
Subordinated debt	4.10			4.07			2.10
Balance outstanding at end of year:
FHLB advances	$	98,069		$	100,069		$	114,169
Subordinated debt	8,248			8,248			8,248
Weighted average interest rate at end of year:
FHLB advances	3.25		%	3.38		%	3.63		%
Subordinated debt	4.14			4.14			4.14

Trust Services

The Bank’s trust department provides fiduciary services, investment management and retirement services, to individuals, partnerships, corporations and institutions.  Additionally, the Bank acts as guardian, conservator, executor or trustee under various trusts, wills and other agreements.  The Bank has implemented comprehensive policies governing the practices and procedures of the trust department, including policies relating to investment of trust property, maintaining confidentiality of trust records, avoiding conflicts of interest and maintaining impartiality.  Consistent with its operating strategy, the Bank will continue to emphasize the growth of its trust business to accumulate assets and increase fee-based income.  At December 31, 2012, trust assets under administration were $127.2 million, consisting of 303 accounts, the largest of which totaled $10.3 million, or 8.1%, of the trust department’s total assets.  In 2012, the Company sold the assets and certain liabilities of SI Trust Servicing, the Bank's third-party provider of trust outsourcing services located in Vermont. The Bank recognized a loss of $698,000 (pre-tax) on the transaction.  For the years ended December 31, 2012 and 2011, total trust services revenue was $1.8 million and $3.9 million, respectively, of which $755,000 and $3.0 million, respectively, was attributable to SI Trust Servicing.

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Subsidiary Activities

The Company’s subsidiaries include Savings Institute Bank and Trust Company and SI Capital Trust II.

The following are descriptions of the Bank’s wholly-owned subsidiaries.

803 Financial Corp.  803 Financial Corp. was established in 1995 as a Connecticut corporation to maintain an ownership interest in a third-party registered broker-dealer, Infinex Investments, Inc.  Due to a regulatory restriction on federally-chartered thrifts, on December 31, 2004, 803 Financial Corp. sold its interest in Infinex to the Company.  As a result, 803 Financial Corp. has no other holdings or business activities.

SI Realty Company, Inc.   SI Realty Company, Inc., established in 1999 as a Connecticut corporation, holds real estate managed by the Bank, including foreclosure properties.  At December 31, 2012, SI Realty Company, Inc. had $4.9 million in assets.

SI Mortgage Company.  In January 1999, the Bank formed SI Mortgage Company to manage and hold loans secured by real property.  SI Mortgage Company qualifies as a “passive investment company,” which exempts it from Connecticut income tax under current law.  Income tax savings to the Bank from the use of a passive investment company was $44,000 and $148,000 for the years ended December 31, 2012 and 2011, respectively.

Personnel

At December 31, 2012, the Company had 223 full-time employees and 42 part-time employees.  None of the Company’s employees are represented by a collective bargaining unit.  The Company believes its relationship with its employees is good.

REGULATION AND SUPERVISION

General. The Bank is subject to extensive regulation, examination and supervision by the Office of the Comptroller of the Currency ("OCC"), as its primary federal regulator, and the FDIC, as the insurer of its deposits.  The Bank is a member of the Federal Home Loan Bank System and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund managed by the FDIC.  The Bank must file reports with the OCC concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OCC to evaluate the Bank’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan losses.  Any change in such policies, whether by the OCC, the FDIC or Congress, could have a material adverse impact on the Company and the Bank and their operations.  The Company, as a savings and loan holding company that has elected to be treated as a financial holding company, is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Federal Reserve Board ("FRB").  The Company is also subject to the rules and regulations of the Securities and Exchange Commission ("SEC") under the federal securities laws.

Certain of the regulatory requirements that are applicable to the Bank and the Company are described below.  This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on the Bank and the Company and is qualified in its entirety by reference to the actual statutes and regulations.

The Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the current bank regulatory structure and will impact the future lending and investment activities and general operations of depository institutions and their holding companies.

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The Dodd-Frank Act requires the FRB to establish minimum consolidated capital requirements for savings and loan holding companies that are as stringent as those required for insured depository institutions; the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred securities are excluded from Tier 1 capital unless (i) such securities are issued by savings and loan holding companies with assets of less than $500.0 million or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15.0 billion of assets. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies. However, under the most recent Notice of Proposed Rulemaking issued by the FRB, savings and loan holding companies may be subject to regulatory capital requirements before the end of the five-year period.

The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with extensive powers to implement and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks with more than $10.0 billion in assets.

The Dodd-Frank Act made many other changes in banking regulation. Those include authorizing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees and establishing a number of reforms for mortgage originations.

The Dodd Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate rules revising its assessment system so that it is based on the average consolidated total assets less tangible equity capital of an insured institution instead of deposits. That rule took effect April 1, 2011. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and provided for noninterest-bearing transaction accounts with unlimited deposit insurance through December 31, 2012.

Many of the provisions of the Dodd-Frank Act are not yet effective, and the Dodd-Frank Act requires various federal agencies to promulgate numerous and extensive implementing regulations over the next several years. It is therefore difficult to predict at this time what impact the Dodd-Frank Act and implementing regulations will have on the Company and the Bank. Although the substance and scope of many of these regulations cannot be determined at this time, particularly those provisions relating to the new Consumer Financial Protection Bureau, the Dodd-Frank Act and implementing regulations may have a material impact on operations through, among other things, increased compliance costs and heightened regulatory supervision.

Federal Banking Regulation

Business Activities.  The activities of federal savings banks are governed by federal laws and regulations. These laws and regulations delineate the nature and extent of the business activities in which federal savings banks may engage.  In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.

Capital Requirements.  The OCC’s capital regulations require savings associations to meet three minimum capital standards:

◦ a tangible capital ratio requirement of 1.5% of adjusted total assets;

◦ a leverage ratio of 4% of Tier 1 (core) capital to adjusted total assets (3% for institutions that are not anticipating or experiencing significant growth and have well diversified risk; i.e., generally, the highest examination rating); and

◦ a risk-based capital ratio requirement of 8% of total capital (core and supplementary capital) to total risk-weighted assets of which at least half must be core capital.

In addition, the prompt corrective action standards discussed below also established, in effect, a minimum 2%

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tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and Tier 2 (supplementary) capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively.  In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the capital regulation based on the risks believed inherent in the type of asset.  Tier 1 (core) capital is generally defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. Tier 2 (supplementary) capital includes cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt, intermediate preferred stock and the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available for sale equity securities with readily determinable fair market values. Overall, the amount of Tier 2 capital included as part of total capital cannot exceed 100% of Tier 1 capital.

The OCC also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. At December 31, 2012, the Bank met each of its capital requirements.

The current risk-based capital guidelines that apply to the Bank are based on the 1988 capital accord of the International Basel Committee on Banking Supervision (“Basel Committee”), a committee of central banks and bank supervisors, as implemented by the Federal Reserve Board. In 2004, the Basel Committee published a new capital accord, which is referred to as “Basel II,” to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk: an internal ratings-based approach tailored to individual institutions' circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines, which became effective in 2008 for large international banks (total assets of $250.0 billion or more or consolidated foreign exposure of $10.0 billion or more). Other U.S. banking organizations can elect to adopt the requirements of this rule (if they meet applicable qualification requirements), but they are not required to apply them. Basel II emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline in determining minimum capital requirements.

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity, which is referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States. Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The implementation of the Basel III final framework was to occur on January 1, 2013. The Federal Reserve and other government agencies responsible for implementing the Basel III framework announced in November 2012 that the originally proposed timeframe for the implementation of the rules was not achievable. No new deadline has been proposed. On January 1, 2013, banking institutions were going to be required to meet the following minimum capital ratios: (i) 3.5% Common Equity Tier 1 (generally consisting of common shares and retained earnings) to risk-weighted assets; (ii) 4.5% Tier 1 capital to risk-weighted assets; and (iii) 8.0% Total capital to risk-weighted assets.

When fully phased-in on January 1, 2019, and if implemented by the U.S. banking agencies, Basel III will require banks to maintain:

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◦ a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer,"

◦ a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer,

◦ a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, and

◦ a minimum leverage ratio of 3.0%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures

Basel III also includes the following significant provisions:

◦ An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice.

◦ Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.

◦ Deduction from the common equity of deferred tax assets that depend on future profitability to be realized.

◦ For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement that the instrument must be written off or converted to common equity if a triggering event occurs, either pursuant to applicable law or at the direction of the banking regulator. A triggering event is an event that would cause the banking organization to become nonviable without the write off or conversion, or without an injection of capital from the public sector.

Since the Basel III framework is not self-executing, the rules and standards promulgated under Basel III require that the U.S. federal banking regulators adopt them prior to becoming effective in the United States. Although U.S. federal banking regulators have expressed support for Basel III, the timing and scope of its implementation, as well as any potential modifications or adjustments that may result during the implementation process, are not yet known.

Prompt Corrective Regulatory Action. The OCC is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings association that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings association that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the OCC is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the OCC within 45 days of the date a savings association is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company up to the lesser of 5% of the savings association’s total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital requirements.  In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion.  A number of discretionary supervisory actions could also be taken, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

In addition to the increase in capital requirements set forth in the Dodd-Frank Act, Federal bank regulators have the authority to impose higher capital requirements on an individual bank basis. These requirements may be greater than those set forth in the Dodd-Frank Act or that would qualify a bank as being “well capitalized” under the FDIC’s prompt corrective action regulations.

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Insurance of Deposit Accounts.  Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments.  An institution’s assessment rate depends upon the category to which it is assigned.  On February 7, 2011, as required by the Dodd-Frank Act, the FDIC published a final rule to revise the deposit insurance assessment system. The rule, which took effect April 1, 2011, changes the assessment base used for calculating deposit insurance assessments from deposits to total assets less tangible (Tier 1) capital. Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of revenue collected from the industry. The initial base assessment rates range from five to 35 basis points of the new assessment base. The rule is expected to benefit smaller financial institutions, which typically rely more on deposits for funding, and shift more of the burden for supporting the insurance fund to larger institutions, which are thought to have greater access to nondeposit funding.

The FDIC may adjust the scale uniformly from one quarter to the next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment.  No institution may pay a dividend if in default of the federal deposit insurance assessment.

The FDIC imposed on all insured institutions, a special emergency assessment of five basis points of total assets minus Tier 1 capital, as of June 30, 2009 (capped at ten basis points of an institution’s deposit assessment base), to cover losses to the Deposit Insurance Fund.  That special assessment was collected on September 29, 2009. In lieu of further special assessments, the FDIC required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012.  That prepayment, which included an assumed annual assessment base increase of 5%, was recorded as a prepaid expense asset as of December 31, 2009.  As of December 31, 2009, and each quarter thereafter, a charge to earnings is recorded for each regular assessment with an offsetting credit to the prepaid asset.

Due to difficult economic conditions, deposit insurance per account owner was raised to $250,000. That coverage was made permanent by the Dodd-Frank Act.  In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage until December 31, 2010, and certain senior unsecured debt issued by institutions and their holding companies between October 13, 2008 and June 30, 2010 would be guaranteed by the FDIC through June 30, 2012, or in some cases, December 31, 2012. The Bank participates in the unlimited noninterest-bearing transaction account coverage; the Bank and the Company opted not to participate in the unsecured debt guarantee program.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10.0 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC.

Loans to One Borrower.  Federal law provides that savings associations are generally subject to the limits on loans to one borrower applicable to national banks.  Generally, subject to certain exceptions, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral. See Item 1. Business. “Lending Activities – Loans to One Borrower.”

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

A savings association that fails the qualified thrift lender test is subject to certain operating restrictions.  The Dodd-

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Frank Act subjects violations of the qualified thrift lender requirements to possible enforcement action for violation of the law and dividend limitations.  As of December 31, 2012, the Bank maintained 66.0% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Limitation on Capital Distributions.  Federal regulations impose limitations upon all capital distributions by a savings association, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the FRB is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under applicable regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OCC. If an application is not required, the institution must still provide thirty days prior written notice to the Board of Governors of the Federal Reserve System of the capital distribution if, like the Bank, it is a subsidiary of a holding company.  Notice also must be provided to the OCC. If the Bank’s capital ever fell below its regulatory requirements or the OCC notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted.  In addition, the OCC could prohibit a proposed capital distribution, which is otherwise permitted by the regulation, if the OCC determines that such distribution would constitute an unsafe or unsound practice.

Community Reinvestment Act.  All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.  An institution’s failure to comply with the provisions of the Community Reinvestment Act could result in restrictions on activities and/or denials of applications for transactions such as mergers, acquisitions and branches. The Bank received an “outstanding” Community Reinvestment Act rating in its most recently completed examination.  The responsibility for implementing the Community Reinvestment Act is not being transferred to the new Consumer Financial Protection Bureau but rather is remaining with the prudential regulators.

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

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

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Enforcement.  The OCC currently has primary enforcement responsibility over federal savings associations and has authority to bring actions against the institution and all institution-affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on an insured institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order for removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance.  Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1.0 million per day in especially egregious cases. The FDIC has the authority to recommend to the OCC that enforcement action be taken with respect to a particular savings institution.  If action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances.  Federal law also establishes criminal penalties for certain violations.  

Assessments.  Savings associations were previously required to pay assessments to the Office of Thrift Supervision ("OTS") to fund the agency’s operations. The general institution (and savings and loan holding companies) assessment, paid on a semi-annual basis, was computed based upon the savings association’s (including consolidated subsidiaries) total assets, financial condition and complexity of its business.  The OCC, which succeeded the OTS, is similarly funded through assessments imposed on regulated institutions. The assessments paid by the Bank for 2012 were $217,000.  

Federal Home Loan Bank System.  The Bank is a member of the Federal Home Loan Bank System, which consists of twelve regional Federal Home Loan Banks.  The Federal Home Loan Banks provide a central credit facility primarily for member institutions.  The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB of Boston.  The Bank was in compliance with this requirement with an investment in FHLB stock at December 31, 2012 of $8.1 million.

Federal Reserve System. The Federal Reserve Board regulations require savings associations to maintain noninterest-earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal “NOW” and regular checking accounts).  The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows:  a 3% reserve ratio is assessed on net transaction accounts up to and including $79.5 million; a 10% reserve ratio is applied above $79.5 million.  The first $12.4 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements.  The Bank complies with the foregoing requirements.

Other Regulations

The Bank’s operations are also subject to federal laws applicable to credit transactions, such as, but not limited to, the:

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

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

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

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

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

The operations of the Bank also are subject to the:

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

◦ Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits

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to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

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

Holding Company Regulation

General.  As a savings and loan holding company, the Company is subject to FRB regulations, examinations, supervision, reporting requirements and regulations concerning its activities.  In addition, the FRB has enforcement authority over the Company and its non-savings institution subsidiaries.  Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the Bank.  Pursuant to federal law and regulations and policy, a savings and loan holding company may engage in activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act and certain other activities that have been authorized for savings and loan holding companies by regulation.

A savings and loan holding company is prohibited from, directly or indirectly, acquiring more than 5% of the voting stock of another savings association or savings and loan holding company, without prior regulatory approval, and from acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings associations, factors considered include, among other things, the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the deposit insurance funds, the convenience and needs of the community and competitive effects.

No acquisition may be approved that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings association in another state if the laws of the state of the target savings association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Financial Holding Companies. Savings and loan holding companies that elect to be treated as financial holding companies may also engage in a broad range of activities. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for savings and loan holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The Federal Reserve Board and the Department of the Treasury are also authorized to permit additional activities for financial holding companies if the activities are “financial in nature” or “incidental” to financial activities. The Dodd-Frank Act specifies that a savings and loan holding company may only engage in financial holding company activities if it meets the qualitative criteria for a bank holding company to engage in such activities. A savings and loan holding company may become a financial holding company if its subsidiary bank is well capitalized, well managed and has at least a “satisfactory” Community Reinvestment Act rating. A financial holding company must provide notice to the Federal Reserve Board within 30 days after commencing activities previously determined by statute or by the Federal Reserve Board and Department of the Treasury to be permissible.

SI Financial Group elected to be treated as a financial holding company and such election was effective on

March 22, 2012.

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies.  The regulatory agencies must issue regulations implementing the "source of strength" policy that holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Dividends. The Bank must notify the FRB before paying a dividend to the Company.  The FRB may disapprove a

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dividend if, among other things, the FRB determines that the federal savings bank would be undercapitalized on a pro forma basis or the dividend is determined to raise safety or soundness concerns.

Acquisition of Control.  Under the federal Change in Bank Control Act, a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings association. Under certain circumstances, a change in control may occur, and prior notice is required, upon the acquisition of 10% or more of the voting stock of the company or institution, unless the FRB has found the acquisition will not result in a change in control. Under the Change in Bank Control Act, the FRB has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.

Federal Income Taxation

General. The Company reports its income on a calendar year basis using the accrual method of accounting.  The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions, particularly the Bank’s reserve for bad debts discussed below.  The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company and its subsidiaries.  With limited exception, the Company is no longer subject to United States federal, state and local income tax examinations by the tax authorities for the years prior to 2008.  The Company’s maximum federal income tax rate was 34.0% for 2012.

Bad Debt Reserves.  For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve.  A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method.  Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts for institutions with assets in excess of $500.0 million and the percentage of taxable income method for all institutions for tax years beginning after 1995 and required savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves.  However, those tax-based bad debt reserves accumulated prior to 1988 (“Base Year Reserves”) were not required to be recaptured unless the institution failed certain tests.  Approximately $3.7 million of the Bank’s accumulated tax-based bad debt reserves would not be recaptured into taxable income unless it makes a “non-dividend distribution” to the Company as described below.

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

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

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State Income Taxation

The Company and its subsidiaries are subject to the Connecticut corporation business tax.  The Company and its subsidiaries are eligible to file a combined Connecticut income tax return and pay the regular corporation business tax.  The Connecticut corporation business tax is based on the federal taxable income before net operating loss and special deductions of the Company and its subsidiaries and makes certain modifications to federal taxable income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate (7.5% for fiscal year 2012) to arrive at Connecticut income tax.

In May 1998, the State of Connecticut enacted legislation permitting the formation of passive investment company subsidiaries by financial institutions.  This legislation exempts qualifying passive investment companies from the Connecticut corporation business tax and excludes dividends paid from a passive investment company from the taxable income of the parent financial institution.  The Bank’s formation of a passive investment company in January 1999 substantially eliminates the state income tax expense of the Company and its subsidiaries under current law. See Item 1. Business.  “Subsidiary Activities – SI Mortgage Company” for a discussion of the Bank’s passive investment company.

As a Maryland business corporation, the Company is required to file annual returns and pay annual fees to the State of Maryland.

Executive Officers of the Registrant

Our executive officers are elected by the Board of Directors and serve at the Board’s discretion.  Certain executive officers of the Bank also serve as executive officers of the Company.  The day-to-day management duties of the executive officers of the Company and the Bank relate primarily to their duties as to the Bank.  The executive officers of the Company currently are as follows:

Name	Age (1)	Position
Rheo A. Brouillard	58	President and Chief Executive Officer of Savings Institute Bank and Trust Company and SI Financial Group
Brian J. Hull	52	Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer of Savings Institute Bank and Trust Company and SI Financial Group
David T. Weston	50	Senior Vice President and Senior Trust Officer of Savings Institute Bank and Trust Company
William E. Anderson, Jr.	43	Senior Vice President and Retail Lending and Marketing Officer of Savings Institute Bank and Trust Company
Laurie L. Gervais	48	Senior Vice President and Director of Human Resources of Savings Institute Bank and Trust Company
Michael J. Moran	64	Senior Vice President and Senior Credit Officer of Savings Institute Bank and Trust Company
Jonathan S. Wood	57	Senior Vice President and Retail Banking Officer of Savings Institute Bank and Trust Company

⁽¹⁾  Ages presented are as of December 31, 2012.

Biographical Information:

Rheo A. Brouillardhas been the President and Chief Executive Officer of Savings Institute Bank and Trust Company and SI Financial Group since 1995 and 2004, respectively.  Mr. Brouillard has been a director of the Company since 1995.

Brian J. Hullwas named Chief Operating Officer in 2011 and has been Executive Vice President since 2002 and

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Chief Financial Officer and Treasurer since he joined Savings Institute Bank and Trust Company in 1997.  Mr. Hull has served as Chief Financial Officer and Treasurer of Savings Institute Bank and Trust Company and SI Financial Group since 2000 and 2004, respectively.

David T. Weston has been Senior Vice President and Senior Trust Officer since 2008.  Mr. Weston oversees wealth management services, which includes trust, investment and insurance operations.  Mr. Weston served as a Vice President within Savings Institute Bank and Trust Company’s Trust Department since 2004.

William E. Anderson, Jr. was named Senior Vice President in 2009 after having served as Vice President since 2002. Mr. Anderson joined Savings Institute Bank and Trust Company in 1995.

Laurie L. Gervaiswas named Senior Vice President in 2009 after having served as Vice President since 2003.  Ms. Gervais serves as Senior Vice President and Corporate Secretary for SI Financial Group.  Ms. Gervais joined Savings Institute Bank and Trust Company in 1983.

Michael J. Moran has been Senior Vice President and Senior Credit Officer since 2008 and previously held this position from 1998 through 2006.  Mr. Moran served as Senior Vice President and Senior Commercial Real Estate

Officer from January 2007 until November 2008.  Mr. Moran joined Savings Institute Bank and Trust Company in 1995.

Jonathan S. Wood has been Senior Vice President and Retail Banking Officer since he joined Savings Institute Bank and Trust Company in July 2012. Prior to joining Savings Institute Bank and Trust Company, Mr. Wood was a Senior Vice President and Consumer Market Executive at Bank of America.

Item 1A.  Risk Factors.

Prospective investors in the Company’s common stock should carefully consider the following risk factors.

◦ Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings. Following a national home price peak in mid-2006, falling home prices and sharply reduced sales volumes, along with the collapse of the United States' subprime mortgage industry in early 2007, significantly contributed to a recession that officially lasted until June 2009, although the effects continued thereafter. Dramatic declines in real estate values and high levels of foreclosures resulted in significant asset write-downs by financial institutions, which have caused many financial institutions to seek additional capital, to merge with other institutions and, in some cases, to fail. Concerns over the United States' credit rating (which was downgraded by Standard & Poor's), the European sovereign debt crisis, and continued high unemployment in the United States, among other economic indicators, have contributed to increased volatility in the capital markets and diminished expectations for the economy.

A return to recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Further declines in real estate values and sales volumes and continued high unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

◦ The Bank’s level of nonperforming loans and classified assets may require the Bank to increase the provision for loan losses and to charge-off additional losses in the future. Further, the allowance for loan losses may prove to be insufficient to absorb losses in the Bank’s loan portfolio. For 2012, we recorded a provision for loan losses of $2.9 million compared to a provision for loan losses of $1.6 million in 2011. We also recorded net loan charge-offs of $1.5 million in 2012 compared to net loan charge-offs of

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$1.4 million in 2011. Our nonperforming assets and troubled debt restructurings decreased to $12.8 million, or 1.34% of total assets, at December 31, 2012 from $16.2 million, or 1.69% of total assets, at December 31, 2011. Additionally, at December 31, 2012, loans that were classified as either special mention, substandard, doubtful or loss totaled $29.7 million, representing 4.3% of total loans, including nonperforming loans of $7.7 million, representing 1.11% of total loans. If these loans do not perform according to their terms and the value of the collateral is insufficient to pay the remaining loan balance or if the economy and/or the real estate market continues to weaken, more of our classified loans may become nonperforming and we could experience loan losses or be required to add further reserves to our allowance for loan losses, either of which could have a material adverse effect on our operating results. We maintain an allowance for loan losses at a level representing management’s best estimate of known losses in the portfolio based upon management’s evaluation of the portfolio’s collectibility as of the corresponding balance sheet date. However, our allowance for loan losses may be insufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results.

In evaluating the adequacy of our allowance for loan losses, we consider numerous quantitative factors, including our historical charge-off experience, growth of our loan portfolio, changes in the composition of our loan portfolio and the volume of and trends in our nonperforming, delinquent and classified loans. In addition, we use information about specific borrower situations, including their financial position and estimated collateral values, to estimate the risk and amount of loss for those borrowers. Finally, we also consider many qualitative factors, including general and economic business conditions, anticipated duration of the current business cycle, current general market collateral valuations, trends apparent in any of the factors we take into account and other matters, which are, by nature, more subjective and fluid. Our estimates of the risk of loss and amount of loss on any loan are complicated by the significant uncertainties surrounding our borrowers' abilities to successfully execute their business models through changing economic environments, competitive challenges, the effect of the current and future economic conditions on collateral values and other factors. Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates.

At December 31, 2012, our allowance for loan losses totaled $6.4 million, which represented 0.93% of total loans and 83.45% of nonperforming loans. Our regulators, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to increase the allowance for loan losses by recognizing additional provisions for loan losses charged to income, or to charge-off loans, which, net of any recoveries, would decrease the allowance for loan losses. Any such additional provisions for loan losses or charge-offs, as required by our regulators, could have a material adverse effect on our operating results.

◦ The Bank’s commercial lending exposes us to lending risks. At December 31, 2012, $415.5 million, or 60.2%, of our loan portfolio consisted of commercial real estate and commercial business loans. We intend to continue to emphasize these types of lending. Commercial loans generally expose a lender to greater risk of non-payment and loss and require a commensurately higher loan loss allowance than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the business and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Further, unlike one- to four-family real estate loans or multi-family and commercial real estate loans, commercial business loans may be secured by collateral other than real estate, the value of which may be more difficult to appraise and may be more susceptible to fluctuation in value.

◦ The Bank’s emphasis on residential mortgage loans and home equity loans exposes it to lending risks,

38

especially due to declining real estate values. At December 31, 2012, $230.7 million, or 33.4%, of our loan portfolio consisted of one- to four-family residential mortgage loans and $28.4 million, or 4.1%, of our loan portfolio consisted of home equity lines of credit. Recent declines in the housing market have resulted in declines in real estate values in our market areas. These declines in real estate values could cause some of our mortgage and home equity loans to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.

◦ The Company’s investment portfolio may suffer reduced returns, material losses or other-than-temporary impairment losses. The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to a deterioration in the financial condition of one or more issuers of the securities held in our portfolio, or due to a deterioration in the financial condition of an issuer that guarantees an issuer’s payments of such investments. Such defaults and impairments could reduce our net investment income and result in realized investment losses.

Our investment portfolio is also subject to increased risk as the valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e. the carrying amount) of the portion of the investment portfolio that is carried at fair value as reflected in our financial statements is not reflective of prices at which actual transactions would occur.

Because of the risks set forth above, the value of our investment portfolio could decrease, we could experience reduced net investment income, and we could recognize investment losses, which could materially and adversely affect our results of operations, financial position and liquidity.

Additionally, we review our securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our securities has declined below its carrying value, we are required to assess whether the decline is other-than-temporary. We are required to write-down the value of that security through a charge to earnings if we conclude that the decline is other-than-temporary. In the case of debt securities, we are required to charge to earnings any decreases in value that are credit-related. As of December 31, 2012, the amortized cost and the fair value of our available for sale securities portfolio totaled $173.9 million and $176.5 million, respectively. Changes in the expected cash flows of these securities and/or prolonged price declines in future periods may result in a charge to earnings to write-down these securities. Any charges for other-than-temporary impairment would not impact cash flow, tangible capital or liquidity. For the years ended December 31, 2012 and 2011, we recognized other-than-temporary impairment losses on certain debt securities related to credit-related factors totaling $123,000 and $148,000, respectively.

◦ A significant percentage of our assets are invested in securities, which typically have a lower yield than our loan portfolio. Our results of operations are substantially dependent on our net interest income. At December 31, 2012, 18.5% of our assets were invested in available for sale securities. These investments yield substantially less than the loans we hold in our portfolio. While we intend to invest a greater proportion of our assets in loans with the goal of increasing our net interest income, we may not be able to increase the origination or purchase of loans acceptable to us.

◦ Regulatory reform may have a material impact on the Company’s operations. The Dodd-Frank Act restructured the regulation of depository institutions and their holding companies. Under the Dodd-Frank Act, the OTS, our former regulator, merged into the OCC, which regulates national banks. Savings and loan holding companies, including the Company, are now regulated by the FRB. Also included was the creation of a new federal agency to administer consumer protection and fair lending laws, a function that was previously performed by the depository institution regulators. The federal preemption of state laws currently accorded federally chartered depository institutions was reduced as well and State Attorneys General now have greater authority to bring a suit against a federally-chartered institution, such as the Bank, for violations of certain state and federal consumer protection laws. The Dodd-Frank Act also imposed consolidated capital requirements on savings and loan holding companies effective in five years,

39

which will limit our ability to borrow at the holding company and invest the proceeds from such borrowings as capital in the Bank that could be leveraged to support additional growth. The Dodd-Frank Act contains various other provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on our operations, particularly through increased regulatory burden and compliance costs.

In addition to the enactment of the Dodd-Frank Act, the federal regulatory agencies have begun to take stronger supervisory actions against financial institutions that have experienced increased loan losses and other weaknesses as a result of the current economic crisis. These actions include the entering into of written agreements and cease and desist orders that place certain limitations on their operations. Federal bank regulators recently have also been using with more frequency their ability to impose individual minimal capital requirements on banks, which requirements may be higher than those imposed under the Dodd-Frank Act or which would otherwise qualify the bank as being “well capitalized” under the FDIC’s prompt corrective action regulations. If the Company or the Bank were to become subject to a supervisory agreement or higher individual capital requirements, such action may have a negative impact on their ability to execute their business plans, as well as their ability to grow, pay dividends or engage in mergers and acquisitions and may result in restrictions in their operations.  See Item 1. Business. “Regulation and Supervision” for a discussion of regulatory capital requirements.

Additionally, on August 30, 2012, the federal banking regulatory agencies issued proposed rules that would implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. If adopted as proposed, Basel III and regulations proposed by the federal banking regulatory agencies will require holding companies and banks to undertake significant activities to demonstrate compliance with the new and higher capital standards. Compliance with these rules, which are still being analyzed, will impose additional costs on banking entities and their holding companies.

◦ Fluctuations in interest rates could reduce the Company’s profitability and affect the value of its assets.

Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread and the average life of our interest-earning assets and interest-bearing liabilities. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yield catches up. This contraction could be more severe following a prolonged period of lower interest rates, as a larger proportion of our fixed-rate residential loan portfolio and fixed-rate residential related mortgage- backed securities will have been originated at those lower rates and borrowers may be more reluctant to refinance or unable to sell their homes in a higher interest rate environment. Changes in the slope of the “yield curve”, or the spread between short-term and long-term interest rates, could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets.

Changes in interest rates also can affect: (1) the ability to originate loans; (2) the value of our interest-earning assets and our ability to realize gains from the sale of such assets; (3) the ability to obtain and retain deposits in competition with other available investment alternatives; and (4) the ability of our

40

borrowers to repay adjustable rate loans. Interest rates are highly sensitive to many factors, including government monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we believe that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities, our profitability could be adversely affected during any period of changes in interest rates.

◦ The Company’s cost of operations is high relative to its assets. The Company’s failure to maintain or reduce its operating expenses could hurt its profits. Our noninterest expenses totaled $30.7 million and $32.6 million for the years ended December 31, 2012 and 2011, respectively. We continue to analyze our expenses and achieve efficiencies where available. Although we strive to generate increases in both net interest income and noninterest income, our efficiency ratio remains high as a result of operating expenses. Our efficiency ratio totaled 88.19% and 87.54% for the years ended December 31, 2012 and 2011, respectively. Failure to control or maintain our expenses could hurt future profits.

◦ Strong competition within the Bank’s market area could hurt its profits and slow growth. We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Competition for loans and deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest income. As of June 30, 2012, we held approximately 1.63% of the deposits in Hartford, Middlesex, New London, Tolland and Windham counties in Connecticut, which represented the 12th market share of deposits out of 37 financial institutions in these counties. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area.

◦ The Company is subject to liquidity risks. Market conditions could negatively affect the level or cost of liquidity available to us, which would affect our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner, and without adverse consequences. Core deposits and FHLB advances are our primary sources of funding. A significant decrease in our core deposits, an inability to renew FHLB advances, an inability to obtain alternative funding to core deposits or FHLB advances, or a substantial, unexpected, or prolonged change in the level or cost of liquidity could have a negative effect on our business and financial condition.

◦ Increased and/or special FDIC assessments will hurt the Company’s earnings. The economic recession caused a high level of bank failures, which has dramatically increased FDIC resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result, the FDIC significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. Increases in the base assessment rate increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the FDIC imposed a special assessment on all insured institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was $393,000. In lieu of imposing an additional special assessment, the FDIC required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $3.5 million. Additional increases in the base assessment rate or additional special assessments would negatively impact our earnings.

◦ If the goodwill recorded in connection with the Company’s acquisitions becomes impaired, it could have a negative impact on the Company’s profitability. Applicable accounting standards require that the acquisition method of accounting be used for all business combinations. Under this method, if the purchase price of an acquired entity exceeds the fair value of its net assets, the excess is carried on the acquirer’s balance sheet as goodwill. At December 31, 2012, we had $3.5 million of goodwill on our balance sheet. The Company evaluates goodwill for impairment at least annually or more frequently if

41

events or changes in circumstances warrant such evaluation. Our annual review of our goodwill occurs in November. Write-downs of the amount of impairment, if necessary, are to be charged to income in the period in which the impairment occurs. No goodwill impairment was recorded for the years ended December 31, 2012 or 2011. Future evaluations of goodwill may result in findings of impairment and related write-downs, which could have a material adverse effect on our financial condition and results of operations.

◦ The Company is subject to security and operational risks relating to use of its technology that could damage its reputation and business. Security breaches in our internet banking activities could expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures that could result in damage to our reputation and business. Additionally, we outsource our data processing to a third party. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

The Company conducts its business through its executive office at 803 Main Street, Willimantic, Connecticut, its 20 branch offices and one wealth management and trust services office located in Connecticut.  Of the 21 offices located in Connecticut, 5 are owned and 16 are leased.  Lease agreements expire at various dates through 2028 with renewal options of 5 to 20 years.

	Number of Offices
Office Locations
Full-service branches:
New London County	7
Windham County	7
Tolland County	3
Hartford County	2
Middlesex County	1
Wealth management and trust services:
Windham County	1
Total:	21

Additionally, the Bank owns or leases 2 other properties used, in part, for banking operations.  The total net book value of the properties at December 31, 2012 was $8.7 million.  See Notes 6 and 12 in the Company’s Consolidated Financial Statements included in the Company’s Annual Report to Shareholders, attached hereto as Exhibit 13, for more information.

Item 3.  Legal Proceedings.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold a security interest, claims involving the making and servicing of real property loans and other issues incident to our business.  At December 31, 2012, neither the Company nor the

42

Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition, results of operations or cash flows.

Item 4.  Mine Safety Disclosures.

None.

PART II.

Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The market for the registrant’s common equity and related shareholder matters required by this item is incorporated herein by reference to the section captioned “Common Stock Information” in the Company’s Annual Report to Shareholders.

For a description of restrictions on the Bank’s ability to pay dividends to the Company and the Company’s ability to pay cash dividends, see Item 1.  Business.  “Regulation and Supervision – Regulation of Federal Savings Associations - Limitation on Capital Distributions” in this annual report on Form 10-K and Note 18 in the Company’s Consolidated Financial Statements included in the Company’s Annual Report to Shareholders, attached hereto as Exhibit 13, for more information.

Item 6.  Selected Financial Data.

The following is only a summary and should be read in conjunction with the consolidated financial statements and notes contained in the annual report. The Company has derived the following selected consolidated financial and other data at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 in part from its consolidated financial statements and notes appearing elsewhere in this annual report. The information at December 31, 2010, 2009 and 2008 and for the years ended December 31, 2009 and 2008 are derived from consolidated financial statements and notes that are not contained in this annual report.

Selected Financial Condition Data:	At December 31,
	2012		2011		2010		2009		2008
	(In Thousands)
Total assets	$	953,250	$	955,047	$	926,409	$	872,354	$	853,122
Cash and cash equivalents	37,689		48,412		78,321		24,204		23,203
Securities available for sale	176,513		230,814		180,036		183,562		162,699
Loans receivable, net	685,163		618,626		606,214		607,692		617,263
Deposits (1)	708,355		705,217		664,139		662,378		624,276
Federal Home Loan Bank advances	98,069		100,069		114,169		116,100		139,600
Junior subordinated debt owed to unconsolidated trust	8,248		8,248		8,248		8,248		8,248
Total shareholders' equity	125,759		130,517		81,104		77,462		72,927

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Selected Operating Data:	Years Ended December 31,
	2012		2011		2010		2009		2008
	(In Thousands, Except Per Share Data)
Interest and dividend income	$	35,824	$	37,820	$	39,875	$	43,385	$	46,499
Interest expense	9,633		11,377		13,824		18,861		22,459
Net interest income	26,191		26,443		26,051		24,524		24,040
Provision for loan losses	2,896		1,558		902		2,830		1,369
Net interest income after provision for loan losses	23,295		24,885		25,149		21,694		22,671
Noninterest income	8,717		11,127		10,685		10,181		3,136
Noninterest expenses	30,653		32,592		31,518		31,405		30,040
Income (loss) before income tax provision (benefit)	1,359		3,420		4,316		470		(4,233		)
Income tax provision (benefit)	241		1,003		1,313		35		(1,360		)
Net income (loss)	$	1,118	$	2,417	$	3,003	$	435	$	(2,873	)
Basic earnings (loss) per share	$	0.11	$	0.24	$	0.29	$	0.04	$	(0.25	)
Diluted earnings (loss) per share	$	0.11	$	0.24	$	0.29	$	0.04	$	(0.25	)

Selected Operating Ratios:	At or For the Years Ended December 31,
Performance Ratios:	2012		2011		2010		2009		2008
Return (loss) on average assets	0.12	%	0.26	%	0.34	%	0.05	%	(0.34	)%
Return (loss) on average equity	0.86		1.85		3.70		0.58		(3.71	)
Interest rate spread (2)	2.63		2.67		2.88		2.67		2.61
Net interest margin (3)	2.88		2.96		3.12		2.98		3.00
Noninterest expenses to average assets	3.21		3.44		3.55		3.61		3.55
Dividend payout ratio (4)	104.74		49.28		13.49		41.61		(25.63	)
Efficiency ratio (5)	88.19		87.54		86.71		90.64		88.72
Average interest-earning assets to average interest-bearing liabilities	124.84		122.70		114.40		113.28		113.83
Average equity to average assets	13.59		13.80		9.14		8.68		9.16
Capital Ratios:
Total risk-based capital ratio	21.41		22.21		15.34		14.30		13.32
Tier 1 risk-based capital ratio	20.20		21.09		14.40		13.36		12.33
Tier 1 capital ratio	11.08		10.86		7.81		8.02		7.59
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans	0.93		0.80		0.79		0.80		0.97
Allowance for loan losses as a percent of nonperforming loans	83.45		46.93		97.44		162.65		64.83
Net charge-offs to average loans outstanding during the year	0.22		0.22		0.16		0.64		0.09

⁽¹⁾  Includes mortgagors’ and investors’ escrow accounts.

⁽²⁾  Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

⁽³⁾  Represents net interest income as a percent of average interest-earning assets.

⁽⁴⁾  Dividends paid divided by basic net income.

⁽⁵⁾  Represents noninterest expenses divided by the sum of net interest income and noninterest income, excluding gains or losses on the sale of securities and other-than-temporary impairment of securities.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information required by this item is incorporated herein by reference to the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report to Shareholders attached hereto as Exhibit 13.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is incorporated herein by reference to the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report to Shareholders attached hereto as Exhibit 13.

Item 8.  Financial Statements and Supplementary Data.

The financial statements and supplementary data required by this item are incorporated herein by reference to the audited consolidated financial statements and notes thereto included in the Company’s Annual Report to Shareholders attached hereto as Exhibit 13.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.  Controls and Procedures.

Disclosure 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 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 officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and of the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect

45

misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2012, using the criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this assessment, management has concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective based on the criteria.

The Company's independent registered public accounting firm has audited and issued a report on the Company's internal control over financial reporting. See Exhibit 13 - Annual Report to Shareholders.

Changes in Internal Control Over Financial Reporting

In addition, based on that evaluation, no changes in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  Other Information.

None.

PART III.

Item 10.  Directors, Executive Officers and Corporate Governance.

Directors

Information relating to the directors of the Company required by this item is incorporated herein by reference to the section captioned “Items to be Voted on by Stockholders – Item 1 – Election of Directors” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Executive Officers

Information relating to officers of the Company required by this item is incorporated herein by reference to Part I, Item 1, “Business — Executive Officers of the Registrant” to this annual report on Form 10-K.

Compliance with Section 16(a) of the Exchange Act

Information regarding compliance with Section 16(a) of the Exchange Act required by this item is incorporated herein by reference to the cover page to this annual report on Form 10-K and the section captioned “Other Information Relating to Directors and Executive Officers - Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Code of Ethics

Information concerning the Company’s code of ethics required by this item is incorporated herein by reference to the information contained under the section captioned “Corporate Governance and Board Matters – Code of Ethics and Business Conduct” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.  A copy of the code of ethics and business conduct is available to shareholders on the “Governance Documents” portion of the Investor Relations’ section on the Company’s website at www.mysifi.com.

Corporate Governance

Information regarding the audit committee and its composition and the audit committee’s financial expert required by this item is incorporated herein by reference to the section captioned “Corporate Governance and Board Matters – Committees of the Board of Directors – Audit and Risk Committee” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

46

Item 11.  Executive Compensation.

Information regarding executive compensation and the compensation committee report required by this item is incorporated herein by reference to the sections captioned “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Corporate Governance and Board Matters - Directors’ Compensation” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information relating to the security ownership of certain beneficial owners and management required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Item 13.  Certain Relationships and Related Transactions and Director Independence.

Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions required by this item is incorporated herein by reference to the section captioned “Other Information Relating to Directors and Executive Officers - Transactions with Related Persons” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Corporate Governance

Information regarding director independence required by this item is incorporated herein by reference to the section captioned “Corporate Governance and Board Matters– Director Independence” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

Item 14.  Principal Accountant Fees and Services.

Information relating to the principal accountant fees and expenses required by this item is incorporated herein by reference to the section captioned ”Audit-Related Matters – Audit Fees” and “Audit-Related Matters – Policy on Audit and Risk Committee Pre-Approval of Audit and Permissible Non-Audit Services by the Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders.

PART IV.

Item 15.  Exhibits and Financial Statement Schedules.

(1)  Financial Statements

The following consolidated financial statements of the Company and its subsidiaries are filed as part of this report:

◦ Reports of Independent Registered Public Accounting Firm

◦ Consolidated Balance Sheets as of December 31, 2012 and 2011

◦ Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010

◦ Consolidated Statements of Comprehensive Income

◦ Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010

◦ Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010

◦ Notes to Consolidated Financial Statements

Such financial statements are incorporated by reference to the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report to Shareholders.

47

(2)  Financial Statement Schedules

All financial statement schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial statements or notes thereto included in the Company’s Annual Report to Shareholders.

(3)  Exhibits

The exhibits listed below are filed as part of this report or are incorporated by reference herein.

3.1	Articles of Incorporation of SI Financial Group, Inc. (1)
3.2	Bylaws of SI Financial Group, Inc. (2)
4	Specimen Stock Certificate of SI Financial Group, Inc. (1)
10.1	*Employee Agreement between Rheo A. Brouillard, SI Financial Group, Inc. and Savings Institute Bank and Trust Company, as amended and restated (4)
10.2	*Employee Agreement between Brian J. Hull, SI Financial Group, Inc. and Savings Institute Bank and Trust Company, as amended and restated (4)
10.3	*Savings Institute Directors Retirement Plan (5)
10.4	*Amended and Restated Savings Institute Bank and Trust Company Supplemental Executive Retirement Plan (6)
10.5	*Savings Institute Group Term Replacement Plan (5)
10.6	*Form of Savings Institute Executive Supplemental Retirement Plan – Defined Benefit (5)
10.7	*Form of First Amendment to Savings Institute Executive Supplemental Retirement Plan – Defined    Benefit (6)
10.8	*Form of Savings Institute Director Deferred Fee Agreement (6)
10.9	*Form of Savings Institute Director Consultation Plan (5)
10.10	*SI Financial Group, Inc. 2005 Equity Incentive Plan (7)
10.11	*Change in Control Agreement, and related amendments, by and among SI Financial Group, Inc., Savings Institute Bank and Trust Company and David T. Weston (6)
10.12	*Change in Control Agreement between Laurie Gervais, SI Financial Group, Inc., Savings Institute Bank and Trust Company (1)
10.13	*Change in Control Agreement between Michael Moran, SI Financial Group, Inc., Savings Institute Bank and Trust Company (8)
10.14	*Form of Section 409A Amendment to the Change in Control Agreement (3)
10.15	*Form of Amendment to Supplement Executive Retirement Plan (9)

48

10.16	*SI Financial Group, Inc. 2012 Equity Incentive Plan (10)
13	Annual Report to Shareholders
21	List of Subsidiaries
23.1	Consent of Wolf & Company, P.C.
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	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
101	The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (Extensible Business Reporting Language):  (i)  the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

*     Management contract or compensation plan or arrangement.

⁽¹⁾  Incorporated herein by reference into this document from the Exhibits on the Registration Statement on Form S-1 (File No. 333-169302), and any amendments thereto, filed with the Securities and Exchange Commission on September 10, 2010.

⁽²⁾  Incorporated herein by reference into this document from the Exhibits to the Company’s Current Report on Form 8-K (File No. 000-54241) filed with the Securities and Exchange Commission on December 19, 2012.

⁽³⁾  Incorporated herein by reference into this document from the Exhibits to the Company’s Current Report on Form 8-K (File No. 000-54241) filed with the Securities and Exchange Commission on February 17, 2011.

⁽⁴⁾  Incorporated herein by reference into this document from the Exhibits on the Company’s Annual Report on Form 10-K/A (File No. 000-50801) filed with the Securities and Exchange Commission on April 17, 2009.

⁽⁵⁾  Incorporated herein by reference into this document from the Exhibits on the Registration Statement on Form S-1 (File No. 333-116381), and any amendments thereto, filed with the Securities and Exchange Commission on June 10, 2004.

⁽⁶⁾  Incorporated herein by reference into this document from the Exhibits on the Company’s Annual Report on Form 10-K (File No. 000-50801) filed with the Securities and Exchange Commission on March 27, 2009.

⁽⁷⁾  Incorporated herein by reference into this document from the Appendix to the Proxy Statement for the 2005 Annual Meeting of Shareholders (File No. 000-50801) filed with the Securities and Exchange Commission on April 6, 2005.

⁽⁸⁾  Incorporated herein by reference into this document from the Exhibits to the Company’s Quarterly Report on Form 10-Q (File No. 000-50801) filed with the Securities and Exchange Commission on November 15, 2004.

⁽⁹⁾  Incorporated herein by reference into this document from the Exhibits to the Company's Annual Report on Form 10-K (File No. 000-50801) filed with the Securities and Exchange Commission on March 12, 2012.

⁽¹⁰⁾  Incorporated herein by reference into this document from the Appendix to the Proxy Statement for the 2012 Annual Meeting of Shareholders (File No. 000-50801) filed with the Securities and Exchange Commission on March 30, 2012.

49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SI Financial Group, Inc.

By:	/s/ Rheo A. Brouillard
	Rheo A. Brouillard
	President and Chief Executive Officer
	March 15, 2013

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

Name	Title	Date
/s/ Rheo A. Brouillard	President and Chief Executive Officer (principal executive officer)	March 15, 2013
Rheo A. Brouillard
/s/ Brian J. Hull	Executive Vice President, Chief Operating Officer, Treasurer and Chief Financial Officer (principal accounting and financial officer)	March 15, 2013
Brian J. Hull
/s/ Henry P. Hinckley	Chairman of the Board	March 15, 2013
Henry P. Hinckley
/s/ Donna M. Evan	Director	March 15, 2013
Donna M. Evan
/s/ Roger Engle	Director	March 15, 2013
Roger Engle
/s/ Robert O. Gillard	Director	March 15, 2013
Robert O. Gillard
/s/ Mark D. Alliod	Director	March 15, 2013
Mark D. Alliod
/s/ Michael R. Garvey	Director	March 15, 2013
Michael R. Garvey

50

EX-13.0

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding changes in the Company’s financial condition as of December 31, 2012 and 2011 and the results of operations for the years ended December 31, 2012, 2011 and 2010.  The information contained in this section should be read in conjunction with the consolidated financial statements and notes contained elsewhere in this annual report.

This report may contain certain “forward-looking statements” within the meaning of the federal securities laws, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are generally preceded by terms such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “projects” and similar expressions.  These statements are not historical facts; rather, they are statements based on management’s current expectations regarding our business strategies, intended results and future performance.

Management’s ability to predict results of the effect of future plans or strategies is inherently uncertain.   Factors that 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 United States government, including policies of the United States 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.  Additional factors that may affect the Company’s results are discussed in Item 1A. “Risk Factors” in the Company’s annual report on Form 10-K and in other reports filed with the Securities and Exchange Commission (the “SEC”).  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.

Management Strategies

The Company’s mission is to operate and grow a profitable community-oriented financial institution.  The Company plans to achieve this mission by continuing its strategies of:

◦ Offering a full range of financial products and services.The Bank has a long tradition of focusing on the needs of consumers and small and medium-sized businesses in the community and being an active corporate citizen.  The Bank believes its community orientation, quicker decision-making process and customized products are attractive to its customers and distinguishes it from the large regional banks that operate in its market area.  The Bank serves as a financial services company offering one-stop shopping for all of its customers’ financial needs through banking, investments, insurance and trust products and services.  The Bank believes that its broad array of product offerings deepen its relationships with its current customers and entice new customers to begin banking with them, ultimately increasing fee income and profitability.

◦ Actively managing the balance sheet and diversifying the asset mix. The recent economic recession has underscored the importance of a strong balance sheet. The Company manages its balance sheet by: (1) prudently increasing the Bank's multi-family and commercial real estate and commercial business loan portfolios, which offer higher yields, shorter maturities and more sensitivity to interest rate fluctuations; (2) managing its interest rate risk by diversifying the type and maturity of its assets in its loan and

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investment portfolios and monitoring the maturities in its deposit portfolio; and (3) maintaining strong capital levels and liquidity. Multi-family and commercial real estate and commercial business loans increased $89.3 million, $23.4 million and $35.5 million for the years ended December 31, 2012, 2011 and 2010, respectively, and comprised 60.2% of total loans at December 31, 2012.  The Company intends to continue to pursue the opportunities from the many multi-family and commercial properties and businesses located in its market area and areas outside its market area where lenders have specialized knowledge.

◦ Continuing conservative underwriting practices and maintaining a high quality loan portfolio.The Bank believes that strong asset quality is a key to long-term financial success.  The Bank has sought to maintain a high level of asset quality and moderate credit risk by using what the Bank believes are conservative underwriting standards and by diligent monitoring and collection efforts.  Nonperforming loans decreased from $10.6 million at December 31, 2011 to $7.7 million at December 31, 2012.  At December 31, 2012, nonperforming loans were 1.11% of the total loan portfolio and 0.80% of total assets.  Although the Bank intends to increase its multi-family and commercial real estate and commercial business lending, it intends to continue its philosophy of managing large loan exposures through conservative loan underwriting and credit administration standards.

◦ Increasing core deposits. The Bank’s primary source of funds is retail deposit accounts.  At December 31, 2012, 60.7% of the Bank's deposits were core deposits, consisting of demand, savings and money market accounts. The Bank values core deposits because they represent longer-term customer relationships and a lower cost of funding compared to certificates of deposit. Core deposits will continue to increase primarily due to the investments the Bank has made in its branch network, new product offerings, competitive interest rates and the movement of customer funds out of riskier investments, including the stock market. The Bank intends to continue to increase its core deposits and to focus on gaining market share in counties outside of Windham County by continuing to offer exceptional customer service, cross-selling its loan and deposit products and trust, insurance and investment services and increasing its commercial deposits from small and medium-sized businesses through additional business banking and cash management products.

◦ Supplementing fee income through expanded mortgage banking operations.The Company views the changing regulatory landscape and historically low interest rate environment as an opportunity to gain noninterest income by leveraging its expertise in originating residential mortgages and selling such increased originations in the secondary market. This strategy enables the Company to have a much larger lending capacity, provide a more comprehensive product offering and reduce the interest rate, prepayment and credit risks associated with originating residential loans for retention in its loan portfolio. Further, this strategy allows the Company to be more selective with the single-family residential loans that are held in portfolio.

◦ Grow through acquisitions.The Company intends to pursue expansion opportunities in its existing market areas or adjacent areas in strategic locations that maximize growth opportunities or with companies that add complementary products to its existing business. The Company believes that the recent economic recession will increase the rate of consolidation in the banking industry. The Company will look to be opportunistic to expand through the acquisition of banks or other financial service companies and believes the additional capital raised through its stock offering will better position the Company to take advantage of those opportunities.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on the Company’s consolidated financial statements, which are prepared in conformity with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses.  The Company considers accounting policies

2

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 its critical accounting policies.  The Company considers the determination of allowance for loan losses, other-than-temporary impairment of securities, deferred income taxes and the impairment of long-lived assets to be its critical accounting policies.

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, delinquencies, classified assets and loan 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, delinquency trends, economic conditions and other qualitative factors.  The allocation percentages are re-evaluated quarterly to ensure their relevance in the current economic 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 an analysis of specific nonperforming loans and classified assets.

Although management believes that it uses the best information available to establish the allowance for loan losses, which is based on estimates that are susceptible to change, future additions to the allowance may be necessary as a result of changes in economic conditions and other factors.  Additionally, the Bank’s regulators, as a part of their examination process, periodically review the allowance for loan losses and may require the Bank to increase the allowance for loan losses by recognizing additional provisions for loan losses charged to expense, or to decrease its allowance for loan losses by recognizing loan charge-offs.  See Notes 1 and 4 in the Company’s Consolidated Financial Statements for additional information.

Other-Than-Temporary Impairment of Securities. One of the significant estimates related to securities is the evaluation of investments for other-than-temporary impairment (“OTTI”). Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other-than-temporary, the declines in fair value are reflected in earnings as realized losses.  For those debt securities for which the fair value is less than its amortized cost and the Company does not intend to sell such security and it is not more likely than not that it will be required to sell such security prior to the recovery of its amortized cost basis (which may be maturity) less any credit losses, the credit-related OTTI loss is recognized as a charge to earnings. Noncredit-related OTTI losses for debt securities are recognized in other comprehensive income (loss), net of applicable taxes.

The evaluation of securities for impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties arise as changes in general economic conditions, the issuer’s financial condition or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period could differ from the assumptions used by management. Management evaluates securities for OTTI at least on a quarterly basis and more frequently when economic or market conditions warrant such evaluation.  See Notes 1 and 3 in the Company’s Consolidated Financial Statements for additional information.

Deferred Income Taxes.  The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  If current available information raises doubt as to the realization of the deferred tax asset, a valuation allowance is established.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities.  These judgments require the Company to make projections of future taxable income. These judgments and estimates, which are inherently subjective, are reviewed periodically as regulatory

3

and business factors change.  A reduction in estimated future taxable income may require the Company to record a valuation allowance against its deferred tax asset.  A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.  See Notes 1 and 10 in the Company’s Consolidated Financial Statements.

Impairment of Long-Lived Assets.  The Company is required to record certain assets it has acquired, including identifiable intangible assets such as core deposit intangibles and goodwill, 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 the Company, 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 at least annually or 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 expenses.  Testing for impairment is a subjective process, the application of which could result in different evaluations of impairment.  See Notes 1, 6 and 7 in the Company’s Consolidated Financial Statements for additional information.

Analysis of Net Interest Income

Average Balance Sheet.  The following sets forth information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resulting yields and rates paid, interest rate spread, net interest margin and the ratio of average interest-earning assets to average interest-bearing liabilities for the periods indicated.

	Years Ended December 31,
	2012							2011							2010
	Average Balance		Interest & Dividends			Average Yield/ Rate		Average Balance		Interest & Dividends			Average Yield/ Rate		Average Balance		Interest & Dividends			Average Yield/ Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans (1) (2)	$	661,087	$	30,462		4.61	%	$	621,363	$	30,969		4.98	%	$	610,480	$	33,381		5.47	%
Securities (3)	218,679		5,317			2.43		232,737		6,788			2.92		190,568		6,393			3.35
Other interest-earning assets	28,149		46			0.16		40,237		65			0.16		35,309		114			0.32
Total interest-earning assets	907,915		35,825			3.95		894,337		37,822			4.23		836,357		39,888			4.77
Noninterest-earning assets	48,407							52,115							51,584
Total assets	$	956,322						$	946,452						$	887,941
Interest-bearing liabilities:
Deposits:
Business checking	$	35	—			—		$	—	—			—		$	—	—			—
NOW and money market	305,784		627			0.21		286,000		1,294			0.45		240,592		1,618			0.67
Savings (4)	40,348		106			0.26		48,413		197			0.41		64,415		295			0.46
Certificates of deposit (5)	277,052		5,286			1.91		278,687		5,771			2.07		302,706		7,524			2.49
Total interest-bearing deposits	623,219		6,019			0.97		613,100		7,262			1.18		607,713		9,437			1.55
Federal Home Loan Bank advances	95,776		3,276			3.42		107,555		3,779			3.51		115,152		4,214			3.66
Subordinated debt	8,248		338			4.10		8,248		336			4.07		8,248		173			2.10
Total interest-bearing liabilities	727,243		9,633			1.32		728,903		11,377			1.56		731,113		13,824			1.89
Noninterest-bearing liabilities	99,125							86,957							75,667
Total liabilities	826,368							815,860							806,780
Total shareholders' equity	129,954							130,592							81,161
Total liabilities and shareholders' equity	$	956,322						$	946,452						$	887,941
Net interest-earning assets	$	180,672						$	165,434						$	105,244
Tax equivalent net interest income (3)			26,192							26,445							26,064
Tax equivalent interest rate spread (6)						2.63	%						2.67	%						2.88	%
Tax equivalent net interest margin as a percentage of interest-earning assets (7)						2.88	%						2.96	%						3.12	%
Average of interest-earning assets to average interest-bearing liabilities						124.84	%						122.70	%						114.40	%
Less tax equivalent adjustment (3)			(1		)					(2		)					(13		)
Net interest income			$	26,191						$	26,443						$	26,051

⁽¹⁾ Amount is net of deferred loan origination fees and costs. Average balances include nonaccrual loans and loans held for sale and excludes the allowance for loan losses.

⁽²⁾ Loan fees are included in interest income and are immaterial.

⁽³⁾ Municipal securities income and net interest income are presented on a tax equivalent basis using a tax rate of 34%. The tax equivalent adjustment is deducted from tax equivalent net interest income to agree to the amounts reported in the statements of income.

⁽⁴⁾ Includes mortgagors' and investors' escrow accounts.

⁽⁵⁾ Includes brokered deposits.

⁽⁶⁾ Tax equivalent net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

⁽⁷⁾ Tax equivalent net interest margin represents tax equivalent net interest income divided by average interest-earning assets.

Rate/Volume Analysis.  The following table sets forth the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have on the Company’s interest income and interest expense for the periods presented.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the rate and volume columns.  For purposes of this table, changes attributable to both changes in rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	2012 Compared to 2011									2011 Compared to 2010
	Increase (Decrease) Due To									Increase (Decrease) Due To
	Rate			Volume			Net			Rate			Volume			Net
	(In Thousands)
Interest-earning assets:
Interest and dividend income:
Loans (1)(2)	$	(2,418	)	$	1,911		$	(507	)	$	(2,998	)	$	586		$	(2,412	)
Securities (3)	(1,079		)	(392		)	(1,471		)	(904		)	1,299			395
Other interest-earning assets	1			(20		)	(19		)	(63		)	14			(49		)
Total interest-earning assets	(3,496		)	1,499			(1,997		)	(3,965		)	1,899			(2,066		)
Interest-bearing liabilities:
Interest expense:
Deposits (4)	(1,264		)	21			(1,243		)	(1,811		)	(364		)	(2,175		)
Federal Home Loan Bank advances	(98		)	(405		)	(503		)	(164		)	(271		)	(435		)
Subordinated debt	2			—			2			163			—			163
Total interest-bearing liabilities	(1,360		)	(384		)	(1,744		)	(1,812		)	(635		)	(2,447		)
Change in net interest income (5)	$	(2,136	)	$	1,883		$	(253	)	$	(2,153	)	$	2,534		$	381

⁽¹⁾ Amount is net of deferred loan origination fees and costs. Average balances include nonaccrual loans and loans held for sale.

⁽²⁾ Loan fees are included in interest income and are immaterial.

⁽³⁾ Municipal securities income and net interest income are presented on a tax equivalent basis using a tax rate of 34%. The tax equivalent adjustment is deducted from tax equivalent net interest income to agree to the amounts reported in the statements of income.

⁽⁴⁾ Includes mortgagors' and investors' escrow accounts and brokered deposits.

⁽⁵⁾ Presented on a tax equivalent basis using a tax rate of 34%.

Comparison of Financial Condition at December 31, 2012 and December 31, 2011

Assets:

Summary.Total assets decreased $1.8 million, or 0.2%, to $953.3 million at December 31, 2012 from $955.0 million at December 31, 2011, primarily due to decreases of $54.3 million in available for sale securities, $10.7 million in cash and cash equivalents and $1.4 million in premises and equipment, offset by an increase of $66.5 million in net loans receivable. Securities decreased primarily as a result of the sale of U.S. government and agency obligations, and to a lesser extent, mortgage-backed securities and corporate debt securities. Cash and cash equivalents and proceeds received from security sales were used to fund loan growth during 2012. Commercial business, commercial mortgage and indirect automobile loans increased $45.7 million, $43.6 million and $3.9 million, respectively. Premises and equipment decreased as a result of the sale of SI Trust Servicing and the closure of the Bank's New London, Connecticut branch office.

4

Loans Receivable, Net.  Net loans receivable increased $66.5 million during 2012 compared to 2011. Loan originations totaled $212.7 million for 2012, an increase of $65.5 million, or 44.5%, over 2011. Changes in the loan portfolio consisted of the following:

◦ Residential Mortgage Loans.  Residential mortgage loans comprise 33.4% of total loans at December 31, 2012.  Despite an increase in residential mortgage loan originations of $11.5 million due to the low interest rate environment, the residential mortgage portfolio declined $16.8 million, or 6.8%, due to the sale of $54.0 million in residential mortgage loans from current production during 2012.

◦ Commercial Loans.  At December 31, 2012, the commercial loan portfolio, which includes multi-family and commercial real estate and commercial business loans, represented 60.2% of the Company’s total loan portfolio.  Multi-family and commercial real estate loans increased $43.6 million, or 27.5%, in part due to loan participations with other institutions and out-of-market lending.  Commercial business loans increased $45.7 million for 2012 as a result of the purchase of $42.9 million in SBA and USDA loans that are fully guaranteed by the U.S. government and new specialized lending products related to time share and condominium lending.  Loan originations for commercial real estate and commercial business loans were $67.3 million and $42.5 million, respectively, during 2012.

◦ Consumer Loans.  Consumer loans represented 5.9% of the Company’s total loan portfolio and increased $4.4 million, or 12.2%, resulting from the purchase of $6.9 million of indirect automobile loans and an increase in home equity lines of credit.  Loan originations for consumer loans were $10.3 million for 2012.

The allowance for loan losses totaled $6.4 million at December 31, 2012 compared to $5.0 million at December 31, 2011.  The ratio of the allowance for loan losses to total loans increased from 0.80% at December 31, 2011 to 0.93% at December 31, 2012.

Liabilities.  Total liabilities increased $3.0 million, or 0.4%, to $827.5 million at December 31, 2012 compared to $824.5 million at December 31, 2011. Deposits increased $3.2 million, or 0.5%, which included increases in certificates of deposit of $4.6 million and noninterest-bearing deposits of $3.9 million, offset by a decrease in NOW and money market accounts of $6.0 million.  Marketing and promotional initiatives and competitively-priced deposit products contributed to deposit growth.  Borrowings decreased $2.0 million from $108.3 million at December 31, 2011 to $106.3 million at December 31, 2012, resulting from net repayments of Federal Home Loan Bank advances.

Shareholders' Equity:

Summary.  Total shareholders’ equity decreased $4.8 million from $130.5 million at December 31, 2011 to $125.8 million at December 31, 2012.  The decrease in shareholders’ equity was attributable to share repurchases of 667,706 shares at a cost of $7.5 million and dividends of $1.2 million, partially offset by increases in net unrealized gains on available for sale securities aggregating $2.1 million (net of taxes) and earnings of $1.1 million.  

Accumulated Other Comprehensive Income (Loss).  Accumulated other comprehensive income (loss) comprises the unrealized gains and losses on available for sale securities and unrealized gains and losses on derivative instruments, net of taxes.  Net unrealized gains on available for sale securities, net of taxes, totaled $1.7 million at December 31, 2012 compared to net unrealized losses on available for sale securities, net of taxes, of $370,000 at December 31, 2011.  Unrealized holding gains on available for sale securities primarily resulted from an increase in the market value of the debt securities portfolio, which was recognized in accumulated other comprehensive income on the consolidated balance sheet and a component of comprehensive income on the consolidated statements of comprehensive income.  Net unrealized losses on derivative instruments, net of taxes, totaled $310,000 and $305,000 at December 31, 2012 and 2011, respectively.

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Comparison of Operating Results for the Years Ended December 31, 2012 and 2011

General.The Company’s results of operations depends primarily on net interest income, which is the difference between the interest income earned on the Company’s interest-earning assets, such as loans and investments, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings.  The Company also generates noninterest income such as gains on the sale of securities, fees earned from mortgage banking activities, fees from deposit and trust and investment management services, insurance commissions and other fees.  The Company’s noninterest expenses primarily consist of employee compensation and benefits, occupancy, computer services, furniture and equipment, outside professional services, electronic banking fees, marketing and other general and administrative expenses.  The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, governmental policies and actions of regulatory agencies.

The Company recorded net income of $1.1 million for 2012, a decrease of $1.3 million, compared to net income of $2.4 million for 2011.

Interest and Dividend Income.  Total interest and dividend income decreased $2.0 million, or 5.3%, for 2012, primarily due to a 28 basis point decrease in yield on interest-earning assets to 3.95%.  Lower market interest rates contributed to decreases in the yields of 37 basis points on loans and 49 basis points on securities during 2012. The yield on federal funds and other interest-earning assets remained unchanged. Additionally, the yield on loans continues to be negatively impacted by unrecognized interest related to nonaccrual loans.  Average interest-earning assets increased $13.6 million to $907.9 million in 2012, due to a higher average balance of loans of $39.7 million, offset by decreases in the average balance of securities and federal funds and other interest-earning assets of $14.1 million and $12.1 million, respectively.

Interest Expense.  Interest expense decreased $1.7 million, or 15.3%, to $9.6 million for 2012 compared to $11.4 million in 2011, primarily due to lower rates paid on deposits and borrowings and a decrease in the average balance of FHLB borrowings, savings deposits and certificates of deposit, offset by an increase in the average balance of NOW and money market deposits.  Average interest-bearing deposits rose $10.1 million and the average rate decreased 21 basis points.  An increase in the average balance of NOW and money market accounts totaling $19.8 million contributed to the increase in the average balance for deposit accounts, as customers shifted from savings and certificates of deposit accounts to NOW and money market accounts.  The average rate on these deposits decreased 24 basis points to 0.21%.  The average balance of savings deposits and certificates of deposit decreased $8.1 million and$1.6 million, respectively and the average rate paid decreased 15 basis points and 16 basis points to 0.26% and 1.91%, respectively.  The average balance of FHLB advances decreased $11.8 million and the average rate decreased 9 basis points to 3.42% for 2012.  The lower rate on FHLB advances was attributable to the prepayment or modification of certain higher rate advances and new advances at significantly lower rates. Impacted by the interest rate swap, the average rate on subordinated debt increased 3 basis points to 4.10%.

Provision for Loan Losses.  The provision for loan losses increased $1.3 million to $2.9 million in 2012.  The higher provision resulted from an increase in net loan charge-offs and an increased allowance for loan losses required for the growing commercial portfolio. For 2012, net loan charge-offs totaled $1.5 million, consisting primarily of commercial mortgage loan charge-offs, compared to $1.4 million for 2011. Two commercial loan relationships contributed to the higher level of loan charge-offs for 2012. At December 31, 2012, nonperforming loans totaled $7.7 million, compared to $10.6 million at December 31, 2011.  A decrease in nonperforming commercial mortgage and residential mortgage loans of $2.3 million and $601,000, respectively, contributed to the lower balance of nonperforming loans at December 31, 2012. Unfavorable economic conditions and Connecticut's extended foreclosure process continue to have a negative impact on the Company’s residential and commercial real estate loan portfolio.

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Noninterest Income.  Total noninterest income decreased $2.4 million to $8.7 million in 2012.  The following table shows the components of noninterest income and the dollar and percentage changes from 2011 to 2012.

	Years Ended December 31,						Change
	2012			2011			Dollars			Percent
	(Dollars in Thousands)
Service fees	$	4,935		$	4,820		$	115		2.4	%
Wealth management fees	1,975			4,108			(2,133		)	(51.9	)
Increase in cash surrender value of bank-owned life insurance	284			289			(5		)	(1.7	)
Net gain on sale of securities	273			486			(213		)	(43.8	)
Net impairment losses recognized in earnings	(123		)	(148		)	25			(16.9	)
Mortgage banking	1,893			814			1,079			132.6
Net (loss) gain on trading securities and derivatives	(358		)	195			(553		)	(283.6	)
Net loss on disposal of SI Trust Servicing operations	(698		)	—			(698		)	N/A
Impairment loss on long-lived assets	(392		)	—			(392		)	N/A
Net loss on disposal of equipment	(5		)	(41		)	36			(87.8	)
Other	933			604			329			54.5
Total noninterest income	$	8,717		$	11,127		$	(2,410	)	(21.7	)%

Lower noninterest income for 2012 is attributed to a decline in wealth management fees of $2.1 million as a result of the sale of SI Trust Servicing, a third-party provider of trust outsourcing services for community banks. During 2012, the Company recorded a loss on the sale of SI Trust Servicing of $698,000 (pre-tax). The Company recognized a loss of $358,000 in 2012 resulting from the change in fair value of derivative instruments as compared to a gain of $195,000 in 2011. Write-downs of $392,000 on leasehold improvements and certain equipment related to the closure of the New London, Connecticut branch office were recognized during 2012. The Company realized a reduction in net gains on the sale of securities of $213,000 for 2012 compared to 2011. These decreases were offset by an increase in mortgage banking fees of $1.1 million as a result of higher proceeds on the sale of $54.0 million of fixed-rate residential mortgage loans for 2012, versus the sale of $48.9 million for the comparable period in 2011. Service fees increased $115,000 due to an increase in fees associated with higher electronic banking usage, offset by a reduction in overdraft privilege fees. The Company recorded an other-than-temporary impairment charge on two non-agency mortgage-backed securities totaling $123,000 for 2012, compared to $148,000 on one non-agency mortgage-backed security and one collateralized debt obligation during 2011. During 2012, other noninterest income included a gain of $349,000 resulting from death benefit proceeds from a bank-owned life insurance policy and an investment gain of $355,000 received from one of the Bank's small business investment company limited partnerships.

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Noninterest Expenses.  Noninterest expenses decreased $1.9 million for 2012 compared to 2011.  The following table shows the components of noninterest expenses and the dollar and percentage changes from 2011 to 2012.

	Years Ended December 31,				Change
	2012		2011		Dollars			Percent
	(Dollars in Thousands)
Salaries and employee benefits	$	15,868	$	16,043	$	(175	)	(1.1	)%
Occupancy and equipment	5,480		5,838		(358		)	(6.1	)
Computer and electronic banking services	3,738		3,867		(129		)	(3.3	)
Outside professional services	1,309		1,054		255			24.2
Marketing and advertising	705		823		(118		)	(14.3	)
Supplies	442		467		(25		)	(5.4	)
FDIC deposit insurance and regulatory assessments	933		894		39			4.4
Contribution to SI Financial Group Foundation	—		500		(500		)	N/A
Other	2,178		3,106		(928		)	(29.9	)
Total noninterest expenses	$	30,653	$	32,592	$	(1,939	)	(5.9	)%

Higher expenses in 2011 were mainly due to SI Trust Servicing operations and a $500,000 charitable contribution to SI Financial Group Foundation, a charitable foundation dedicated to providing assistance to charitable causes within the communities we serve, in connection with the public stock offering and concurrent second-step conversion completed during the first quarter of 2011. The sale of SI Trust Servicing in 2012 contributed to lower noninterest expenses for 2012. Notwithstanding the sale of SI Trust Servicing, salaries and benefits, computer and electronic banking and legal expenses increased during 2012. Salaries and related benefit costs increased with the addition of commercial and residential lending staff. Legal costs related to collection and foreclosure activities were higher in 2012, while maintenance, real estate taxes and utility costs associated with foreclosure activities and other real estate owned declined compared to 2011.

Income Tax Provision.  For 2012, the Company’s income tax provision decreased to $241,000 from $1.0 million for 2011 primarily as a result of lower taxable income and a tax-exempt gain on bank-owned life insurance proceeds. The effective tax rate was 17.8% and 29.3% for 2012 and 2011, respectively. See Note 10 in the Company's Consolidated Financial Statements for more details.

Comparison of Operating Results for the Years Ended December 31, 2011 and 2010

The Company recorded net income of $2.4 million for 2011, a decrease of $586,000, compared to a net income of $3.0 million for 2010.  

Interest and Dividend Income.  Total interest and dividend income decreased $2.1 million, or 5.2%, for 2011, primarily due to a 54 basis point decrease in yield on interest-earning assets to 4.23%.  Lower market interest rates contributed to decreases in the yield of 49 basis points on loans, 43 basis points on securities and 16 basis points on federal funds and other interest-earning assets during 2011.  Additionally, the yield on loans was negatively impacted by the increase in unrecognized interest related to nonaccrual loans.  Average interest-earning assets increased $58.0 million to $894.3 million in 2011, due to a higher average balance of securities, loans and other interest-earning assets of $42.2 million, $10.9 million and $4.9 million, respectively.   

Interest Expense.  Interest expense decreased $2.4 million, or 17.7%, to $11.4 million for 2011 compared to $13.8 million in 2010, primarily due to lower rates paid on interest-bearing liabilities, offset by a higher average balance of deposits.  Average rates declined as a result of the lower interest rate environment during 2011. Average interest-bearing deposits rose $5.4 million and the average rate decreased 37 basis points.  An increase in the average balance of NOW and money market accounts totaling $45.4 million contributed to the increase in the average balance for deposit accounts, as customers shifted from certificates of deposit to NOW and money market accounts.  The average rate on these deposits decreased 22 basis points to 0.45%.  The average balance of

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certificates of deposit decreased $24.0 million and the average rate paid decreased 42 basis points to 2.07%.  The average balance of FHLB advances decreased $7.6 million and the average rate decreased 15 basis points to 3.51% for 2011.  The lower rate on FHLB advances was attributable to the prepayment or modification of certain higher rate advances. Impacted by the interest rate swap, the average rate on subordinated debt increased 197 basis points to 4.07%.

Provision for Loan Losses.  The provision for loan losses increased $656,000 to $1.6 million in 2011.  The higher provision resulted from increases in net loan charge-offs and nonperforming loans for 2011, offset by a decrease in specific loan loss allowances. For 2011, net loan charge-offs totaled $1.4 million, consisting primarily of residential and commercial mortgage loan charge-offs, compared to $994,000 for 2010.  Specific loan loss allowances relating to impaired loans increased to $245,000 at December 31, 2011, compared to $502,000 at December 31, 2010.  At December 31, 2011, nonperforming loans totaled $10.6 million, compared to $4.9 million at December 31, 2010. An increase in nonperforming residential and commercial mortgage loans of $2.7 million and $2.3 million, respectively, contributed to the higher balance of nonperforming loans at December 31, 2011. Unfavorable economic conditions and Connecticut's extended foreclosure process continue to have a negative impact on the Company's residential and commercial real estate loan portfolio.

Noninterest Income.  Total noninterest income increased $442,000 to $11.1 million in 2011.  The following table shows the components of noninterest income and the dollar and percentage changes from 2010 to 2011.

	Years Ended December 31,						Change
	2011			2010			Dollars			Percent
	(Dollars in Thousands)
Service fees	$	4,820		$	5,093		$	(273	)	(5.4	)%
Wealth management fees	4,108			4,083			25			0.6
Increase in cash surrender value of bank-owned life insurance	289			290			(1		)	(0.3	)
Net gain on sale of securities	486			878			(392		)	(44.6	)
Net impairment losses recognized in earnings	(148		)	(492		)	344			(69.9	)
Mortgage banking	814			1,090			(276		)	(25.3	)
Net gain (loss) on trading securities and derivatives	195			(429		)	624			(145.5	)
Net loss on disposal of equipment	(41		)	(5		)	(36		)	720.0
Other	604			177			427			241.2
Total noninterest income	$	11,127		$	10,685		$	442		4.1	%

Service fees decreased $273,000 as a result of a reduction in overdraft privilege fees, offset by an increase in fees associated with higher electronic banking usage. Wealth management fees increased $25,000 principally due to the Bank's new retirement product introduced during 2011. Despite comparable fixed-rate mortgage loan sales in 2011 compared to 2010, mortgage banking fees declined as a result of a reduction in proceeds received on the sales. The Company recorded other-than-temporary impairment charges of $148,000 on one mortgage-backed security and one collateralized debt obligation during 2011, compared to $492,000 on one nonagency mortgage-backed security during 2010. The Company recognized gains of $195,000 for 2011, compared to losses of $429,000 for 2010, resulting from the change in fair value of derivative instruments and trading securities. During 2011, other noninterest income included a gain of $275,000 on the sale of loans held for investment and a gain of $122,000 related to death benefit proceeds from a bank-owned life insurance policy. Other noninterest income for 2011 was offset by impairment charges of $72,000 to reduce the carrying value in the Bank's small business investment company limited partnership, compared to impairment charges of $12,000 for the same period in 2010.

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Noninterest Expenses.  Noninterest expenses increased $1.1 million for 2011 compared to 2010.  The following table shows the components of noninterest expenses and the dollar and percentage changes from 2010 to 2011.

	Years Ended December 31,				Change
	2011		2010		Dollars			Percent
	(Dollars in Thousands)
Salaries and employee benefits	$	16,043	$	15,487	$	556		3.6	%
Occupancy and equipment	5,838		5,628		210			3.7
Computer and electronic banking services	3,867		3,785		82			2.2
Outside professional services	1,054		944		110			11.7
Marketing and advertising	823		757		66			8.7
Supplies	467		491		(24		)	(4.9	)
FDIC deposit insurance and regulatory assessments	894		1,306		(412		)	(31.5	)
Contribution to SI Financial Group Foundation	500		—		500			N/A
Other	3,106		3,120		(14		)	(0.4	)
Total noninterest expenses	$	32,592	$	31,518	$	1,074		3.4	%

Noninterest expenses increased in 2011 primarily due to a $500,000 cash contribution to SI Financial Group Foundation, a charitable foundation dedicated to providing assistance to charitable causes within the communities we serve, in connection with the public stock offering and concurrent second-step conversion completed during the first quarter of 2011. Additional costs associated with salaries and benefits, occupancy and equipment and outside professional services contributed to the increase in noninterest expenses for 2011. Higher salaries and benefits were attributable to the addition of lending staff hired to build commercial loan relationships. An increase in occupancy and equipment expenses primarily related to equipment maintenance contracts, lease expense and greater snow removal and utility costs associated with poor weather conditions in the region during the first quarter of 2011. Higher legal costs, resulting from increased foreclosure activity and additional audit fees associated with Sarbanes Oxley compliance, contributed to an increase in outside professional services. A reduction in the Federal Deposit Insurance Corporation ("FDIC") deposit insurance assessment stemming from a new calculation methodology for 2011 offset increases in noninterest expenses.

Income Tax Provision.  For 2011, the Company's income tax provision decreased to $1.0 million from $1.3 million for 2010 primarily as a result of lower taxable income and a tax-exempt gain on bank-owned life insurance proceeds. The effective tax rate was 29.3% and 30.4% for 2011 and 2010, respectively.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short- and long-term nature.  The Bank's primary sources of funds consist of proceeds from the stock offering, deposit inflows, loan sales and repayments, maturities and sales of securities and FHLB borrowings.   While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, mortgage prepayments and loan and security sales are greatly influenced by general interest rates, economic conditions and competition.

The Bank regularly adjusts its investment in liquid assets based upon its assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of the Company’s asset/liability management, funds management and liquidity policies.  The Company’s policy is to maintain liquid assets less short-term liabilities within a range of 10.0% to 20.0% of total assets.  Liquid assets were 17.3% of total assets at December 31, 2012.  Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities.

The Bank’s most liquid assets are cash and cash equivalents.  The levels of these assets depend on the Bank’s operating, financing, lending and investing activities during any given period.  At December 31, 2012, cash and cash equivalents totaled $37.7 million.  Securities classified as available for sale, which provide additional sources of liquidity, totaled $176.5 million at December 31, 2012.  In addition, at December 31, 2012, the Bank had the

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ability to borrow $143.0 million from the FHLB, which includes overnight lines of credit of $10.0 million.  On that date, the Bank had FHLB advances outstanding of $98.1 million and no overnight advances outstanding. Additionally, the Bank has the ability to access the Federal Reserve Bank’s Discount Window on a collateralized basis and maintains a $7.0 million unsecured line of credit with a financial institution to access federal funds.  The Bank believes that its liquid assets combined with the available line from the FHLB provide adequate liquidity to meet its current financial obligations.

In addition, the Bank believes that its branch network, which is presently comprised of 20 full-service retail banking offices located throughout its primary market area, and the general cash flows from its existing lending and investment activities, will afford it sufficient long-term liquidity.

The Bank’s primary investing activities are the origination, purchase and sale of loans and the purchase and sale of securities.  For the year ended December 31, 2012, the Bank originated $212.7 million of loans and purchased $41.7 million of securities and $49.8 million of loans.  In fiscal 2011, the Bank originated $147.2 million of loans and purchased $139.9 million of securities and $47.0 million of loans.

At December 31, 2012, the Bank had $63.2 million in loan commitments outstanding, which included $11.1 million in commitments to grant loans, $23.0 million in unused home equity lines of credit, $23.8 million in commercial lines of credit, $3.4 million in undisbursed construction loans, $1.2 million in overdraft protection lines and $611,000 in standby letters of credit.  

Financing activities consist primarily of activity in deposit accounts and in borrowed funds.  The increased liquidity needed to fund asset growth has been provided through proceeds from the sale of loans and securities, increased deposits and through proceeds from the stock offering.  The net increase in total deposits, including mortgagors’ and investors’ escrow accounts, was $3.1 million and $41.1 million for the years ended December 31, 2012 and 2011, respectively. Certificates of deposit due within one year of December 31, 2012 totaled $135.1 million, or 19.2% of total deposits.  Management believes that the amount of deposits in shorter-term certificates of deposit reflects customers’ hesitancy to invest their funds in longer-term certificates of deposit due to the uncertain interest rate environment.  To compensate, the Bank has increased the duration of its borrowings with the FHLB.  The Bank will be required to seek other sources of funds, including other certificates of deposit and lines of credit, if maturing certificates of deposit are not retained.  Depending on market conditions, the Bank may be required to pay higher rates on such deposits or other borrowings than are currently paid on certificates of deposit.  Additionally, a shorter duration in the securities portfolio may be necessary to provide liquidity to compensate for any deposit outflows.  The Bank believes, however, based on past experience, a significant portion of its certificates of deposit will be retained.  The Bank has the ability, if necessary, to adjust the interest rates offered to its customers in an effort to attract and retain deposits.

Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by the Bank and its local competitors and other factors.  The Bank generally manages the pricing of its deposits to be competitive and to increase core deposits and commercial banking relationships.  Occasionally, the Bank offers promotional rates on certain deposit products to attract deposits.  The Bank decreased FHLB advances by $2.0 million and $14.1 million for the years ended December 31, 2012 and 2011, respectively, with excess funds from the increase in deposits.

SI Financial Group, Inc. is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, SI Financial Group is responsible for paying any dividends declared to its shareholders and making payments on its subordinated debentures. SI Financial Group may continue to repurchase shares of its common stock in the future. SI Financial Group's primary sources of funds are the proceeds retained in the stock offering, interest and dividends on securities and dividends received from the Bank. The amount of dividends that the Bank may declare and pay to SI Financial Group in any calendar year, without the receipt of prior approval from the Office of the Comptroller of the Currency (“OCC”) but with prior notice to the OCC, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. SI Financial Group believes that such restriction will not have an impact on SI Financial Group's ability to meet its

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ongoing cash obligations. At December 31, 2012 and 2011, SI Financial Group had cash and cash equivalents of $9.6 million and $15.1 million, respectively.

The Company's Board of Directors approved the repurchase of up to 5%, or 528,815 shares, of the Company's outstanding common stock. During 2012, the Company repurchased 465,788 shares at a cost of $5.3 million under the approved repurchase plan.

The Bank has managed its capital to maintain strong protection for depositors and creditors.  The Bank is subject to various regulatory capital requirements administered by the OCC, 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 December 31, 2012, the Bank exceeded all of its regulatory capital requirements and is considered “well capitalized” under regulatory guidelines.  As a savings and loan holding company regulated by the Federal Reserve Board ("FRB"), the Company is not currently subject to any separate regulatory capital requirements.  See Note 14 in the Company’s Consolidated Financial Statements for additional information relating to the Bank’s regulatory capital requirements.

Payments Due Under Contractual Obligations

The following table presents information relating to the Company’s payments due under contractual obligations as of December 31, 2012.

	Payments Due by Period
	Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years		Total
	(In Thousands)
Federal Home Loan Bank advances	$	21,000	$	50,069	$	23,000	$	4,000	$	98,069
Operating lease obligations (1)	1,277		2,370		1,692		4,924		10,263
Purchase obligations	1,296		1,770		1,394		—		4,460
Other long-term liabilities reflected on the balance sheet (2)	—		—		—		8,248		8,248
Total contractual obligations	$	23,573	$	54,209	$	26,086	$	17,172	$	121,040

⁽¹⁾Payments are for the lease of real property.

⁽²⁾Represents junior subordinated debt owed to an unconsolidated trust.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with accounting principles generally accepted in the United States of America, are not recorded in its 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.

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The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral becomes 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 December 31, 2012 and 2011 are as follows

	December 31,
	2012		2011
	(In Thousands)
Commitments to extend credit:
Future loan commitments	$	11,123	$	31,211
Undisbursed construction loans	3,406		5,673
Undisbursed home equity lines of credit	23,019		23,172
Undisbursed commercial lines of credit	23,842		17,995
Overdraft protection lines	1,190		1,190
Standby letters of credit	611		34
Total commitments	$	63,191	$	79,275

Future loan commitments at December 31, 2012 and 2011 included fixed rate loan commitments of $10.6 million and $16.0 million, respectively, at interest rates ranging from 2.63% to 7.00% and 3.00% to 6.25%, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty.  Collateral held varies but may include residential and commercial property, accounts receivable, inventory, property, plant and equipment, deposits and securities.

Undisbursed commitments under construction, home equity or commercial lines of credit are commitments for future extensions of credit to existing customers.  Total undisbursed amounts on lines of credit may expire without being fully drawn upon and therefore, do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Letters of credit are primarily issued to support public or private borrowing arrangements.  Essentially all letters of credit issued have expiration dates within one year.

The Bank is a limited partner in three small business investment corporations.  At December 31, 2012, the Bank’s remaining off-balance sheet commitment for the capital investments was $934,000.  See Note 12 in the Company’s Consolidated Financial Statements.

In 2004, the Bank established an Employee Stock Ownership Plan (“ESOP”) for the benefit of its eligible employees.  In conjunction with the "second step" public stock offering completed on January 12, 2011, the Company provided an additional loan to the ESOP totaling $3.1 million to purchase additional common shares to fund the ESOP. As of December 31, 2012, the Bank had repaid principal payments on the loan to the ESOP of $2.5 million.  Allocated shares, including shares committed to be allocated to participants, totaled 233,311 at December 31, 2012.  As of December 31, 2012, the amount of unallocated common shares held in suspense totaled 556,438, with a fair value of $6.4 million.  See Note 11 in the Company’s Consolidated Financial Statements.

As of December 31, 2012, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.  See Note 12 in the Company’s Consolidated Financial Statements.

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Impact of Inflation and Changes in Prices

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

Impact of Recent Accounting Standards

For information relating to new accounting pronouncements, reference Note 1 – “Nature of Business and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the Company’s Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk

Qualitative Aspects of Market Risk

The primary market risk affecting the financial condition and operating results of the Company is interest rate risk.  Interest rate risk is the exposure of current and future earnings and capital arising from movements in interest rates.  The Company manages the interest rate sensitivity of its interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. To reduce the volatility of its earnings, the Company has sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. The Company’s strategy for managing interest rate risk generally is to emphasize the origination of adjustable-rate mortgage loans for retention in its 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, the Company purchases variable-rate SBA and USDA loans in the secondary market that are fully guaranteed by the U.S. government.  These loans have a significantly shorter duration than fixed-rate mortgage loans. Fixed-rate mortgage loans typically have an adverseeffect on interest rate sensitivity compared to adjustable-rate loans. Accordingly, the Company has sold more longer-term fixed-rate mortgage loans in the secondary market in recent years to manage interest rate risk.  The Company offers 10-year fixed-rate mortgage loans that it retains in its portfolio. The Company may offer attractive rates for existing certificates of deposit accounts to extend their maturities. The Company also uses shorter-term investment securities and longer-term borrowings from the FHLB to help manage interest rate risk.

The Company has 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.

In July 2010, the Company entered into an interest rate swap agreement with a third-party financial institution with a notional amount of $8.0 million whereby the counterparty will pay a variable rate equal to three-month LIBOR and the Company will pay a fixed rate of 2.44%. The agreement was effective on December 15, 2010 and terminates on December 15, 2015. This agreement was designated as a cash flow hedge against the trust preferred securities issued by SI Capital Trust II. This effectively fixes the interest rate on the $8.0 million of trust preferred securities at 4.14% for the period December 15, 2010 through December 15, 2015.

In January 2012, the Company entered into an interest rate swap agreement with a third-party financial institution with a notional amount of $15.0 million, whereby the counterparty will pay a variable rate equal to three-month LIBOR and the Company will pay a fixed rate of 1.255%. The agreement was effective on January 11, 2012 and terminates on January 11, 2017. This agreement was not designated as a hedging instrument.

14

Quantitative Aspects of Market Risk

The Company analyzes its 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 rate 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.  The Company’s goal is to manage asset and liability positions to moderate the effect of interest rate fluctuations on net interest income.

Net Interest Income Simulation Analysis

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 the Company’s interest rate risk exposure at a particular point in time. The Company continually reviews the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The table below sets forth an approximation of the Company’s exposure as a percentage of estimated net interest income for the next 12- and 24-month periods using interest income simulation. The simulation uses projected repricing of assets and liabilities at December 31, 2012 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 the Company holds, rising or falling interest rates have a significant impact on the prepayment speeds of the Company’s earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. The Company’s asset sensitivity would be reduced if prepayments slow and vice versa. While the Company believes such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

The following table reflects changes in estimated net interest income at December 31, 2012.

	Percentage Change in Estimated Net Interest Income Over
	12 Months		24 Months
100 basis point increase in rates	3.66	%	4.28	%
200 basis point increase in rates	3.90		4.47
300 basis point increase in rates	2.11		1.81

Management believes that under the current rate environment, a change of interest rates downward is a highly remote interest rate scenario. Therefore, management simulated an increase in rates of 100, 200 and 300 basis points for the 12- and 24-month periods. This limit will be re-evaluated periodically and may be modified as appropriate.

The basis point change in rates in the above table is assumed to occur evenly over the 12- and 24-month periods. As indicated by the results of the above scenarios, net interest income would be positively impacted in the 12- and 24-month periods if rates increased as a result of the Company's strategy to better position the balance sheet for the anticipated increase in market interest rates. As indicated above, net income would be lower if rates were to increase 300 basis point under both the 12- and 24-month periods. The Company’s strategy for mitigating interest rate risk includes the purchase of adjustable-rate investment securities and SBA and USDA loans that will reprice in a rising rate environment, selling longer-term and lower fixed-rate residential mortgage loans in the secondary

15

market and restructuring FHLB borrowings to current lower market interest rates while extending their duration. Additionally, the interest rate swap agreement used to hedge the interest rate of the Company's long-term variable-rate debt effectively converts the debt to a fixed-rate, which reflects favorably on net interest income in a rising rate environment.

Stock Performance Graph

The following graph compares the cumulative total shareholder return on the Company's common stock with the cumulative total return on the Nasdaq Composite (U.S. Companies) and the SNL $500M - $1B Thrift Index.  Total return assumes the reinvestment of all dividends.  The graph assumes $100 was invested at the close of business on December 31, 2007.

SI Financial Group, Inc.

	Period Ending
Index	12/31/07	12/31/08	12/31/09	12/31/10	12/31/11	12/31/12
SI Financial Group, Inc.	100.00	62.51	54.70	93.34	94.69	111.76
NASDAQ Composite	100.00	60.02	87.24	103.08	102.26	120.42
SNL Thrift $500M-$1B Index	100.00	74.15	69.70	76.50	72.19	91.33

Common Stock Information

The common stock of the Company is listed on NASDAQ Global Market ("NASDAQ") under the trading symbol "SIFI." As of March 1, 2013, there were 10,112,310 shares of common stock outstanding, which were held by approximately 925 shareholders of record.

The following table sets forth the market price and dividend information for the Company's common stock for the periods indicated, as reported by NASDAQ.

	Years Ended December 31,
	2012						2011
	Price Range				Dividends Declared		Price Range				Dividends Declared
	High		Low				High		Low
First Quarter	$	11.59	$	9.69	$	0.03	$	10.50	$	8.50	$	0.03
Second Quarter	11.75		10.38		0.03		10.53		9.67		0.03
Third Quarter	11.90		11.08		0.03		10.38		9.01		0.03
Fourth Quarter	11.82		10.76		0.03		9.90		8.76		0.03

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders

of SI Financial Group, Inc.

We have audited SI Financial Group, Inc. and subsidiaries' (the “Company”) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. SI Financial Group, Inc. and subsidiaries' management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the accounting principles generally accepted in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, SI Financial Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the December 31, 2012 consolidated financial statements of SI Financial Group, Inc. and our report dated March 15, 2013 expressed an unqualified opinion thereon.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

March 15, 2013

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

of SI Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of SI Financial Group, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of net income, comprehensive income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SI Financial Group, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SI Financial Group, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2013 expressed an unqualified opinion thereon.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

March 15, 2013

18

SI FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

	December 31,
	2012			2011
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	16,364		$	13,980
Interest-bearing	21,325			34,432
Total cash and cash equivalents	37,689			48,412
Available for sale securities, at fair value	176,513			230,814
Loans held for sale	5,069			5,558
Loans receivable (net of allowance for loan losses of $6,387 and $4,970 at December 31, 2012 and 2011, respectively)	685,163			618,626
Federal Home Loan Bank stock, at cost	8,078			8,388
Bank-owned life insurance	9,060			9,012
Premises and equipment, net	11,216			12,651
Goodwill and other intangibles	3,451			4,105
Accrued interest receivable	3,215			3,539
Deferred tax asset, net	4,639			4,614
Other real estate owned, net	1,293			976
Prepaid FDIC deposit insurance assessment	1,312			1,974
Other assets	6,552			6,378
Total assets	$	953,250		$	955,047
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Noninterest-bearing	$	89,834		$	85,958
Interest-bearing	615,314			615,968
Total deposits	705,148			701,926
Mortgagors' and investors' escrow accounts	3,207			3,291
Federal Home Loan Bank advances	98,069			100,069
Junior subordinated debt owed to unconsolidated trust	8,248			8,248
Accrued expenses and other liabilities	12,819			10,996
Total liabilities	827,491			824,530
Commitments and contingencies (Notes 6, 11 and 12)
Shareholders' Equity:
Preferred stock ($0.01 par value per share; 1,000,000 shares authorized; none issued)	—			—
Common stock ($0.01 par value per share; 35,000,000 shares authorized; 10,112,310 shares issued and outstanding at December 31, 2012; 10,576,849 shares issued and 10,576,302 shares outstanding at December 31, 2011)	101			106
Additional paid-in-capital	94,810			94,612
Unallocated common shares held by ESOP	(5,088		)	(5,568		)
Unearned restricted shares	(2,210		)	(38		)
Retained earnings	36,733			42,080
Accumulated other comprehensive income (loss)	1,413			(675		)
Total shareholders' equity	125,759			130,517
Total liabilities and shareholders' equity	$	953,250		$	955,047

See accompanying notes to consolidated financial statements.

19

SI FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

	Years Ended December 31,
	2012			2011			2010
Interest and dividend income:
Loans, including fees	$	30,462		$	30,969		$	33,381
Securities:
Taxable interest	5,267			6,702			6,319
Tax-exempt interest	3			5			38
Dividends	46			79			23
Other	46			65			114
Total interest and dividend income	35,824			37,820			39,875
Interest expense:
Deposits	6,019			7,262			9,437
Federal Home Loan Bank advances	3,276			3,779			4,214
Subordinated debt	338			336			173
Total interest expense	9,633			11,377			13,824
Net interest income	26,191			26,443			26,051
Provision for loan losses	2,896			1,558			902
Net interest income after provision for loan losses	23,295			24,885			25,149
Noninterest income:
Total other-than-temporary impairment losses on securities	(239		)	(1,841		)	(492		)
Portion of losses recognized in other comprehensive income	116			1,693			—
Net impairment losses recognized in earnings	(123		)	(148		)	(492		)
Service fees	4,935			4,820			5,093
Wealth management fees	1,975			4,108			4,083
Increase in cash surrender value of bank-owned life insurance	284			289			290
Net gain on sale of securities	273			486			878
Mortgage banking	1,893			814			1,090
Net (loss) gain on trading securities and derivatives	(358		)	195			(429		)
Net loss on disposal of SI Trust Servicing operations	(698		)	—			—
Impairment loss on long-lived assets	(392		)	—			—
Net loss on disposal of equipment	(5		)	(41		)	(5		)
Other	933			604			177
Total noninterest income	8,717			11,127			10,685
Noninterest expenses:
Salaries and employee benefits	15,868			16,043			15,487
Occupancy and equipment	5,480			5,838			5,628
Computer and electronic banking services	3,738			3,867			3,785
Outside professional services	1,309			1,054			944
Marketing and advertising	705			823			757
Supplies	442			467			491
FDIC deposit insurance and regulatory assessments	933			894			1,306
Contribution to SI Financial Group Foundation	—			500			—
Other	2,178			3,106			3,120
Total noninterest expenses	30,653			32,592			31,518
Income before income tax provision	1,359			3,420			4,316
Income tax provision	241			1,003			1,313
Net income	$	1,118		$	2,417		$	3,003
Earnings per share:
Basic	$	0.11		$	0.24		$	0.29
Diluted	$	0.11		$	0.24		$	0.29

See accompanying notes to consolidated financial statements.

20

SI FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

	Years Ended December 31,
	2012			2011			2010
Net Income	$	1,118		$	2,417		$	3,003
Other comprehensive income, net of tax:
Net unrealized gain (loss) on available for sale securities:
Net unrealized holding gain (loss) on available for sale securities	1,258			2,018			(58		)
Reclassification adjustment for gains recognized in net income	(180		)	(321		)	(579		)
Plus: credit portion of OTTI losses recognized in net income	81			98			325
Plus: noncredit portion of OTTI gains (losses) on available for sale securities	934			(1,142		)	1,026
Net unrealized holding gain on available for sale securities	2,093			653			714
Net unrealized loss on interest-rate swap derivative	(5		)	(220		)	(85		)
Other comprehensive income	2,088			433			629
Comprehensive income	$	3,206		$	2,850		$	3,632

21

SI FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands, Except Share Amounts)

	Common Stock					Additional Paid-in Capital			Unallocated Common Shares Held by ESOP			Unearned Restricted Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
	Shares		Dollars
Balance at December 31, 2009	12,563,750		$	126		$	52,230		$	(3,230	)	$	(193	)	$	38,883		$	(2,389	)	$	(7,965	)	$	77,462
Net income	—		—			—			—			—			3,003			—			—			3,003
Other comprehensive income	—		—			—			—			—			—			629			—			629
Total comprehensive income																								3,632
Cumulative effect adjustment for change in accounting  principle for embedded credit derivative	—		—			—			—			—			(652		)	652			—			—
Cash dividends declared ($0.09 per share)	—		—			—			—			—			(375		)	—			—			(375		)
Equity incentive plan compensation	—		—			89			—			168			—			—			—			257
Allocation of 29,004 ESOP shares	—		—			(121		)	323			—			—			—			—			202
Treasury stock purchased (10,517 shares)	—		—			—			—			—			—			—			(74		)	(74		)
Balance at December 31, 2010	12,563,750		126			52,198			(2,907		)	(25		)	40,859			(1,108		)	(8,039		)	81,104
Net income	—		—			—			—			—			2,417			—			—			2,417
Other comprehensive income	—		—			—			—			—			—			433			—			433
Total comprehensive income																								2,850
Exchange of common stock pursuant to reorganization and concurrent stock offering	(1,986,901	)	(20		)	42,311			—			—			—			—			8,039			50,330
Cash dividends declared ($0.12 per share)	—		—			—			—			—			(1,191		)	—			—			(1,191		)
Restricted shares activity	—		—			22			—			(22		)	—			—			—			—
Equity incentive plan compensation	—		—			91			—			9			—			—			—			100
Shares purchased by ESOP pursuant to reorganization (392,670 shares)	—		—			—			(3,141		)	—			—			—			—			(3,141		)
Allocation of 48,637 ESOP shares	—		—			(13		)	480			—			—			—			—			467
Tax benefit from share-based compensation	—		—			3			—			—			—			—			—			3
Treasury stock purchased	(547	)	—			—			—			—			(5		)	—			—			(5		)
Balance at December 31, 2011	10,576,302		106			94,612			(5,568		)	(38		)	42,080			(675		)	—			130,517
Net income	—		—			—			—			—			1,118			—			—			1,118
Other comprehensive income	—		—			—			—			—			—			2,088			—			2,088
Total comprehensive income																								3,206
Cash dividends declared ($0.12 per share)	—		—			—			—			—			(1,171		)	—			—			(1,171		)
Restricted shares activity	—		—			—			—			(2,226		)	(12		)	—			—			(2,238		)
Equity incentive plan compensation	—		—			135			—			54			—			—			—			189
Allocation of 48,637 ESOP shares	—		—			63			480			—			—			—			—			543
Tax benefit from share-based compensation	—		—			4			—			—			—			—			—			4
Stock options exercised	1,796		—			(4		)	—			—			14			—			—			10
Common shares repurchased	(465,788	)	(5		)	—			—			—			(5,296		)	—			—			(5,301		)
Balance at December 31, 2012	10,112,310		$	101		$	94,810		$	(5,088	)	$	(2,210	)	$	36,733		$	1,413		$	—		$	125,759

See accompanying notes to consolidated financial statements.

22

SI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
	Years Ended December 31,
	2012			2011			2010
Cash flows from operating activities:
Net income	$	1,118		$	2,417		$	3,003
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,896			1,558			902
Employee stock ownership plan expense	543			467			202
Equity incentive plan expense	189			100			257
Excess tax benefit from share-based compensation	(4		)	(3		)	—
Amortization of investment premiums and discounts, net	1,168			650			394
Amortization of loan premiums and discounts, net	1,423			1,458			674
Depreciation and amortization of premises and equipment	1,852			1,947			1,971
Amortization of core deposit intangible	11			21			32
Net gain on sale of securities	(273		)	(486		)	(878		)
Net loss (gain) on trading securities and derivatives	358			(195		)	429
Deferred income tax (benefit) provision	(1,100		)	891			(355		)
Loans originated for sale	(53,552		)	(47,134		)	(55,634		)
Proceeds from sale of loans held for sale	55,260			49,098			49,107
Net loss on disposal of SI Trust Servicing operations	698			—			—
Net gain on sale of loans held for sale	(1,646		)	(611		)	(887		)
Net gain on sale of loans held for investment	—			(275		)	—
Net loss on disposal of equipment	5			41			5
Net loss on sales or write-downs of other real estate owned	60			236			534
Increase in cash surrender value of bank-owned life insurance	(284		)	(289		)	(290		)
Gain on bank-owned life insurance proceeds	(349		)	(122		)	—
Impairment loss on long-lived assets	392			—			—
Other-than-temporary impairment losses on securities	123			148			492
Change in operating assets and liabilities:
Accrued interest receivable	324			(443		)	228
Other assets	1,796			1,783			292
Accrued expenses and other liabilities	1,232			62			2,129
Net cash provided by operating activities	12,240			11,319			2,607
Cash flows from investing activities:
Purchases of available for sale securities	(41,721		)	(139,919		)	(91,716		)
Proceeds from sales of available for sale securities	44,033			36,883			40,144
Proceeds from maturities of and principal repayments on available for sale securities	54,452			53,366			55,515
Net (increase) decrease in loans	(22,875		)	23,016			52,031
Purchases of loans	(49,768		)	(46,999		)	(53,953		)
Proceeds from sale of loans held for investment	—			7,966			—
Proceeds from sale of other real estate owned	1,361			954			3,685
Purchases of premises and equipment	(1,472		)	(2,516		)	(1,133		)
Proceeds from bank-owned life insurance	585			603			—
Net cash (used in) provided by investing activities	(15,405		)	(66,646		)	4,573
Cash flows from financing activities:
Net increase in deposits	3,222			41,212			1,927
Net decrease in mortgagors' and investors' escrow accounts	(84		)	(134		)	(166		)
Proceeds from Federal Home Loan Bank advances	7,000			23,000			23,355
Repayments of Federal Home Loan Bank advances	(9,000		)	(37,100		)	(25,286		)
Net proceeds from common stock offering	—			2,774			47,556
Excess tax benefit from share-based compensation	4			3			—
Purchase of shares by ESOP pursuant to reorganization	—			(3,141		)	—
Purchase of shares for equity plan	(2,238		)	—			—
Stock options exercised	10			—			—
Cash dividends on common stock	(1,171		)	(1,191		)	(375		)
Common shares repurchased	(5,301		)	(5		)	(74		)
Net cash (used in) provided by financing activities	(7,558		)	25,418			46,937
Net change in cash and cash equivalents	(10,723		)	(29,909		)	54,117
Cash and cash equivalents at beginning of year	48,412			78,321			24,204
Cash and cash equivalents at end of year	$	37,689		$	48,412		$	78,321
Supplemental cash flow information:
Interest paid	$	9,682		$	11,440		$	13,857
Income taxes (received) paid, net	(321		)	790			714
Transfer of stock offering escrow for issuance of common shares	—			47,556			—
Transfer of loans to other real estate owned	1,787			881			1,824

23

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

SI Financial Group, Inc. (the “Company”) is the holding company for Savings Institute Bank and Trust Company (the “Bank”).  Established in 1842, the Bank is a community-oriented financial institution headquartered in Willimantic, Connecticut.  The Bank provides a variety of financial services to individuals, businesses and municipalities through its twenty offices in eastern Connecticut.  Its primary products include savings, checking and certificate of deposit accounts, residential and commercial mortgage loans, commercial business loans and consumer loans.  In addition, wealth management services, which include trust, financial planning, life insurance and investment services, are offered to individuals and businesses through the Bank’s offices.  The Company does not conduct any material business other than owning all of the stock of the Bank and making payments on the subordinated debentures held by the Company.

The Company is the successor to the former federally-chartered SI Financial Group, Inc., the former holding company for the Bank when the Bank was organized in the mutual holding company structure. In January 2011, the Company completed a public stock offering and concurrent conversion of the Bank from the mutual holding company to the stock form of organization. A total of 6,544,493 shares of common stock were sold at $8.00 per share.  Additional shares totaling 4,032,356 were issued in exchange for shares of the former federally-chartered SI Financial Group, Inc., at an exchange ratio of 0.8981.  Shares outstanding after the stock offering and the exchange totaled 10,576,849.  Earnings per share and the weighted average common shares outstanding for the year ended December 31, 2010 have been restated to reflect the exchange.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 803 Financial Corp., SI Mortgage Company and SI Realty Company, Inc.  All significant intercompany accounts and transactions have been eliminated.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheets and reported amounts of revenues and expenses for the years presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment (“OTTI”) of securities, deferred income taxes and the impairment of long-lived assets.

Reclassifications

Certain amounts in the Company’s consolidated financial statements have been reclassified to conform to the 2012 presentation.  Such reclassifications had no effect on net income.

Significant Group Concentrations of Credit Risk

A majority of the Company’s activities are with customers located within eastern Connecticut.  The Company does not have any significant concentrations in any one industry or customer.  See Notes 3 and 4 for details relating to the Company’s investment and lending activities.

Cash and Cash Equivalents and Statements of Cash Flows

Cash and due from banks, federal funds sold and short-term investments with maturities at date of purchase of less than 90 days are recognized as cash equivalents in the statements of cash flows.  Federal funds sold generally mature in one day.  For purposes of reporting cash flows, the Company considers all highly liquid debt instruments

24

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

purchased with a maturity of three months or less to be cash equivalents.  Cash flows from loans and deposits are reported on a net basis.  The Company maintains amounts due from banks and federal funds sold that, at times, may exceed federally insured limits.  The Company has not experienced any losses from such concentrations.

Fair Value Hierarchy

The Company groups its assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Transfers between levels are recognized at the end of a reporting period, if applicable.

Securities

Management determines the appropriate classification of securities at the date individual securities are acquired, and the appropriateness of such classification is reassessed at each reporting 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.  Securities that are held principally for the purpose of trading in the near term are classified as “trading securities.”  Trading securities are carried at fair value, with unrealized gains and losses recognized in earnings.  Interest and dividends are included in net interest income.  Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of taxes.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

At each reporting period, the Company evaluates securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other than temporary. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an OTTI condition, such as the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuers.  OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other-than-temporary, the declines in fair value are reflected in earnings as realized losses.  For impaired debt securities that

25

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and noncredit-related OTTI is recognized in other comprehensive income, net of applicable taxes.  See Notes 3 and 15 for more details.

Federal Home Loan Bank Stock

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLB”), is required to maintain an investment in capital stock of the FHLB.  Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost.  At its discretion, the FHLB may declare dividends on its stock.  The stock is redeemable at par by the FHLB and the Company’s ability to redeem the shares owned is dependent on the redemption practices of the FHLB.  The Company reviews its investment in FHLB stock for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.  No impairment charges were recognized for the years ended December 31, 2012, 2011 and 2010.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income.  Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date and reported within mortgage banking activities on the accompanying consolidated statements of income.

Loans Receivable

Loans receivable are stated at current unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees and costs.  Management has the ability and intent to hold its loans receivable for the foreseeable future or until maturity or pay-off.

A loan is impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for residential and commercial mortgage loans and commercial business loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not typically identify individual consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments, due to the borrower’s financial condition, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired.

Management considers all nonaccrual loans, with the exception of certain consumer loans, and TDRs to be impaired.  In most cases, loan payments less than 90 days past due are considered minor collection delays and the related loans are generally not considered impaired.

Allowance for Loan Losses

The allowance for loan losses, a material estimate which could change significantly in the near-term, is established through a provision for loan losses charged to earnings to account for losses that are inherent in the loan portfolio

26

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

and estimated to occur, and is maintained at a level that management considers adequate to absorb losses in the

loan portfolio.  Loan losses are charged against the allowance for loan losses when management believes that the uncollectibility of the principal loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance for loan losses when received.  In the determination of the allowance for loan losses, management may obtain independent appraisals for significant properties, if necessary.

Management's judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan losses is evaluated on a monthly basis by management and is based on the evaluation of the known and inherent risk characteristics and size and composition of the loan portfolio, the assessment of current economic and real estate market conditions, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, historical loan loss experience, the level of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

The allowance for loan losses consists of the following key elements:

◦ Specific allowance for identified impaired loans.  For loans that are identified as impaired, an allowance is established when the present value of expected cash flows (or observable market price of the loan or fair value of the collateral if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan.

◦ General valuation allowance.  The general component represents a valuation allowance on the remainder of the loan portfolio, after excluding impaired loans.  For this portion of the allowance, loans are segregated by category and assigned an allowance percentage based on historical loan loss experience adjusted for qualitative factors stratified by the following loan segments:  residential one- to four-family, multi-family and commercial real estate, construction, commercial business and consumer.   Management uses a rolling average of historical losses based on the time frame appropriate to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies, classified loans and nonaccrual loans; level of loan charge-offs; trends in volume, nature and terms of loans; existence and effect of/or changes in the level of credit concentrations; effects of changes in risk selection, underwriting standards and other changes in lending policies, procedures and practices; experience/ability and depth of lending management and staff, national and local economic trends and conditions and impact on value of underlying collateral for collateral dependent loans.

The qualitative factors are determined based on the following various risk characteristics for each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential – One- to Four-Family – The Bank primarily originates conventional loans with loan-to-value ratios less than 95% and generally originates loans with loan-to-value ratios in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences.  Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Multi-family and Commercial – Loans in this segment are originated for the purpose of acquiring, developing, improving or refinancing multi-family and commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary

27

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

repayment source.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Payments on loans secured by income-producing properties often depend on the successful operation and management of the properties. Management continually monitors the cash flows of these loans.

Construction – This segment includes loans to individuals, and to a lesser extent builders, to finance the construction of residential dwellings.  The Bank also originates construction loans for commercial development projects.  Upon the completion of construction, the loan generally converts to a permanent mortgage loan.  Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

Commercial Business – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy and reduced viability of the industry in which the customer operates will have a negative impact on the credit quality in this segment. To a lesser extent, the Bank provides financing for investors in the time share industry, which are secured by consumer receivables, and finances capital improvements for condominium associations, which are secured by the assigned rights to levy special assessments to condominium owners.

Consumer – Loans in this segment primarily include home equity lines of credit (representing both first and second liens), and indirect automobile loans and, to a lesser extent, loans secured by marketable securities, passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, as well as unsecured loans.  Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

In computing the allowance for loan losses, we do not assign a general valuation allowance to the Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans that we purchase as such loans are fully guaranteed.  These loans are included in commercial business loans. See Note 4 for details.

The majority of the Company's loans are collateralized by real estate located in eastern Connecticut. To a lesser extent, certain commercial real estate loans are secured by collateral located outside of our primary market area. Accordingly, the collateral value of a substantial portion of the Company's loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.

Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  Furthermore, while management believes it has established the allowance for loan losses in conformity with U.S. generally accepted accounting principles, the regulatory agencies, in reviewing the loan portfolio, may request us to increase our allowance for loan losses based on judgments different from ours.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate or increases may 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 would adversely affect the Company’s financial condition and results of operations.

Interest and Fees on Loans

Interest on loans is accrued and included in net interest income based on contractual rates applied to principal amounts outstanding.  Accrual of interest is discontinued when loan payments are 90 days or more past due,

28

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

based on contractual terms, or when, in the judgment of management, collectibility of the loan or loan interest becomes uncertain.  Subsequent recognition of income occurs only to the extent payment is received subject to management's assessment of the collectibility of the remaining interest and principal.  A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectibility of interest and principal is no longer in doubt and the borrower has made regular payments in accordance with the terms of the loan over a period of at least six months.  Interest collected on nonaccrual loans is recognized only to the extent cash payments are received, and may be recorded as a reduction to principal if the collectibility of the principal balance of the loan is unlikely.

Loan origination fees and direct loan origination costs are deferred, and the net amount is recognized as an adjustment of the related loan's yield utilizing the interest method over the contractual life of the loan.

Derivative Financial Instruments

Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and measured at fair value.

Interest Rate Swap Agreements - The Company uses interest rate swap agreements as part of its interest rate risk management strategy.  Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period.  The notional amount on which the interest payments are based is not exchanged.  The Company’s swap agreements are derivative instruments and convert a portion of the Company’s variable-rate debt to a fixed-rate.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk.  If periodic assessment indicates derivatives no longer provide an effective hedge, the derivative contracts would be closed out and settled, or classified as a trading activity. For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the hedged debt is deferred and amortized into net interest income over the life of the hedged debt.  The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in noninterest income.

The Company has characterized one of its interest rate swaps as a cash flow hedge.  Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations, and are recorded at fair value in other assets or liabilities within the Company’s balance sheets. Changes in the fair value of these cash flow hedges are initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects earnings. The ineffective portion of the gain or loss on derivative instruments, if any, is recognized in earnings.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in other noninterest income. One of the Company's interest rate swap agreements is not designated as a hedge.  

Derivative Loan Commitments - Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheets in other assets and other liabilities

29

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

with changes in their fair values recorded in noninterest income.

Forward Loan Sale Commitments - To protect against the price risk inherent in derivative loan commitments, the Company utilizes “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.  Mandatory delivery contracts are accounted for as derivative instruments.  Mandatory delivery forward loan sale commitments are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in noninterest income.  Subsequent to inception, changes in the fair value of the loan commitment are recognized based on changes in fair value of the underlying mortgage loan due to interest rate changes, changes in the probability the derivative loan commitment will be exercised and the passage of time.  In estimating fair value, the Company assigns a probability to a loan commitment based on an expectation that it will be exercised and the loan will be funded.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and no condition both constrains the transferee from taking advantage of that right and provides more than a trivial benefit for the transferor and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets.

During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation loan or the government guaranteed portion of a loan.  In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a participating interest.  If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing.  In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan.

Other Real Estate Owned

Other real estate owned consists of properties acquired through, or in lieu of, loan foreclosure or other proceedings and is initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, the properties are held for sale and are carried at the lower of carrying amount or fair value less estimated costs of disposal.  Any write-down to fair value at the time of acquisition is charged to the allowance for loan losses.  Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose.  Revenue and expense from the operation of other real estate owned and the provision to establish and adjust valuation allowances are included in noninterest expenses.  Costs relating to the development and improvement of the property are capitalized, subject to the limit of fair value of the collateral. Gains or losses are included in noninterest expenses upon disposal.  See Note 5 for additional details related to other real estate owned.

Premises and Equipment

Land is carried at cost.  Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the related assets.  Leasehold improvements are amortized over the shorter of the estimated economic lives of the improvements or the expected lease terms.  Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.  

30

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The estimated useful lives of the assets are as follows:

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	5 to 20 years

Gains and losses on dispositions are recognized upon realization.  Maintenance and repairs are expensed as incurred and improvements are capitalized.

Bank-owned Life Insurance

Bank-owned life insurance policies are presented on the consolidated balance sheets at cash surrender value. Changes in cash surrender value, as well as gains on the surrender of policies, are reflected in noninterest income on the consolidated statements of income and are not subject to income taxes.  See Note 11 for additional discussion.

Servicing

The Company services mortgage loans for others.  Mortgage servicing assets are recognized as separate assets at fair value when rights are acquired through purchase or retained through the sale of financial assets.  Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  Capitalized servicing rights are reported in other assets and are amortized into mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the amortized cost. Impairment is determined by stratifying rights by predominant risk characteristics, such as interest rate, loan type and investor type.  Impairment is recognized through a valuation allowance for an individual stratum, to the extent that the fair value is less than the capitalized amount for the stratum.  Changes in the valuation allowance are reported in loan servicing fee income.

Servicing fee income is recorded for fees earned for servicing loans, which is included in mortgage banking income.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  

Impairment of Long-lived Assets

Long-lived assets, including premises and equipment and certain identifiable intangible assets that are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If impairment is indicated by that review, the asset is written down to its estimated fair value through a charge to earnings.

Other Investments

The Company is a limited partner in three Small Business Investment Companies (“SBICs”), which are licensed by the Small Business Administration.  They provide mezzanine financing and private equity investments to small companies which may not otherwise qualify for standard bank financing.  The Company records its investment in the SBICs at cost and evaluates its investment for impairment on a quarterly basis.  Impairment that is considered by management to be other-than-temporary, results in a write-down of the investment which is recognized as a charge to earnings.  See Note 12 regarding the Bank's investment in and outstanding capital commitments to the limited partnerships.

31

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Trust Assets

Trust assets held in a fiduciary or agency capacity, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company.  Trust fees are recognized on the accrual basis of accounting.

Related Party Transactions

Directors, officers and affiliates of the Company and the Bank have been customers of and have had transactions with the Bank, and it is expected that such persons will continue to have such transactions in the future. Management believes that all deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who were not directors, officers or affiliates.  In the opinion of management, the transactions with related parties did not involve more than the normal risk of collectibility, favored treatment or terms or present other unfavorable features.  See Note 13 for details regarding related party transactions.

Employee Stock Ownership Plan

The loans to the Employee Stock Ownership Plan ("ESOP") are repaid from the Bank’s contributions to the ESOP and dividends payable on common stock held by the ESOP over an initial period of 15 years for the first loan and 20 years for the second loan.  Unearned compensation applicable to the ESOP is reflected as a reduction of shareholders’ equity on the consolidated balance sheets. Compensation expense is recognized as ESOP shares are committed to be released and is based on the average fair market value of the shares during the period.  The difference between the average fair value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in capital. Unallocated ESOP shares are not considered outstanding for calculating earnings per share.  Dividends paid on allocated ESOP shares are charged to retained earnings and dividends paid on unallocated ESOP shares are used to satisfy debt service.  See Note 11 for additional discussion.

Equity Incentive Plan

The Company measures and recognizes compensation cost relating to share-based compensation based on the grant date fair value of the equity instruments issued.  Share-based compensation is recognized on a straight-line basis over the period of service or performance for the award.   Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience.  The fair value of each restricted stock allocation, equal to the market price at the date of grant, is recorded as unearned restricted shares.  The fair value of each stock option award is determined on the date of grant using the Black-Scholes option pricing model, which includes several assumptions such as expected volatility, dividends, term and risk-free rate for each stock option award.  See Note 11 for additional discussion.

Income Taxes

Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities.  These judgments require the Company to make projections of future taxable income.  These judgments and estimates, which are inherently subjective, are reviewed periodically as regulatory and business factors change.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized.

32

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The Company does not have any uncertain tax positions which require accrual or disclosure at December 31, 2012 or 2011.  In accordance with the provisions of applicable accounting guidance, in future periods, the Company may record a liability for unrecognized tax benefits related to the recognition, derecognition or change in measurement of a tax position as a result of new tax positions, changes in management’s judgment about the level of uncertainty of existing tax positions, expiration of open income tax returns due to the statutes of limitation, status of examinations and litigation and legislative activity.  The Company has elected to report future interest and penalties related to unrecognized tax benefits, if any, as income tax expense in the Company’s consolidated statements of income.  No interest or penalties were recorded for the years ended December 31, 2012, 2011 and 2010.

Income tax benefits related to stock compensation in excess of grant date fair value less any proceeds on exercise are recognized as an increase to additional paid-in capital upon vesting or exercising and delivery of the stock.  Any income tax effects related to stock compensation that are less than grant date fair value less any proceeds on exercise would be recognized as a reduction of additional paid-in capital to the extent of previously recognized income tax benefits and then through income tax expense for the remaining amount.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and certain cash flow hedges, are reported as a separate component of shareholders’ equity, such items, along with net income, are components of comprehensive income.  See Note 15 for components of other comprehensive income and the related tax effects.

Common Share Repurchases

The Company is chartered in the state of Maryland. Maryland law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized but unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock and retained earnings balances.

Earnings Per Share

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Unvested restricted shares are considered outstanding in the computation of basic earnings per share since the shares participate in dividends and the rights to the dividends are non-forfeitable.  Diluted earnings per share is computed in a manner similar to basic earnings per 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 equivalents were issued during the period.  The Company’s common stock equivalents relate solely to stock options.  Repurchased common shares and unallocated common shares held by the Bank's ESOP are not deemed outstanding for earnings per share calculations.

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented, and are not considered in diluted earnings per share calculations. The Company had 323,011, 443,026 and 420,200 anti-dilutive common shares outstanding for the years ended December 31, 2012, 2011 and 2010, respectively. The computation of earnings per share is as follows:

33

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	Years Ended December 31,
	2012		2011		2010
	(In Thousands, Except Share Amounts)
Net income	$	1,118	$	2,417	$	3,003
Weighted average common shares outstanding:
Basic	9,730,797		9,988,322		10,302,201
Effect of dilutive stock options	24,895		20,538		2,615
Diluted	9,755,692		10,008,860		10,304,816
Earnings per share:
Basic	$	0.11	$	0.24	$	0.29
Diluted	$	0.11	$	0.24	$	0.29

Business Segment Reporting

Public companies are required to report (i) certain financial and descriptive information about “reportable operating segments,” as defined, and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers.  An operating segment is a component of a business for which separate financial information is available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance.  The Company’s operations are limited to financial services provided within the framework of a community bank, and decisions are generally based on specific market areas and or product offerings.  Accordingly, based on the financial information presently evaluated by the Company’s chief operating decision-maker, the Company’s operations are aggregated in one reportable operating segment.

Advertising Costs

Advertising costs are expensed as incurred.

Recent Accounting Pronouncements

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements- In May 2011, the Financial Accounting Standards Board ("FASB") amended its standard related to fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards. The amendments (1) change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurement, (2) clarify the intent of the application of existing fair value measurement requirements and (3) change the requirements for measuring fair value and for disclosing information about fair value. The amendments are not intended to change the application of existing requirements for fair value measurement. The amendments should be applied prospectively effective during the first interim and annual periods beginning after December 15, 2011. The adoption of these amendments did not have a material impact on the Company's consolidated financial statements.

Testing of Goodwill for Impairment - In September 2011, the FASB amended its standard related to how entities test goodwill for impairment. Under this amendment, an entity is now permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Under this amendment, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year. The amendments in this update were effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

34

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Disclosures about Offsetting Assets and Liabilities - In December 2011, the FASB amended its standard related to disclosure requirements for offsetting assets and liabilities. Under this amendment, an entity will be required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities - In January 2013, the FASB issued amendments to clarify that the scope of Disclosures about Offsetting Assets and Liabilities applies to derivatives accounted for in accordance with Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, securities borrowing and securities lending transactions that are either offset in accordance with applicable guidance or subject to an enforceable master netting arrangement or similar agreement. The amendments in this update are effective for fiscal years beginning on or after

January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income - In February 2012, the FASB issued an amendment to improve the transparency of reporting these reclassifications by requiring an organization to 1) present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income and 2) cross-reference to other disclosures currently required under GAAP for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. The amendments are effective for reporting periods beginning after December 15, 2012 with early adoption permitted. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

NOTE 2.  RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

The Bank is required to maintain cash reserve balances against its respective transaction accounts and non-personal time deposits.  At December 31, 2012 and 2011, the Bank was required to maintain cash and liquid asset reserves of $700,000 and $858,000, respectively, and to maintain $3.0 million in the Federal Reserve Bank ("FRB") for clearing purposes to satisfy such reserve requirements at December 31, 2011. During 2012, the Federal Reserve Bank announced an initiative to simplify reserves administration. Effective July 12, 2012, the Federal Reserve Bank eliminated the contractual clearing balance program. The second phase of this initiative will become effective on June 27, 2013, creating a common two-week maintenance period for all depository institutions and replacing carryover and routine waivers with a penalty-free band around reserve balance requirements.

35

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 3.  SECURITIES

Available for sale securities:

The amortized cost, gross unrealized gains and losses and fair values of available for sale securities at December 31, 2012 and 2011 are as follows:

	December 31, 2012
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	55,027	$	1,255	$	(23	)	$	56,259
Government-sponsored enterprises	23,388		579		—			23,967
Mortgage-backed securities:(2)
Agency - residential	69,399		2,211		(66		)	71,544
Non-agency - residential	4,784		52		(124		)	4,712
Non-agency - HELOC	2,555		—		(78		)	2,477
Corporate debt securities	7,555		188		(49		)	7,694
Collateralized debt obligations	5,993		—		(1,597		)	4,396
Obligations of state and political subdivisions	5,152		262		—			5,414
Foreign government securities	50		—		—			50
Total available for sale securities	$	173,903	$	4,547	$	(1,937	)	$	176,513

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

36

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	December 31, 2011
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	88,917	$	770	$	(100	)	$	89,587
Government-sponsored enterprises	17,204		462		—			17,666
Mortgage-backed securities:(2)
Agency - residential	85,552		3,070		(178		)	88,444
Non-agency - residential	7,766		21		(899		)	6,888
Non-agency - HELOC	3,097		—		(559		)	2,538
Corporate debt securities	14,094		240		(287		)	14,047
Collateralized debt obligations	6,275		—		(3,358		)	2,917
Obligations of state and political subdivisions	6,488		278		—			6,766
Tax-exempt securities	70		1		—			71
Foreign government securities	75		—		—			75
Total debt securities	229,538		4,842		(5,381		)	228,999
Equity securities:
Equity securities - financial services	228		1		(24		)	205
Equity securities - other	1,609		96		(95		)	1,610
Total equity securities	1,837		97		(119		)	1,815
Total available for sale securities	$	231,375	$	4,939	$	(5,500	)	$	230,814

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”) Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

At December 31, 2012 and 2011, U.S. government and agency obligations and government-sponsored enterprise securities with an amortized cost of $4.5 million and $5.0 million, respectively, and a fair value of $4.6 million and $5.1 million, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The amortized cost and fair value of debt securities by contractual maturities at December 31, 2012 are presented below.  Actual maturities of mortgage-backed securities ("MBS") may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties.  Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.

	Amortized Cost		Fair Value
	(In Thousands)
Within 1 year	$	8,382	$	8,484
After 1 but within 5 years	25,699		26,475
After 5 but within 10 years	17,223		17,426
After 10 years	45,861		45,395
	97,165		97,780
Mortgage-backed and asset-backed securities	76,738		78,733
Total debt securities	$	173,903	$	176,513

37

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The following is a summary of realized gains and losses on the sale of securities for the years ended December 31, 2012, 2011 and 2010:

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Gross gains on sales	$	798		$	589		$	1,096
Gross losses on sales	(525		)	(103		)	(218		)
Net gain on sale of securities	$	273		$	486		$	878

The tax provision applicable to the above net realized gains amounted to $93,000, $165,000 and $299,000 for the years ended December 31, 2012, 2011 and 2010, respectively.   Proceeds from the sale of available for sale securities totaled $44.0 million, $36.9 million and $40.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The following tables present information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.

	Less Than 12 Months				12 Months or More				Total
December 31, 2012:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	—	$	—	$	1,367	$	23	$	1,367	$	23
Mortgage-backed securities:
Agency - residential	6,923		37		1,404		29		8,327		66
Non-agency - residential	1,926		8		1,417		116		3,343		124
Non-agency - HELOC	—		—		2,477		78		2,477		78
Corporate debt securities	—		—		946		49		946		49
Collateralized debt obligations	—		—		4,396		1,597		4,396		1,597
Total	$	8,849	$	45	$	12,007	$	1,892	$	20,856	$	1,937

38

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	Less Than 12 Months				12 Months Or More				Total
December 31, 2011:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	32,390	$	94	$	415	$	6	$	32,805	$	100
Mortgage-backed securities:
Agency - residential	8,241		111		1,969		67		10,210		178
Non-agency - residential	—		—		5,305		899		5,305		899
Non-agency - HELOC	—		—		2,538		559		2,538		559
Corporate debt securities	3,482		234		946		53		4,428		287
Collateralized debt obligations	—		—		2,917		3,358		2,917		3,358
Equity securities - financial services	169		24		—		—		169		24
Equity securities - other	708		95		—		—		708		95
Total	$	44,990	$	558	$	14,090	$	4,942	$	59,080	$	5,500

For debt securities with OTTI losses, the Company estimated the portion of loss attributable to credit using a discounted cash flow model in accordance with applicable guidance.  Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate.  Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type.  Significant inputs for the collateralized debt obligations included estimated cash flows and prospective deferrals, defaults and recoveries based on the underlying seniority status and subordination structure of the pooled trust preferred debt tranche at the time of measurement.  Prospective deferral, default and recovery estimates affecting projected cash flows were based on an analysis of the underlying financial condition of the individual issuers, with consideration of the account’s capital adequacy, credit quality, lending concentrations and other factors.  All cash flow estimates were based on the securities’ tranche structure and contractual rate and maturity terms.  The Company utilized the services of an independent third-party valuation firm to obtain information about the structure in order to determine how the underlying collateral cash flows will be distributed to each security issued from the structure.  The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss, if any.

To the extent that continued changes in interest rates, credit movements and other factors that influence fair value of investments occur, the Company may be required to record additional impairment charges for OTTI in future periods.

At December 31, 2012, fourteen debt securities with gross unrealized losses had aggregate depreciation of approximately 8.5% of the Company’s amortized cost basis.  The majority of the unrealized losses related to the Company’s collateralized debt obligations and non-agency mortgage-backed securities.  For the years ended December 31, 2012, 2011 and 2010, the Company recognized $123,000, $148,000 and $492,000, respectively, of net impairment charges on investments deemed other-than-temporarily impaired. The following summarizes, by security type, the basis for management’s determination during the preparation of the financial statements of whether the applicable investments within the Company’s securities portfolio were other-than-temporarily impaired at December 31, 2012.

U.S. Government and Agency Obligations.  The unrealized losses on the Company’s U.S. Government and agency obligations related primarily to a widening of the rate spread to comparable treasury securities.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  Because the decline in market value is attributable to changes in interest rates and not

39

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

credit quality, and because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the securities before their anticipated recovery, which may be at maturity, the Company did not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Mortgage-backed Securities - Agency - Residential. The unrealized losses on the Company’s agency–residential mortgage-backed securities were caused by increases in the rate spread to comparable treasury securities. The Company does not expect these securities to settle at a price less than the amortized cost basis of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2012.

Mortgage-backed Securities - Non-agency - Residential.  Despite significant improvement in the market, these securities continue to trade well below historic levels, particularly those backed by jumbo or hybrid loan collateral.  At December 31, 2012, management evaluated credit rating details for the tranche, as well as credit information on subordinate tranches, potential future credit losses and loss analyses.  Additionally, management reviewed reports prepared by an independent third party for certain non-agency mortgage-backed securities. The Company has not recorded any further impairment losses as of December 31, 2012 because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.

The following table details the Company’s non-agency residential mortgage-backed securities that were rated below investment grade at December 31, 2012.

Security	Class (1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (2)	Total Credit- Related OTTI (3)		Credit Support Coverage Ratios (4)
(Dollars in Thousands)
MBS 1	SSNR, AS	$	1,533	$	—	$	(116	)	$	1,417	D	$	197	0.00
MBS 2	PT, AS	198		4		—			202		CCC	—		0.24
		$	1,731	$	4	$	(116	)	$	1,619		$	197

⁽¹⁾Class definitions:  PT - Pass Through, AS - Accelerated, and SSNR - Super Senior.

⁽²⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽³⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

⁽⁴⁾ The credit support coverage ratio, which is the ratio that determines the multiple of credit support, is based on assumptions for the performance of the loans within the delinquency pipeline.  The assumptions used are: current collateral support/((60 day delinquencies x .60)+(90 day delinquencies x .70)+(foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.

Mortgage-backed Securities - Non-agency - HELOC.  The unrealized loss on the Company’s non-agency - HELOC mortgage-backed security is related to one investment grade security whose market has been illiquid.  This security is collateralized by home equity lines of credit secured by first and second liens and insured by Financial Security Assurance.  At December 31, 2012, management evaluated credit rating details, collateral support and loss analyses.  All of the unrealized losses on this security relate to factors other than credit.  Because the Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell this security before the recovery of its amortized cost basis, which may be at maturity, the Company did not record an impairment loss at December 31, 2012.

Corporate Debt Securities. Substantially all of the corporate debt securities are rated investment-grade, including those in an unrealized loss position. Various factors were considered in assessing whether the Company expects to recover the amortized cost of corporate debt securities including, but not limited to, the strength of issuer credit

40

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

ratings, the financial condition of guarantors and the length of time and the extent to which a security's fair value has been less than its amortized cost. Based on management's assessment, the Company expects to recover the entire amortized cost basis of all corporate debt securities that were in an unrealized loss position as of December 31, 2012.

Collateralized Debt Obligations.  The unrealized losses on the Company’s collateralized debt obligations relate to investments in pooled trust preferred securities (“PTPS”).  The PTPS market has stabilized at depressed market values as a result of market saturation.  Transactions for PTPS have been limited and have occurred primarily as a result of distressed or forced liquidation sales. The securities were widely held by hedge funds and European banks and used to offset interest rate exposure tied to LIBOR. As the positions have unwound, an excess supply of these securities have saturated the market.

Management evaluated current credit ratings, credit support and stress testing for future defaults related to the Company’s PTPS.  Management also reviewed analytics provided by the trustee and independent OTTI reviews and associated cash flow analyses performed by an independent third party.  The unrealized losses on the Company’s PTPS investments were caused by a lack of liquidity, credit downgrades and decreasing credit support.  The increased number of bank and insurance company failures has decreased the level of credit support for these investments.  A number of lower tranches have foregone payments or have received payment in kind through increased principal allocations.  However, the number of deferring securities has been decreasing and a number of reinstatements have occurred recently. Based on the existing credit profile of the remainder of the Company's PTPS investments, management does not believe that these investments will suffer from any further credit-related losses.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not record additional impairment losses as of December 31, 2012.  

The following table details the Company’s collateralized debt obligations that were rated below investment grade at December 31, 2012.

Security	Class	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (1)	Total Credit- Related OTTI (2)		% of Current Performing Collateral Coverage
(Dollars in Thousands)
CDO 1	B1	$	1,000	$	—	$	(628	)	$	372	CCC-	$	—	118.6
CDO 2	B3	1,000		—		(612		)	388		CCC-	—		118.6
CDO 3	A2	2,578		—		(150		)	2,428		B-	62		121.0
CDO 4	A1	1,415		—		(207		)	1,208		BB-	—		159.3
		$	5,993	$	—	$	(1,597	)	$	4,396		$	62

⁽¹⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽²⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

41

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The following table presents a roll-forward of the balance of credit losses on the Company’s debt securities for which a portion of OTTI was recognized in other comprehensive income for the years ended December 31, 2012, 2011 and 2010.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,207		$	1,093		$	1,787
Reduction for securities transferred to trading during period	—			—			(1,186		)
Amounts related to credit losses for which OTTI losses were not previously recognized	—			148			—
Additional credit losses for which OTTI losses were previously recognized	123			—			492
Reduction for permanent loss in value of securities during the period	(1,071		)	—			—
Reduction for securities sold during the period (realized)	—			(34		)	—
Balance at end of year	$	259		$	1,207		$	1,093

NOTE 4.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loan Portfolio

The composition of the Company's loan portfolio at December 31, 2012 and 2011 is as follows:

	December 31,
	2012			2011
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	230,664		$	247,426
Multi-family and commercial	201,951			158,384
Construction	3,284			12,290
Total real estate loans	435,899			418,100
Commercial business loans:
SBA and USDA guaranteed	148,385			127,359
Other	65,142			40,442
Total commercial business loans	213,527			167,801
Consumer loans:
Home equity	28,375			27,425
Indirect automobile	9,652			5,733
Other	2,353			2,824
Total consumer loans	40,380			35,982
Total loans	689,806			621,883
Deferred loan origination costs, net of fees	1,744			1,713
Allowance for loan losses	(6,387		)	(4,970		)
Loans receivable, net	$	685,163		$	618,626

The Company purchased commercial business loans totaling $42.9 million and $41.2 million and consumer loans totaling $6.9 million and $5.8 million during 2012 and 2011, respectively.

42

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Residential - 1 to 4 Family			Multi-family and Commercial			Construction			Commercial Business			Consumer			Total
	(In Thousands)
Balance at December 31, 2009	$	1,028		$	2,443		$	221		$	906		$	293		$	4,891
Provision for loan losses	171			464			136			47			84			902
Loans charged-off	(285		)	(221		)	(293		)	(166		)	(50		)	(1,015		)
Recoveries of loans previously charged-off	1			14			—			3			3			21
Balance at December 31, 2010	915			2,700			64			790			330			4,799
Provision for loan losses	530			228			15			588			197			1,558
Loans charged-off	(686		)	(606		)	(83		)	(267		)	(84		)	(1,726		)
Recoveries of loans previously charged-off	—			15			284			37			3			339
Balance at December 31, 2011	759			2,337			280			1,148			446			4,970
Provision (credit) for loan losses	561			1,818			(258		)	556			219			2,896
Loans charged-off	(299		)	(1,267		)	—			—			(251		)	(1,817		)
Recoveries of loans previously charged-off	104			140			—			31			63			338
Balance at December 31, 2012	$	1,125		$	3,028		$	22		$	1,735		$	477		$	6,387

Further information pertaining to the allowance for loan losses at December 31, 2012 and 2011 is as follows:

December 31, 2012	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	454	$	88	$	—	$	39	$	—	$	581
Allowance for loans individually or collectively evaluated and not deemed to be impaired	671		2,940		22		1,696		477		5,806
Total loan loss allowance	$	1,125	$	3,028	$	22	$	1,735	$	477	$	6,387
Loans individually evaluated and deemed to be impaired	$	6,991	$	5,873	$	—	$	618	$	361	$	13,843
Loans individually or collectively evaluated and not deemed to be impaired	223,673		196,078		3,284		212,909		40,019		675,963
Total loans	$	230,664	$	201,951	$	3,284	$	213,527	$	40,380	$	689,806

43

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

December 31, 2011	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	33	$	107	$	—	$	105	$	—	$	245
Allowance for loans individually or collectively evaluated and not deemed to be impaired	726		2,230		280		1,043		446		4,725
Total loan loss allowance	$	759	$	2,337	$	280	$	1,148	$	446	$	4,970
Loans individually evaluated and deemed to be impaired	$	5,590	$	8,650	$	—	$	654	$	316	$	15,210
Loans individually or collectively evaluated and not deemed to be impaired	241,836		149,734		12,290		167,147		35,666		606,673
Total loans	$	247,426	$	158,384	$	12,290	$	167,801	$	35,982	$	621,883

Past Due Loans

The following represents an aging of loans at December 31, 2012 and 2011:

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	3,245	$	1,725	$	3,285	$	8,255	$	222,409	$	230,664
Multi-family and commercial	4,149		—		1,266		5,415		196,536		201,951
Construction	—		—		—		—		3,284		3,284
Commercial Business:
SBA and USDA guaranteed	5,014		1,087		—		6,101		142,284		148,385
Other	—		—		541		541		64,601		65,142
Consumer:
Home equity	216		—		361		577		27,798		28,375
Indirect automobile	19		—		—		19		9,633		9,652
Other	21		—		—		21		2,332		2,353
Total	$	12,664	$	2,812	$	5,453	$	20,929	$	668,877	$	689,806

44

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	4,065	$	995	$	3,835	$	8,895	$	238,531	$	247,426
Multi-family and commercial	292		—		1,703		1,995		156,389		158,384
Construction	—		—		—		—		12,290		12,290
Commercial Business:
SBA and USDA guaranteed	2,729		327		—		3,056		124,303		127,359
Other	—		—		623		623		39,819		40,442
Consumer:
Home equity	—		—		269		269		27,156		27,425
Indirect automobile	—		—		—		—		5,733		5,733
Other	124		—		—		124		2,700		2,824
Total	$	7,210	$	1,322	$	6,430	$	14,962	$	606,921	$	621,883

The Company did not have any loans that were past due 90 days or more and still accruing at December 31, 2012 or 2011.

Impaired and Nonaccrual Loans

The following is a summary of impaired and nonaccrual loans at December 31, 2012 and 2011:

	Impaired Loans
December 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	3,866	$	4,013	$	—	$	3,855
Multi-family and commercial	4,407		4,407		—		1,522
Commercial business - Other	546		546		—		470
Consumer - Home equity	361		435		—		366
Total impaired loans without valuation allowance	9,180		9,401		—		6,213
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	3,125		3,125		454		1,133
Multi-family and commercial	1,466		1,556		88		236
Commercial business - Other	72		72		39		72
Total impaired loans with valuation allowance	4,663		4,753		581		1,441
Total impaired loans	$	13,843	$	14,154	$	581	$	7,654

45

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	Impaired Loans
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	5,232	$	5,536	$	—	$	5,232
Multi-family and commercial	4,757		5,215		—		3,795
Commercial business - Other	31		31		—		31
Consumer	316		331		—		316
Total impaired loans without valuation allowance	10,336		11,113		—		9,374
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	358		358		33		358
Multi-family and commercial	3,893		3,983		107		236
Commercial business - Other	623		623		105		623
Total impaired loans with valuation allowance	4,874		4,964		245		1,217
Total impaired loans	$	15,210	$	16,077	$	245	$	10,591

The Company reviews and establishes, if necessary, an allowance for certain impaired loans for the amount by which the present value of expected cash flows (or observable market price of loan or fair value of the collateral if the loan is collateral dependent) are lower than the carrying value of the loan.  For the periods presented, the Company concluded that certain impaired loans required no valuation allowance as a result of management’s measurement of impairment. No additional funds are committed to be advanced to those borrowers whose loans are deemed impaired.

46

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Additional information related to impaired loans is as follows:

	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In Thousands)
Year Ended December 31, 2012
Residential - 1 to 4 family	$	6,113	$	151	$	126
Multi-family and commercial	8,048		260		32
Commercial business - Other	602		4		2
Consumer - Home equity	413		4		4
Total	$	15,176	$	419	$	164
Year Ended December 31, 2011
Residential - 1 to 4 family	$	5,739	$	64	$	29
Multi-family and commercial	8,035		312		—
Commercial business - Other	421		—		—
Consumer - Home equity	196		—		—
Total	$	14,391	$	376	$	29
Year Ended December 31, 2010
Residential - 1 to 4 family	$	2,979	$	5	$	5
Multi-family and commercial	3,169		155		—
Construction	316		—		—
Commercial business - Other	165		5		5
Total	$	6,629	$	165	$	10

Credit Quality Information

The Company utilizes an eight-grade internal loan rating system for all loans in the portfolio, with the exception of its purchased SBA and USDA commercial business loans that are fully guaranteed by the U.S. government, as follows:

◦ Pass (Ratings 1-4):  Loans in these categories are considered low to average risk.

◦ Special Mention (Rating 5): Loans in this category are starting to show signs of potential weakness and are being closely monitored by management.

◦ Substandard (Rating 6): Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged.  There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

◦ Doubtful (Rating 7):  Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

◦ Loss (Rating 8):  Loans in this category are considered uncollectible and of such little value that their continuance as loans is not warranted.

47

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Management periodically reviews the ratings described above and the Company’s internal audit function reviews components of the credit files, including the assigned risk ratings, of certain commercial loans as part of its loan review.  

The following tables present the Company’s loans by risk rating at December 31, 2012 and 2011.

December 31, 2012	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	222,262	$	723	$	7,679	$	—	$	—	$	230,664
Multi-family and commercial	—		185,141		5,321		11,489		—		—		201,951
Construction	—		3,284		—		—		—		—		3,284
Total real estate loans	—		410,687		6,044		19,168		—		—		435,899
Commercial business loans:
SBA and USDA guaranteed	148,385		—		—		—		—		—		148,385
Other	—		61,047		3,399		696		—		—		65,142
Total commercial business loans	148,385		61,047		3,399		696		—		—		213,527
Consumer loans:
Home equity	—		27,960		—		415		—		—		28,375
Indirect automobile	—		9,652		—		—		—		—		9,652
Other	—		2,353		—		—		—		—		2,353
Total consumer loans	—		39,965		—		415		—		—		40,380
Total loans	$	148,385	$	511,699	$	9,443	$	20,279	$	—	$	—	$	689,806

December 31, 2011	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	240,904	$	769	$	5,753	$	—	$	—	$	247,426
Multi-family and commercial	—		135,859		8,699		13,826		—		—		158,384
Construction	—		11,707		583		—		—		—		12,290
Total real estate loans	—		388,470		10,051		19,579		—		—		418,100
Commercial business loans:
SBA and USDA guaranteed	127,359		—		—		—		—		—		127,359
Other	—		34,788		3,977		1,677		—		—		40,442
Total commercial business loans	127,359		34,788		3,977		1,677		—		—		167,801
Consumer loans:
Home equity	—		27,109		—		316		—		—		27,425
Indirect automobile	—		5,733		—		—		—		—		5,733
Other	—		2,824		—		—		—		—		2,824
Total consumer loans	—		35,666		—		316		—		—		35,982
Total loans	$	127,359	$	458,924	$	14,028	$	21,572	$	—	$	—	$	621,883

48

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Troubled Debt Restructurings

A modified loan is considered a TDR when two conditions are met: 1) the borrower is experiencing documented financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower with similar risk characteristics. The most common types of modifications include below market interest rate reductions, deferrals of principal and maturity extensions. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is handled by the Company's Collections Department for resolution, which may result in foreclosure. The Company's determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification.

The Company's nonaccrual policy is followed for TDRs. If the loan was current prior to modification, nonaccrual status would not be required. If the loan was on nonaccrual prior to modification or if the payment amount significantly increases, the loan will remain on nonaccrual for a period of at least six months. Loans qualify for return to accrual status once the borrower has demonstrated the willingness and the ability to perform in accordance with the restructured terms of the loan agreement for a period of not less than six consecutive months.

All TDRs are initially reported as impaired. Impaired classification may be removed after the year of restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar risk characteristics at the time of restructuring.

The following table provides information on loans modified as a TDR during the years ended December 31, 2012 and 2011.

	For Years Ended December 31,
	2012					2011
				Allowance for					Allowance for
	Number	Recorded		Loan Losses		Number	Recorded		Loan Losses
	of Loans	Investment		(End of Period)		of Loans	Investment		(End of Period)
	(Dollars in Thousands)
Residential - 1 to 4 family	16	$	2,507	$	296	—	$	—	$	—
Multi-family and commercial	1	77		—		3	2,130		12
Total	17	$	2,584	$	296	3	$	2,130	$	12

During the modification process, there were no loan charge-offs or principal reductions for loans included in the table above for all periods presented.

49

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The following table provides the recorded investment, by type of modification, for loans identified as TDRs and modified during the years ended December 31, 2012 and 2011.

	Years Ended December 31,
	2012		2011
	(In Thousands)
Interest rate adjustments	$	917	$	—
Principal deferrals (1)	—		443
Combination of rate and payment (2)	869		1,687
Combination of rate and maturity (3)	721		—
Maturity only	77		—
Total	$	2,584	$	2,130

⁽¹⁾ Terms of modification include temporary interest-only payments with deferral of principal.

⁽²⁾ Terms include combination of interest rate adjustments and interest-only payments with deferral of principal.

⁽³⁾ Terms include combination of interest rate adjustments and extensions of maturity.

For the year ended December 31, 2012, there were no troubled debt restructurings that were in payment default (defined as 90 days or more past due). For the year ended December 31, 2011, one commercial real estate loan totaling $437,000 included in the above table was in payment default. A partial loan charge-off in the amount of $458,000 was recorded on the aforementioned loan during 2011. This loan was paid in full during 2012 and therefore, is no longer in default at December 31, 2012.

Related Party Loans

Related party transactions, including loans with related parties, are discussed in further detail in Note 13.

Loans Held for Sale

Total loans held for sale amounted to $5.1 million and $5.6 million, consisting of fixed-rate residential mortgage loans, at December 31, 2012 and 2011, respectively.

Loans Serviced for Others

The Company services certain loans that it has sold with and without recourse to third parties and other loans for which the Company acquired the servicing rights.  Loans serviced for others are not included in the Company’s consolidated balance sheets.  The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was determined using a discount rate of 11.49%, PSA prepayment speeds ranging from 202% to 575% and minimal anticipated credit losses. At December 31, 2012, 2011 and 2010, the aggregate of loans serviced for others amounted to $195.5 million, $178.5 million and $148.6 million, respectively.

The following summarizes mortgage servicing rights capitalized and amortized.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,177		$	977		$	740
Additions	427			460			439
Amortization	(291		)	(260		)	(202		)
Balance at end of year	$	1,313		$	1,177		$	977
Fair value of mortgage servicing assets	$	1,349		$	1,462		$	1,456

50

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Contractually specified servicing fees included in loan servicing fee income were$531,000, $463,000 and $374,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

NOTE 5.  OTHER REAL ESTATE OWNED

At December 31, 2012, other real estate owned consisted of three residential and three commercial real estate properties. At December 31, 2011, other real estate owned consisted of four residential and two commercial real estate properties which were held for sale. A summary of expenses applicable to other real estate operations for the years ended December 31, 2012, 2011 and 2010, is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Net loss from sales or write-downs of other real estate owned, net	$	60	$	236	$	534
Other real estate expense, net of rental income	441		540		296
Expense from other real estate operations, net	$	501	$	776	$	830

NOTE 6.  PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2012 and 2011 are summarized as follows:

	December 31,
	2012			2011
	(In Thousands)
Land	$	2,098		$	2,098
Buildings	7,052			6,660
Leasehold improvements	7,563			7,822
Furniture and equipment	10,867			12,272
Construction in process	84			20
	27,664			28,872
Accumulated depreciation and amortization	(16,448		)	(16,221		)
Premises and equipment, net	$	11,216		$	12,651

At December 31, 2012, construction in process related to design and site costs associated with a new branch location for which there was an outstanding commitment for the purchase of land totaling $450,000.  At December 31, 2011, there were no outstanding commitments for the construction of new branches.

Depreciation and amortization expense was $1.9 million, $1.9 million and $2.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.  See Note 12 for a schedule of future minimum rental commitments pursuant to the terms of noncancelable lease agreements.

51

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 7.  GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill for the years ended December 31, 2012, 2011 and 2010 is summarized as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Balance at beginning of year	$	4,094		$	4,094	$	4,131
Impairment	—			—		(37		)
Disposal of SI Trust Servicing	(643		)	—		—
Balance at end of year	$	3,451		$	4,094	$	4,094

At December 31, 2012, the Company’s goodwill relates to two branch locations acquired in 2008.  During 2012, the Company sold its SI Trust Servicing operations and, in connection with the sale, disposed of the associated goodwill. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment.  As a result of the Company’s goodwill impairment evaluation, the Company recorded goodwill impairment of $37,000 relating to the Colchester branch acquisition during the year ended December 31, 2010. No goodwill impairment was recorded for the years ended December 31, 2012 and 2011.

Core Deposit Intangibles

In connection with the assumption of $18.4 million of deposit liabilities from the Colchester, Connecticut branch office acquisition in January 2008, the Bank recorded a core deposit premium intangible of $159,000.  The resulting core deposit premium intangible was amortized over five years using the sum-of-the-years-digits method.  Core deposit intangibles are summarized as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Core deposit intangible	$	159		$	159
Accumulated amortization	(159		)	(148		)
Core deposit intangible, net	$	—		$	11

Amortization expense was $11,000, $21,000 and $32,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

52

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 8.  DEPOSITS

A summary of deposit balances, by type, at December 31, 2012 and 2011 is as follows:

	December 31,
	2012		2011
	(In Thousands)
Noninterest-bearing demand deposits	$	89,834	$	85,958
Interest-bearing accounts:
Business checking	2		—
NOW and money market accounts	300,050		306,002
Savings accounts	38,026		37,329
Certificates of deposit (1)	277,236		272,637
Total interest-bearing accounts	615,314		615,968
Total deposits	$	705,148	$	701,926

^{( 1)} Includes brokered deposits of $4.2 million and $4.0 million at December 31, 2012 and 2011, respectively.

Certificates of deposit in denominations of $100,000 or more were $112.4 million and $99.5 million at December 31, 2012 and 2011, respectively. Effective July 21, 2010, with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FDIC permanently raised deposit insurance levels to $250,000 per depositor.  Prior to the increase, deposits in excess of $100,000, with the exception of self-directed retirement accounts which are insured up to $250,000, were not federally insured.

Contractual maturities of certificates of deposit as of December 31, 2012 are summarized below (in thousands).

2013	$	135,113
2014	56,675
2015	49,568
2016	15,418
2017	14,293
Thereafter	6,169
Total certificates of deposit	$	277,236

A summary of interest expense, by account type, for the years ended December 31, 2012, 2011 and 2010 is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
NOW and money market accounts	$	627	$	1,294	$	1,618
Savings accounts (1)	106		197		295
Certificates of deposit (2)	5,286		5,771		7,524
Total	$	6,019	$	7,262	$	9,437

⁽¹⁾ Includes interest expense on mortgagors' and investors' escrow accounts.

⁽²⁾ Includes interest expense on brokered deposits.

Related Party Deposits

Reference Note 13 for a discussion of related party transactions, including deposits from related parties.

53

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 9.  BORROWINGS

Federal Home Loan Bank Advances

As a member of the FHLB, the Bank has access to a pre-approved secured line of credit with the FHLB of $10.0 million and the capacity to obtain additional advances up to a certain percentage of the value of its qualified collateral, as defined in the FHLB Statement of Credit Policy.  FHLB advances are secured by qualified collateral, which is based on a percentage of its outstanding residential first mortgage loans.  In accordance with an agreement with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.  At December 31, 2012 and 2011, there were no advances outstanding under the line of credit.  Other outstanding advances from the FHLB aggregated $98.1 million and $100.1 million at December 31, 2012 and 2011, respectively, at interest rates ranging from 0.80% to 4.97% and 1.56% to 4.97%, respectively.

Junior Subordinated Debt Owed to Unconsolidated Trust

SI Capital Trust II (the “Trust”), a wholly-owned subsidiary of the Company, was formed on August 31, 2006.  The Trust had no independent assets or operations, and was formed to issue $8.0 million of trust securities and invest the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company.  The trust preferred securities mature in 2036 and bear interest at three-month LIBOR plus 1.70%.  The Company may redeem the trust preferred securities, in whole or in part.

The Company entered into an interest rate swap agreement on July 1, 2010 to effectively convert the floating rate interest on its junior subordinated debentures to a fixed interest rate.  See Note 17 for a discussion of derivative instruments and hedging activities.

The subordinated debt securities are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company.  The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities.  If the Company defers interest payments on the junior subordinated debt securities, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders.

The contractual maturities of borrowings, by year, at December 31, 2012 are as follows:

	FHLB Advances			Subordinated Debt			Total
	(Dollars in Thousands)
2013	$	21,000		$	—		$	21,000
2014	24,000			—			24,000
2015	26,069			—			26,069
2016	18,000			—			18,000
2017 (1)	5,000			—			5,000
Thereafter (2)	4,000			8,248			12,248
Total	$	98,069		$	8,248		$	106,317
Weighted average rate	3.25		%	4.14		%	3.32		%

⁽¹⁾ Includes FHLB advance of $3.0 million that is callable during 2013.

⁽²⁾ Includes FHLB advance of $2.0 million that is callable during 2013.

54

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 10.  INCOME TAXES

The components of the income tax provision for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Current income tax provision:
Federal	$	1,338		$	108	$	1,648
State	3			4		20
Total current income tax provision	1,341			112		1,668
Deferred income tax (benefit) provision:
Federal	(1,100		)	891		(355		)
Total deferred income tax (benefit) provision	(1,100		)	891		(355		)
Total income tax provision	$	241		$	1,003	$	1,313

A reconciliation of the anticipated income tax provision, based on the statutory tax rate of 34.0%, to the income tax provision as reported in the consolidated statements of income is as follows:

	Years Ended December 31,
	2012			2011			2010
	(Dollars in Thousands)
Income tax provision at statutory tax rate	$	462		$	1,162		$	1,467
Increase (decrease) resulting from:
Dividends received deduction	(2		)	(13		)	(3		)
Bank-owned life insurance	(215		)	(139		)	(99		)
Tax-exempt income	(26		)	(39		)	(13		)
Compensation and employee benefit plans	81			35			61
Nondeductible expenses	5			8			6
Tax credits/adjustments	(63		)	—			—
Change in valuation allowance	—			—			(90		)
State taxes, net of federal tax benefit	2			2			13
Other	(3		)	(13		)	(29		)
Total income tax provision	$	241		$	1,003		$	1,313
Effective tax rate	17.8		%	29.3		%	30.4		%

55

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
	2012			2011
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,303		$	1,852
Unrealized losses on available for sale securities	659			1,870
Depreciation of premises and equipment	765			572
Other-than-temporary impairment	452			435
Impairment - long lived asset	133			—
Charitable contribution carry-forward	14			153
Deferred compensation	2,313			2,064
Employee benefit plans	380			348
Capital loss carry-forward	65			—
Interest receivable on nonaccrual loans	159			107
Deferred other real estate owned expenses	38			137
Net unrealized loss on derivative instruments	284			159
Other	290			205
Total deferred tax assets	7,855			7,902
Less valuation allowance	(49		)	(49		)
Total deferred tax assets, net of valuation allowance	7,806			7,853
Deferred tax liabilities:
Unrealized gains on available for sale securities	1,546			1,679
Goodwill and other intangibles	330			319
Deferred loan costs	844			841
Mortgage servicing asset	447			400
Total deferred tax liabilities	3,167			3,239
Deferred tax asset, net	$	4,639		$	4,614

Due to the uncertainties of realization, the Company maintains a valuation allowance of $49,000 related to other-than-temporary impairment losses on certain securities at December 31, 2012.  At December 31, 2012 and 2011, the Company maintained a charitable contribution carry-forward, primarily related to a cash contribution paid to SI Financial Group Foundation, Inc. in 2011.  The utilization of charitable contributions for any tax year is limited to 10% of taxable income without regard to charitable contributions, net operating losses and dividend received deductions.  An organization is permitted to carry over contributions that exceed the annual 10% limitation as a deduction to the five succeeding tax years provided the organization has sufficient earnings.  

Retained earnings at December 31, 2012 and 2011 includes a contingency reserve for loan losses of $3.7 million, which represents the tax reserve balance existing at December 31, 1987, and is maintained in accordance with provisions of the Internal Revenue Code applicable to savings banks.  Amounts transferred to the reserve have been claimed as deductions from taxable income, and, if the reserve is used for purposes other than to absorb losses on loans, a federal income tax liability could be incurred.  It is not anticipated that the Company will incur a federal income tax liability relating to this reserve balance, and accordingly, deferred income taxes of approximately $1.3 million at December 31, 2012 and 2011 have not been recognized.

56

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Financial service companies doing business in Connecticut are permitted to establish a “passive investment company” (“PIC”) to hold and manage loans secured by real property.  PICs are exempt from Connecticut corporation business tax, and dividends received by the financial services companies from PICs are not taxable.  In January 1999, the Bank established a PIC, as a wholly-owned subsidiary, and in June 2000, transferred a portion of its residential and commercial mortgage loan portfolios from the Bank to the PIC.  A substantial portion of the Company’s interest income is now derived from the PIC, an entity whose net income is exempt from State of Connecticut taxes, and accordingly, state income taxes are minimal.  The Bank’s ability to continue to realize the tax benefits of the PIC is subject to the PIC continuing to comply with all statutory requirements related to the operations of the PIC.

With limited exception, the Company is no longer subject to United States federal, state and local income tax examinations by the tax authorities for the years prior to 2009.

NOTE 11.  BENEFIT PLANS

Profit Sharing and 401(k) Savings Plan

The Bank’s Profit Sharing and 401(k) Savings Plan (the “Plan”) is a tax-qualified defined contribution plan for the benefit of its eligible employees.  The Bank’s profit sharing contribution to the Plan is a discretionary amount authorized by the Board of Directors, based on the financial results of the Bank.  An employee’s share of the profit sharing contribution represents the ratio of the employee’s salary to the total salary expense of the Bank. Participants vest in the Bank’s discretionary profit sharing contributions based on years of service, with 100% vesting attained upon five years of service.  There were no profit sharing contributions for the years ended December 31, 2012, 2011 and 2010.

The Plan also includes a 401(k) feature.  Eligible participants may make salary deferral contributions of up to 100% of earnings subject to Internal Revenue Services limitations.  The Bank makes matching contributions equal to 50% of the participants’ contributions up to 6% of the participants’ earnings.  Participants are immediately vested in their salary deferral contributions, employer matching contributions and earnings thereon.  Bank contributions were $248,000, $260,000 and $263,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Group Term Replacement Plan

The Bank maintains the Group Term Replacement Plan to provide a death benefit to executives designated by the Compensation Committee of the Board of Directors.  The death benefits are funded through certain insurance policies that are owned by the Bank on the lives of the participating executives.  The Bank pays the life insurance premiums, which fund the death benefits from its general assets, and is the beneficiary of any death benefits exceeding any executive’s maximum dollar amount specified in his or her split-dollar endorsement policy.  The maximum dollar amount of each executive’s split-dollar death benefit equals three times the executive’s annual compensation less amount of pre-retirement life insurance benefit and three times final annual compensation post-retirement not to exceed a specified dollar amount.  For purposes of the plan, annual compensation includes an executive’s base compensation, commissions and cash bonuses earned under the Bank’s bonus plan.  Participation in the plan ceases if an executive is terminated for cause or the executive terminates employment for reasons other than death, disability or retirement.  If the Bank wishes to maintain the insurance after a participant’s termination in the plan, the Bank will be the direct beneficiary of the entire death proceeds of the insurance policies. Total expense recognized under this plan was $47,000, $40,000 and $89,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

57

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Executive Supplemental Retirement Agreements – Defined Benefit

The Bank maintains unfunded supplemental defined benefit retirement agreements with its directors and members of senior management.  These agreements provide for supplemental retirement benefits to certain executives based upon average annual compensation and years of service.  Entitlement of benefits commence upon the earlier of the executive’s termination of employment (other than for cause), at or after attaining age 65 or, depending on the executive, on the date when the executive’s years of service and age total 80 or 78.  Total expense incurred under these agreements for the years ended December 31, 2012, 2011 and 2010 was $725,000, $882,000 and $810,000, respectively.

Performance-Based Incentive Plan

The Bank has an incentive plan whereby all employees are eligible to receive a bonus tied to both the Company and individual performance.  Non-discretionary contributions to the plan require the approval of the Board of Directors’ Compensation Committee.  Total expense recognized was $339,000, $366,000 and $534,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Supplemental Executive Retirement Plan

The Bank maintains the Supplemental Executive Retirement Plan to provide restorative payments to executives, designated by the Board of Directors, who are prevented from receiving the full benefits of the Bank’s Profit Sharing and 401(k) Savings Plan and Employee Stock Ownership Plan.  The supplemental executive retirement plan also provides supplemental benefits to participants upon a change in control prior to the complete scheduled repayment of the ESOP loan.  For the years ended December 31, 2012, 2011 and 2010, the President and Chief Executive Officer was designated by the Board of Directors to participate in the plan.  Total expense incurred under this plan was $19,000, $11,000 and $11,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Employee Stock Ownership Plan

In September 2004, the Bank established an ESOP for the benefit of its eligible employees.  The Company provided a loan to the Savings Institute Bank and Trust Company Employee Stock Ownership Plan of $4.9 million which was used to purchase 492,499 shares of the Company’s outstanding stock.  The loan bears interest equal to 4.75% and provides for annual payments of interest and principal over the 15-year term of the loan.

In January 2011, the Company completed its public stock offering. At that time, the Company provided an additional loan to the Savings Institute Bank and Trust Employee Stock Ownership Plan of $3.1 million, which was used to purchase 392,670 shares of the Company's common stock. The new loan bears interest equal to 3.25% and provides for annual payments of interest and principal over the 20-year term of the loan.

At December 31, 2012, the remaining principal balance on the ESOP debt is payable as follows (in thousands):

2013	$	455
2014	475
2015	495
2016	516
2017	539
Thereafter	3,120
Total	$	5,600

58

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loans.  The loans are secured by the shares purchased, which are held in a suspense account for allocation among participants as the loans are repaid.  Shares held by the ESOP include the following at December 31, 2012 and 2011:

	December 31,
	2012		2011
	(Dollars In Thousands)
Allocated	184,674		158,431
Committed to be allocated	48,637		48,637
Unallocated	556,438		605,075
Total shares	789,749		812,143
Fair value of unallocated shares	$	6,399	$	5,960

Total compensation expense recognized in connection with the ESOP was $543,000, $467,000 and $202,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Equity Incentive Plans

The Company's equity incentive plans consist of stock options and shares of restricted stock that may be granted to its employees, officers, directors and directors emeritus.  Both incentive stock options and non-statutory stock options may be granted under these plans.  The 2005 Equity Incentive Plan allows the Company to grant up to 552,891 stock options and 221,154 shares of restricted stock. The 2012 Equity Incentive Plan allows the Company to grant up to 504,794 stock options and 201,918 shares of restricted stock.  All options have a contractual life of ten years and vest equally over a period of five years beginning on the first anniversary of the date of grant.  Under the 2012 Equity Incentive Plan, both performance and time-based restricted stock awards may be granted under the plan. At December 31, 2012, a total of 150,290 stock options and 33,918 shares of restricted stock were available for future grants under the plans.  

For the years ended December 31, 2012, 2011 and 2010, the Company recognized share-based compensation expense related to the stock option and restricted stock awards of $189,000, $100,000 and $257,000, respectively.

The Company granted stock options totaling 412,500, 67,500 and 62,861 during the years ended December 31, 2012, 2011 and 2010, respectively. The number of shares granted during 2010 is reflective of the conversion exchange rate of 0.8981. The fair value of each option was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

	2012			2011			2010
Expected term (years)	10.00			10.00			10.00
Expected dividend yield	1.45		%	1.70		%	1.50		%
Expected volatility	24.06		%	39.27		%	38.98		%
Risk-free interest rate	1.86		%	3.36		%	3.70		%
Fair value of options granted	$	2.96		$	4.04		$	2.55

The expected term was based on the estimated life of the stock options.  The dividend yield assumption was based on the Company’s historical and expected dividend pay-outs.  The expected volatility represents the Company’s historical volatility.  The risk-free interest rate was based on the implied yields of U.S. Treasury zero-coupon issues for periods within the contractual life of the awards in effect at the time of the stock option grants.

59

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The following is a summary of activity for the Company’s stock options for the year ended December 31, 2012:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Options outstanding at beginning of year	505,887		$	10.47
Options granted	412,500		11.03
Options exercised	(1,796	)	5.68
Options forfeited	(10,992	)	10.40
Options outstanding at end of year	905,599		10.73		6.51
Options exercisable at end of year	407,682		11.06		2.97

There were 1,796 options exercised during the year ended December 31, 2012 and no options were exercised during the year ended December 31, 2011.  The intrinsic value of stock options outstanding and exercisable at December 31, 2012 was $764,000 and $247,000, respectively.  At December 31, 2012, there was $1.2 million of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 2.5 years.

The following table presents the summary of activity for the Company’s unvested restricted shares for the year ended December 31, 2012.

	Shares		Weighted Average Grant Date Fair Value
Unvested restricted shares at beginning of year	7,184		$	6.22
Restricted shares granted	168,000		11.01
Restricted shares vested	(2,082	)	5.73
Unvested restricted shares at end of year	173,102		10.87

At December 31, 2012, there were 33,918 shares available for future grants.  The aggregate fair value of restricted stock awards that vested during the years ended December 31, 2012, 2011 and 2010 was $23,000, $15,000 and $281,000, respectively.  At December 31, 2012, there was $1.8 million of total unrecognized compensation costs related to unvested restricted stock awards granted under the incentive plans, which are expected to be recognized over a weighted average period of 2.7 years.

Bank-Owned Life Insurance

The Company has an investment in, and is the beneficiary of, life insurance policies on the lives of certain officers.  The purpose of these life insurance investments is to provide income through the appreciation in cash surrender value of the policies, which is used to offset the costs of various benefit and retirement plans.  The Company’s investment in bank-owned life insurance does not exceed the regulatory limitation of 25 percent of Tier 1 capital plus the allowance for loan and lease losses.  The aggregate cash surrender value of all policies owned by the Company amounted to $9.1 million and $9.0 million at December 31, 2012 and 2011, respectively. Income earned on these life insurance policies aggregated $284,000, $289,000 and $290,000 for the years ended December 31, 2012, 2011 and 2010, respectively.The Company recognized gains of $349,000 and $122,000 on death benefit proceeds received from a bank-owned life insurance policy during the years ended December 31,

60

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

2012 and 2011, respectively. There were no gains recognized on death benefit proceeds received during the year ended December 31, 2010.

NOTE 12.  OTHER COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments and contingencies that are not reflected in the accompanying consolidated financial statements.  The Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheets.  The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Loan Commitments and Letters of Credit

The contractual amounts of commitments to extend credit represent the amount of potential loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral be determined as 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 December 31, 2012 and 2011 were as follows:

	December 31,
	2012		2011
	(In Thousands)
Commitments to extend credit:
Future loan commitments	$	11,123	$	31,211
Undisbursed construction loans	3,406		5,673
Undisbursed home equity lines of credit	23,019		23,172
Undisbursed commercial lines of credit	23,842		17,995
Overdraft protection lines	1,190		1,190
Standby letters of credit	611		34
Total commitments	$	63,191	$	79,275

Future loan commitments at December 31, 2012 and 2011 included fixed rate loan commitments of $10.6 million and $16.0 million, respectively, at interest rates ranging from 2.63% to 7.00% and 3.00% to 6.25%, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The Company evaluates each customer's creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies but may include residential and commercial property, accounts receivable, inventory, property, plant and equipment, deposits and securities.

Undisbursed commitments under construction, home equity or commercial lines of credit are commitments for future extensions of credit to existing customers.  Total undisbursed amounts on lines of credit may expire without being fully drawn upon and therefore, do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Letters of credit are primarily issued to support public or private borrowing arrangements.  Essentially all letters of credit issued have expiration dates within one year.

61

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Operating Lease Commitments

The Company leases certain of its branch offices and equipment under operating lease agreements that expire at various dates through 2028.  At December 31, 2012, future minimum rental commitments pursuant to the terms of noncancelable lease agreements, by year and in the aggregate, are as follows (in thousands):

2013	$	1,277
2014	1,275
2015	1,095
2016	929
2017	763
Thereafter	4,924
Total	$	10,263

Certain leases contain options to extend for periods of 5 to 20 years.  The cost of such extensions is not included in the above amounts.  Rental expense charged to operations for cancelable and noncancelable operating leases was $1.3 million, $1.4 million and $1.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Legal Matters

Various legal claims arise from time to time in the normal course of business.  Management believes that the resolution of these matters will not have a material effect on the Company’s financial condition or results of operations.

Investment Commitments

The Bank is a limited partner in three SBICs and committed to contribute capital of $3.0 million to the limited partnerships.  The Bank recognized write-downs totaling $72,000 and $12,000 on its investment in the SBICs during the years ended December 31, 2011 and 2010, respectively.  There were no write-downs on the Bank's investment in SBICs during the year ended December 31, 2012. The SBICs, with a combined net book value of $1.3 million and $746,000 at December 31, 2012 and 2011, respectively, net of impairment charges and distributions are included in other assets. At December 31, 2012, the Bank’s remaining off-balance sheet commitment for capital investment in the SBICs was $934,000.

NOTE 13.  RELATED PARTY TRANSACTIONS

Loans Receivable

In the normal course of business, the Bank grants loans to related parties.  Related parties include directors and certain officers of the Company and its subsidiaries and their immediate family members and respective affiliates in which they have a controlling interest.  These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with customers, and did not involve more than the normal risk of collectibility.  At December 31, 2012 and 2011, all related party loans were performing in accordance with their terms.

62

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

Changes in loans outstanding to such related parties during the years ended December 31, 2012 and 2011 are as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Balance at beginning of year	$	2,063		$	2,038
Additions	362			247
Repayments	(477		)	(222		)
Balance at end of year	$	1,948		$	2,063

Deposits

Deposit accounts of directors, certain officers and other related parties aggregated $1.3 million and $1.2 million at December 31, 2012 and 2011, respectively.

NOTE 14.  REGULATORY CAPITAL

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to total assets (as defined).  As of December 31, 2012 and 2011, the Bank met the conditions to be classified as “well capitalized” under the regulatory framework for prompt corrective action.  There are no conditions or events since then that management believes have changed the Bank’s regulatory category.  As a savings and loan holding company regulated by the FRB, the Company is not currently subject to any separate regulatory capital requirements. The Dodd-Frank Act, however, requires the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, quantitatively in terms of components of capital, than those applicable to institutions themselves. There is a five-year transition period before the capital requirements will apply to savings and loan holding companies.

63

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The Bank's actual capital amounts and ratios at December 31, 2012 and 2011 were as follows:

December 31, 2012	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	103,547	11.08	%	$	37,382	4.00	%	$	46,727	5.00	%
Tier I Risk-based Capital Ratio	103,547		20.20		20,504		4.00		30,757		6.00
Total Risk-based Capital Ratio	109,751		21.41		41,009		8.00		51,262		10.00
Tangible Equity Ratio	103,547		11.08		14,018		1.50		N/A		N/A

December 31, 2011	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	101,574	10.86	%	$	37,412	4.00	%	$	46,765	5.00	%
Tier I Risk-based Capital Ratio	101,574		21.09		19,265		4.00		28,897		6.00
Total Risk-based Capital Ratio	106,997		22.21		38,540		8.00		48,175		10.00
Tangible Equity Ratio	101,574		10.86		14,030		1.50		N/A		N/A

Reconciliations of the Company’s total capital to the Bank’s regulatory capital are as follows:

	December 31,
	2012			2011
	(In Thousands)
Total capital per consolidated financial statements	$	125,759		$	130,517
Holding company equity not available for regulatory capital	(15,811		)	(24,495		)
Accumulated (gains) losses on available for sale securities	(1,619		)	477
Intangible assets	(3,451		)	(3,729		)
Disallowed servicing asset	(100		)	—
Disallowed deferred tax asset	(1,231		)	(1,196		)
Total tier 1 capital	103,547			101,574
Adjustments for total capital:
Allowance for loan and credit losses	6,204			5,423
Total capital per regulatory reporting	$	109,751		$	106,997

64

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 15.  OTHER COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities are reported as a separate component of shareholders' equity on the balance sheet, such items along with net income are components of comprehensive income.

Components of other comprehensive income and related tax effects are as follows:

	Year Ended December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	1,905		$	(647	)	$	1,258
Reclassification adjustment for gains realized in net income	(273		)	93			(180		)
Credit portion of OTTI losses recognized in net income	123			(42		)	81
Noncredit portion of OTTI gains on available for sale securities	1,416			(482		)	934
Unrealized holding gains on available for sale securities,  net of taxes	3,171			(1,078		)	2,093
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(8		)	3			(5		)
Other comprehensive income	$	3,163		$	(1,075	)	$	2,088

	Year Ended December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	3,058		$	(1,040	)	$	2,018
Reclassification adjustment for gains realized in net income	(486		)	165			(321		)
Credit portion of OTTI losses recognized in net income	148			(50		)	98
Noncredit portion of OTTI losses on available for sale securities	(1,730		)	588			(1,142		)
Unrealized holding gains on available for sale securities,  net of taxes	990			(337		)	653
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(333		)	113			(220		)
Other comprehensive income	$	657		$	(224	)	$	433

65

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	Year Ended December 31, 2010
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding losses on available for sale securities	$	(87	)	$	29		$	(58	)
Reclassification adjustment for gains realized in net income	(878		)	299			(579		)
Credit portion of OTTI losses recognized in net income	492			(167		)	325
Noncredit portion of OTTI gains on available for sale securities	1,554			(528		)	1,026
Unrealized holding gains on available for sale securities,  net of taxes	1,081			(367		)	714
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(129		)	44			(85		)
Other comprehensive income	$	952		$	(323	)	$	629

The components of accumulated other comprehensive income (loss) included in shareholders’ equity are as follows:

	December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	2,876		$	(977	)	$	1,899
Noncredit portion of OTTI losses on available for sale securities	(266		)	90			(176		)
Net unrealized loss on effective cash flow hedging derivative	(470		)	160			(310		)
Accumulated other comprehensive income	$	2,140		$	(727	)	$	1,413

	December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	1,121		$	(381	)	$	740
Noncredit portion of OTTI losses on available for sale securities	(1,682		)	572			(1,110		)
Net unrealized loss on effective cash flow hedging derivative	(462		)	157			(305		)
Accumulated other comprehensive loss	$	(1,023	)	$	348		$	(675	)

NOTE 16.  FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

66

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The following methods and assumptions were used by the Company in estimating fair value disclosures of its financial instruments:

◦ Cash and cash equivalents.The carrying amounts of cash and short-term instruments approximate the fair values based on the short-term nature of the assets.

◦ Securities available for sale.  Included in the available for sale category are both debt and equity securities.  The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. The Company utilizes a nationally-recognized third-party pricing service to estimate fair value measurements for the majority of its portfolio.  The pricing service evaluates each asset class based on relevant market information considering observable data, but these prices do not represent binding quotes.  The fair value prices on all investments are reviewed for reasonableness by management.  Securities measured at fair value in Level 3 include collateralized debt obligations that are backed by trust preferred securities issued by banks, thrifts and insurance companies. Management determined that an orderly and active market for these securities and similar securities did not exist based on a significant reduction in trading volume and widening spreads relative to historical levels. The Company estimates future cash flows discounted using a rate management believes is representative of current market conditions.  Factors in determining the discount rate include the current level of deferrals and/or defaults, changes in credit rating and the financial condition of the debtors within the underlying securities, broker quotes for securities with similar structure and credit risk, interest rate movements and pricing for new issuances.

◦ Federal Home Loan Bank stock.  The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

◦ Loans held for sale.  The fair value of loans held for sale is estimated using quoted market prices.

◦ Loans receivable.  For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values.  The fair value of fixed-rate loans are estimated by discounting the future cash flows using the rates at the end of the period in which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

◦ Accrued interest receivable.  The carrying amount of accrued interest approximates fair value.

◦ Deposits.  The fair value of demand deposits, negotiable orders of withdrawal, regular savings, certain money market deposits and mortgagors’ and investors’ escrow accounts is the amount payable on demand at the reporting date.  The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits.

◦ Federal Home Loan Bank advances.  The fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances.

◦ Junior subordinated debt owed to unconsolidated trust.  Rates currently available for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

◦ Interest rate swap agreements.  The fair value of the Company’s interest rate swaps are obtained from a third-party pricing service and are determined using a discounted cash flow analysis on the expected cash

67

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

flows of the derivative.  The pricing analysis is based on observable inputs for the contractual term of the derivative, including the period to maturity and interest rate curves.

◦ Forward loan sale commitments and derivative loan commitments.  Forward loan sale commitments and derivative loan commitments are based on the fair values of the underlying mortgage loans, including the servicing rights for derivative loan commitments, and the probability of such commitments being exercised.  Significant management judgment and estimation is required in determining these fair value measurements.

◦ Off-balance sheet instruments.  Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011.  The Company had no significant transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2012 and 2011.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,035	$	55,224	$	—	$	56,259
Government-sponsored enterprises	—		23,967		—		23,967
Mortgage-backed securities	—		78,733		—		78,733
Corporate debt securities	—		7,694		—		7,694
Collateralized debt obligations	—		—		4,396		4,396
Obligations of state and political subdivisions	—		5,414		—		5,414
Foreign government securities	—		50		—		50
Forward loan sale commitments and derivative loan commitments	—		—		17		17
Total assets	$	1,035	$	171,082	$	4,413	$	176,530
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	4	$	4
Interest rate swap agreements	—		849		—		849
Total liabilities	$	—	$	849	$	4	$	853

68

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,051	$	88,536	$	—	$	89,587
Government-sponsored enterprises	—		17,666		—		17,666
Mortgage-backed securities	—		97,870		—		97,870
Corporate debt securities	—		14,047		—		14,047
Collateralized debt obligations	—		—		2,917		2,917
Obligations of state and political subdivisions	—		6,766		—		6,766
Tax-exempt securities	—		71		—		71
Foreign government securities	—		75		—		75
Equity securities	1,815		—		—		1,815
Forward loan sale commitments and derivative loan commitments	—		—		82		82
Total assets	$	2,866	$	225,031	$	2,999	$	230,896
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	90	$	90
Interest rate swap agreement	—		462		—		462
Total liabilities	$	—	$	462	$	90	$	552

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets (liabilities):

	Collateralized Debt Obligations			Derivatives and Forward Loan Sale Commitments, Net
	(In Thousands)
Balance at December 31, 2010	$	2,780		$	(21	)
Total realized and unrealized gains included in net income	120			13
Total unrealized gains included in other comprehensive income	491			—
Sales	(474		)	—
Balance at December 31, 2011	2,917			(8		)
Total unrealized gains included in other comprehensive income	1,479			21
Balance at December 31, 2012	$	4,396		$	13

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may also be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with generally accepted accounting principles.  These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.  The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of December 31, 2012 and 2011.  There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2012 and 2011.

69

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	At December 31, 2012						At December 31, 2011
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In Thousands)
Impaired loans	$	—	$	—	$	1,616	$	—	$	—	$	3,002
Other real estate owned	—		—		1,293		—		—		976
Total assets	$	—	$	—	$	2,909	$	—	$	—	$	3,978

The following table summarizes losses resulting from fair value adjustments for assets measured at fair value on a nonrecurring basis.

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Impaired loans	$	367	$	998	$	800
Other real estate owned	28		175		326
Goodwill	—		—		37
Total assets	$	395	$	1,173	$	1,163

The Company measures the impairment of loans that are collateral dependent based on the fair value of the collateral (Level 3).  The fair value of collateral used by the Company represents the amount expected to be received from the sale of the property, net of selling costs, as determined by an independent, licensed or certified appraiser using observable market data.  This data includes information such as selling price of similar properties, expected future cash flows or earnings of the subject property based on current market expectations and relevant legal, physical and economic factors.  The appraised values of collateral are adjusted as necessary by management based on unobservable inputs for specific properties. Losses applicable to write-downs of impaired loans are based on the appraised market value of the underlying collateral, assuming foreclosure of these loans is imminent.

The amount of other real estate owned represents the carrying value of the collateral based on the appraised value of the underlying collateral less estimated selling costs.  The loss on foreclosed assets represents adjustments in the valuation recorded during the time period indicated and not for losses incurred on sales.

In accordance with applicable accounting guidance, the Company evaluates its goodwill for impairment.  Based on this evaluation, no goodwill impairment was recorded during the years ended December 31, 2012 and 2011. During the year ended December 31, 2010, goodwill related to the Company's Colchester, Connecticut branch acquisition was written down to its implied fair value.

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are presented in the following table.  Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at December 31, 2012 or 2011.  The estimated fair value amounts for 2012 and 2011 have been measured as of their respective year-ends, and have not been re-evaluated or updated for purposes of

70

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.  The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company's assets. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company's disclosures and those of other banks may not be meaningful.

As of December 31, 2012 and 2011, the recorded carrying amounts and estimated fair values of the Company's financial instruments are as follows:

	December 31, 2012
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	37,689	$	37,689	$	—	$	—	$	37,689
Available for sale securities	176,513		1,035		171,082		4,396		176,513
Loans held for sale	5,069		—		—		5,232		5,232
Loans receivable, net	685,163		—		—		703,925		703,925
Federal Home Loan Bank stock	8,078		—		—		8,078		8,078
Accrued interest receivable	3,215		—		—		3,215		3,215
Financial Liabilities:
Deposits	705,148		—		—		709,357		709,357
Mortgagors' and investors' escrow accounts	3,207		—		—		3,207		3,207
Federal Home Loan Bank advances	98,069		—		102,919		—		102,919
Junior subordinated debt owed to unconsolidated trust	8,248		—		5,268		—		5,268
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	13		—		—		13		13
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Derivative loan commitments	3		—		—		3		3
Forward loan sale commitments	1		—		—		1		1
Interest rate swap agreements	849		—		849		—		849

71

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	December 31, 2011
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	48,412	$	48,412	$	—	$	—	$	48,412
Available for sale securities	230,814		2,866		225,031		2,917		230,814
Loans held for sale	5,558		—		—		5,652		5,652
Loans receivable, net	618,626		—		—		629,142		629,142
Federal Home Loan Bank stock	8,388		—		—		8,388		8,388
Accrued interest receivable	3,539		—		—		3,539		3,539
Financial Liabilities:
Deposits	701,926		—		—		704,333		704,333
Mortgagors' and investors' escrow accounts	3,291		—		—		3,291		3,291
Federal Home Loan Bank advances	100,069		—		105,666		—		105,666
Junior subordinated debt owed to unconsolidated trust	8,248		—		4,399		—		4,399
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	78		—		—		78		78
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Forward loan sale commitments	90		—		—		90		90
Interest rate swap agreement	462		—		462		—		462

NOTE 17.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivative Financial Instruments

The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates.  These transactions involve both credit and market risk.  The notional amounts are amounts on which calculations, payments and the value of the derivatives are based. Notional amounts do not represent direct credit exposures.  Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any.  Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s balance sheets as other assets and other liabilities.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures and does not expect any counterparties to fail their obligations.

Derivative instruments are generally either negotiated over-the-counter contracts or standardized contracts executed on a recognized exchange.  Negotiated over-the-counter derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

Derivative Instruments Designated As Hedging Instruments

The Company uses long-term variable rate debt as a source of funds for use in the Company’s lending and investment activities and other general business purposes.  These debt obligations expose the Company to variability in interest payments due to changes in interest rates.  If interest rates increase, interest expense increases.  Conversely, if interest rates decrease, interest expense decreases.  Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore, generally hedges a portion of its variable-rate interest payments.  To meet this objective, management entered into an interest rate swap agreement, characterized as a cash flow hedge, whereby the Company receives variable interest rate payments determined by three-month LIBOR in exchange for making payments at a fixed interest rate.

72

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

At December 31, 2012 and 2011, the information pertaining to the outstanding interest rate swap agreement used to hedge variable rate debt is as follows:

	December 31,
	2012			2011
	(Dollars in Thousands)
Notional amount	$	8,000		$	8,000
Weighted average fixed pay rate	2.44		%	2.44		%
Weighted average variable receive rate	0.31		%	0.55		%
Weighted average maturity in years	3.0			4.0
Unrealized loss relating to interest rate swap	$	470		$	462

At December 31, 2012 and 2011, the unrealized loss related to the above mentioned interest rate swap was recorded as a derivative liability. Changes in the fair value of an interest rate swap designated as a hedging instrument of the variability of cash flows associated with long-term debt are reported in other comprehensive income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the long-term debt affects earnings.

Risk management results for the years ended December 31, 2012 and 2011 related to the balance sheet hedging of long-term debt indicate that the hedge was 100% effective and that there was no component of the derivative instrument’s loss which was excluded from the assessment of hedge effectiveness.

The Company’s derivative contract contains a provision establishing a collateral requirement (subject to minimum collateral posting thresholds) based on the Company’s external credit rating.  If the Company’s junior subordinated debt rating was to fall below the level generally recognized as investment grade, the counterparty to such derivative contract could require additional collateral on the derivative transaction in a net liability position (after considering the effect of bilateral netting arrangements and posted collateral).  The Company had previously posted collateral of $600,000 in the normal course of business for a derivative instrument, with a credit-related contingent feature, that was in a net liability position at December 31, 2012 and 2011.

Derivative Instruments Not Designated As Hedging Instruments

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments.  These undesignated derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in other noninterest income.

Interest Rate Swap Agreement - During the first quarter of 2012, management entered into an interest rate swap agreement that does not meet the strict hedge accounting requirements of FASB's "Derivatives and Hedging" standard to manage the Company's exposure to interest rate movements and other identified risks. Changes in fair value of this instrument are recorded as a component of noninterest income. At December 31, 2012, information pertaining to the Company's interest rate swap agreement not designated as a hedge is as follows:

	December 31, 2012
	(Dollars in Thousands)
Notional amount	$	15,000
Weighted average fixed pay rate	1.26		%
Weighted average variable receive rate	0.35		%
Weighted average maturity in years	4.0
Unrealized loss relating to interest rate swap	$	379

73

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

The Company reported a loss in fair value on the interest rate swap not designated as a hedge of $379,000 in noninterest income for the year ended December 31, 2012.

Derivative Loan Commitments - Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market.  A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates.  If interest rates increase, the value of these loan commitments decrease. Conversely, if interest rates decrease, the value of these loan commitments increase.  The notional amount of undesignated mortgage loan commitments was $7.8 million and $9.1 million at December 31, 2012 and 2011, respectively.  At December 31, 2012 and 2011, the fair values of such commitments were a net asset of $10,000 and $78,000, respectively.

Forward Loan Sale Commitments - To protect against the price risk inherent in derivative loan commitments, the Company utilizes “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.  If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.  The notional amount of undesignated forward loan sale commitments was $5.9 million and $9.1 million at December 31, 2012 and 2011, respectively.  The fair value of such commitments was a net asset of $3,000 at December 31, 2012 and a net liability of $86,000 at December 31, 2011.

Interest Rate Risk Management - Derivative Instruments

The following table presents the fair values of derivative instruments as well as their classification on the consolidated balance sheets at December 31, 2012 and 2011.

		December 31, 2012					December 31, 2011
	Balance Sheet Location	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
	(In Thousands)
Derivative designated as hedging instrument:
Interest rate swap	Other Liabilities	$	8,000	$	(470	)	$	8,000	(462	)
Derivatives not designated as hedging instruments:
Interest rate swap	Other Liabilities	15,000		(379		)	—		—
Derivative loan commitments	Other Assets	7,844		10			9,074		78
Forward loan sale commitments	Other Assets (Liabilities)	5,919		3			9,108		(86	)

74

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 18.  RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

Federal regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company.  The total amount of dividends which may be declared in a given calendar year without regulatory approval is generally limited to the net income of the Bank for that year plus retained net income for the preceding two years.

At December 31, 2012 and 2011, the Bank’s retained earnings available for payment of dividends was $6.4 million and $5.6 million, respectively.  Accordingly, $103.5 million and $100.4 million of the Company’s equity in the net assets of the Bank were restricted at December 31, 2012 and 2011, respectively.

In addition, the Company is further restricted, under its junior subordinated debt obligation, from paying dividends to its shareholders if the Company has deferred interest payments or has otherwise defaulted on its junior subordinated debt obligation.

Under federal regulation, the Bank is also limited to the amount it may loan to the Company, unless such loans are collateralized by specific obligations.  Loans or advances to the Company by the Bank are limited to 10% of the Bank’s capital stock and surplus on a secured basis.  In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof, would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

NOTE 19.  COMMON STOCK REPURCHASE PROGRAM

The Company repurchases stock primarily to create economic value for its shareholders and to provide additional liquidity to the stock.

In accordance with applicable regulations, the Company could not repurchase shares of its common stock during the first year following the completion of its public offering and concurrent conversion in January 2011, except to fund equity benefit plans other than stock options, or, with prior regulatory approval, when extraordinary circumstances exist. The Company repurchased 547 shares of the Company's common stock withheld on behalf of plan participants to satisfy tax withholding obligations related to the vesting of restricted shares at a cost of $5,000 during the year ended December 31, 2011.

In May 2012, the Board of Directors approved a plan to repurchase up to 5%, or approximately 528,815 shares, of the Company’s common stock through open market purchases or privately negotiated transactions. Stock repurchases under the program are retired and reflected as a reduction in shareholders’ equity. As of December 31, 2012, the Company repurchased 465,788 shares at a cost of approximately $5.3 million under this plan.

75

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 20.  CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Condensed financial information pertaining only to the parent company, SI Financial Group, Inc., is as follows:

	December 31,
Condensed Balance Sheets	2012		2011
Assets:	(In Thousands)
Cash and cash equivalents	$	9,591	$	15,112
Available for sale securities	8,380		10,575
Investment in Savings Institute Bank and Trust Company	109,948		106,023
ESOP note receivable	5,600		6,035
Other assets	991		1,510
Total assets	$	134,510	$	139,255
Liabilities and Shareholders' Equity:
Liabilities	$	8,751	$	8,738
Shareholders' equity	125,759		130,517
Total liabilities and shareholders' equity	$	134,510	$	139,255

	Years Ended December 31,
Condensed Statements of Income	2012			2011			2010
	(In Thousands)
Interest and dividends on investments	$	159		$	248		$	128
Other income	399			484			223
Total income	558			732			351
Operating expenses	758			1,275			492
Loss before income taxes and equity in undistributed net income	(200		)	(543		)	(141		)
Income tax benefit	(35		)	(185		)	(136		)
Loss before equity in undistributed net income of subsidiary	(165		)	(358		)	(5		)
Equity in undistributed net income of subsidiary	1,283			2,775			3,008
Net income	$	1,118		$	2,417		$	3,003

76

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

	Years Ended December 31,
Condensed Statements of Cash Flows	2012			2011			2010
	(In Thousands)
Cash flows from operating activities:
Net income	$	1,118		$	2,417		$	3,003
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of subsidiary	(1,283		)	(2,775		)	(3,008		)
Excess tax benefit from share-based payment arrangements	(4		)	(3		)	—
Deferred income taxes	60			(104		)	72
Other, net	163			(497		)	(10		)
Cash provided by (used in) operating activities	54			(962		)	57
Cash flows from investing activities:
Purchase of available for sale securities	(1,907		)	(8,277		)	(4,900		)
Proceeds from maturities of available for sale securities	2,069			2,000			4,000
Proceeds from sale of available for sale securities	2,025			2,300			10
Payments received on ESOP note receivable	435			421			290
Issuance of ESOP note receivable	—			(3,141		)	—
Investment in subsidiary	499			(29,450		)	493
Cash provided by (used in) investing activities	3,121			(36,147		)	(107		)
Cash flows from financing activities:
Purchase of shares for equity plan	(2,238		)	—			—
Stock options exercised	10			—			—
Common shares repurchased	(5,301		)	(5		)	(74		)
Cash dividends on common stock	(1,171		)	(1,191		)	(375		)
Excess tax benefit from share-based payment arrangements	4			3			—
Net proceeds from common stock offering	—			51,099			(769		)
Cash (used in) provided by financing activities	(8,696		)	49,906			(1,218		)
Net change in cash and cash equivalents	(5,521		)	12,797			(1,268		)
Cash and cash equivalents at beginning of year	15,112			2,315			3,583
Cash and cash equivalents at end of year	$	9,591		$	15,112		$	2,315

77

SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012, 2011 AND 2010

NOTE 21.  QUARTERLY DATA (UNAUDITED)

Quarterly results of operations for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31, 2012									Year Ended December 31, 2011
	Fourth Quarter		Third Quarter			Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	(In Thousands, Except Share Amounts)
Interest and dividend income	$	8,863	$	8,862		$	8,878	$	9,221	$	9,265	$	9,451	$	9,584	$	9,520
Interest expense	2,322		2,368			2,392		2,551		2,638		2,815		2,932		2,992
Net interest and dividend income	6,541		6,494			6,486		6,670		6,627		6,636		6,652		6,528
Provision for loan losses	646		1,334			432		484		948		210		190		210
Net interest and dividend income after provision for loan losses	5,895		5,160			6,054		6,186		5,679		6,426		6,462		6,318
Noninterest income	2,398		1,232			2,326		2,761		2,885		2,697		2,896		2,649
Noninterest expenses	7,338		7,408			7,557		8,350		7,522		8,047		8,310		8,713
Income (loss) before income taxes	955		(1,016		)	823		597		1,042		1,076		1,048		254
Income tax provision (benefit)	210		(316		)	153		194		281		336		341		45
Net income (loss)	$	745	$	(700	)	$	670	$	403	$	761	$	740	$	707	$	209
Earnings (loss) per share:
Basic	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02
Diluted	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02

Quarterly per share data may not add to annual data due to rounding

NOTE 22. SUBSEQUENT EVENTS

On March 5, 2013, the Company entered into a definitive merger agreement to acquire Newport Bancorp, Inc. Under the terms of the merger agreement, the shareholders of Newport Bancorp will have the right to elect to receive either $17.55 in cash or 1.5129 shares of SI Financial Group's common stock in exchange for each share of Newport Bancorp held by them, subject to certain conditions. The acquisition will add approximately $449.4 million in assets, $355.0 million in loans and $289.7 million in deposits before acquisition accounting adjustments, as well as six full-service banking offices. The Company anticipates the transaction will close in the third quarter of 2013, subject to shareholder and regulatory approvals.

78

EX-21.0

Exhibit 21.0

LIST OF SUBSIDIARIES

Registrant: SI Financial Group, Inc.

Subsidiaries	Percentage Ownership	Jurisdiction or State of Incorporation
Savings Institute Bank and Trust Company	100%	United States
SI Capital Trust II(1)	100%	Delaware
803 Financial Corp.(2)	100%	Connecticut
SI Realty Company, Inc.(2)	100%	Connecticut
SI Mortgage Company(2)	100%	Connecticut

⁽¹⁾  In accordance with authoritative guidance on the consolidation of variable interest entities, SI Capital Trust II is not included in the Company’s consolidated financial statements.

⁽²⁾  Wholly-owned subsidiary of Savings Institute Bank and Trust Company.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in SI Financial Group, Inc.’s Registration Statement Nos. 333-171879, 333-171880 and 333-181648 on Forms S-8 of our reports dated March 15, 2013 relating to our audits of the consolidated financial statements and internal control over financial reporting of SI Financial Group, Inc. and subsidiaries appearing in this Annual Report on Form 10-K for the year ended December 31, 2012.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

March 15, 2013

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Rheo A. Brouillard, certify that:

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

2. Based on my knowledge, this 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(s) 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))  and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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;

5. The registrant’s other certifying officer(s) 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.

/s/ Rheo A. Brouillard

Rheo A. Brouillard

President and Chief Executive Officer

March 15, 2013

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian J. Hull, certify that:

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

2. Based on my knowledge, this 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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;

5. The registrant’s other certifying officer(s) 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.

/s/ Brian J. Hull

Brian J. Hull

Executive Vice President, Chief Operating Officer, Treasurer and

Chief Financial Officer

March 15, 2013

EX-32.0

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 Annual Report of SI Financial Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “Report”), the undersigned 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 operations 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

March 15, 2013

By:  /s/ Brian J. Hull

Brian J. Hull

Executive Vice President, Chief Operating Officer, Treasurer and Chief Financial Officer

March 15, 2013

XML

BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2012

Borrowings [Abstract]

Contratual Maturities of Borrowings

The contractual maturities of borrowings, by year, at December 31, 2012 are as follows:

	FHLB Advances			Subordinated Debt			Total
	(Dollars in Thousands)
2013	$	21,000		$	—		$	21,000
2014	24,000			—			24,000
2015	26,069			—			26,069
2016	18,000			—			18,000
2017 (1)	5,000			—			5,000
Thereafter (2)	4,000			8,248			12,248
Total	$	98,069		$	8,248		$	106,317
Weighted average rate	3.25		%	4.14		%	3.32		%

⁽¹⁾ Includes FHLB advance of $3.0 million that is callable during 2013.

⁽²⁾ Includes FHLB advance of $2.0 million that is callable during 2013.

XML

Derivative Instrument - Cash Flow Hedge (Details) (Cash Flow Hedging [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash Flow Hedging [Member]
Derivative [Line Items]
Notional amount	$ 8,000	$ 8,000
Weighted average fixed pay rate	2.44%	2.44%
Weighted average variable receive rate	0.31%	0.55%
Weighted average maturity in years	3 years 0 months 0 days	4 years 0 months 0 days
Unrealized loss relating to interest rate swap	470	462
Collateral Already Posted, Aggregate Fair Value	$ 600	$ 600

XML

Summary of Available for Sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			$ 231,375	[1]
Gross Unrealized Gains			4,939
Gross Unrealized Losses			(5,500)
Fair Value	176,513		230,814
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	173,903	[1]	229,538	[1]
Gross Unrealized Gains	4,547		4,842
Gross Unrealized Losses	(1,937)		(5,381)
Fair Value	176,513		228,999
U.S. Government and agency obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	55,027	[1]	88,917	[1]
Gross Unrealized Gains	1,255		770
Gross Unrealized Losses	(23)		(100)
Fair Value	56,259		89,587
Government-sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	23,388	[1]	17,204	[1]
Gross Unrealized Gains	579		462
Gross Unrealized Losses	0		0
Fair Value	23,967		17,666
Mortgage-backed Securities, Agency - residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	69,399	[1],[2]	85,552	[1],[2]
Gross Unrealized Gains	2,211	[2]	3,070	[2]
Gross Unrealized Losses	(66)	[2]	(178)	[2]
Fair Value	71,544	[2]	88,444	[2]
Mortgage-backed Securities, Non-agency - residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	4,784	[1],[2]	7,766	[1],[2]
Gross Unrealized Gains	52	[2]	21	[2]
Gross Unrealized Losses	(124)	[2]	(899)	[2]
Fair Value	4,712	[2]	6,888	[2]
Mortgage-backed Securities, Non-agency - HELOC [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,555	[1],[2]	3,097	[1],[2]
Gross Unrealized Gains	0	[2]	0	[2]
Gross Unrealized Losses	(78)	[2]	(559)	[2]
Fair Value	2,477	[2]	2,538	[2]
Corporate debt securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,555	[1]	14,094	[1]
Gross Unrealized Gains	188		240
Gross Unrealized Losses	(49)		(287)
Fair Value	7,694		14,047
Collateralized debt obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,993	[1]	6,275	[1]
Gross Unrealized Gains	0		0
Gross Unrealized Losses	(1,597)		(3,358)
Fair Value	4,396		2,917
Obligations of state and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,152	[1]	6,488	[1]
Gross Unrealized Gains	262		278
Gross Unrealized Losses	0		0
Fair Value	5,414		6,766
Tax-exempt securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			70	[1]
Gross Unrealized Gains			1
Gross Unrealized Losses			0
Fair Value			71
Foreign government securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	50	[1]	75	[1]
Gross Unrealized Gains	0		0
Gross Unrealized Losses	0		0
Fair Value	50		75
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			1,837	[1]
Gross Unrealized Gains			97
Gross Unrealized Losses			(119)
Fair Value			1,815
Equity securities - financial services [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			228	[1]
Gross Unrealized Gains			1
Gross Unrealized Losses			(24)
Fair Value			205
Equity securities - other [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost			1,609	[1]
Gross Unrealized Gains			96
Gross Unrealized Losses			(95)
Fair Value			$ 1,610

[1] (1) Net of OTTI write-downs recognized in earnings.

[2] (2) Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”). Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

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CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Tables)

12 Months Ended

Dec. 31, 2012

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule of Parent Company Information Balance Sheet

	December 31,
Condensed Balance Sheets	2012		2011
Assets:	(In Thousands)
Cash and cash equivalents	$	9,591	$	15,112
Available for sale securities	8,380		10,575
Investment in Savings Institute Bank and Trust Company	109,948		106,023
ESOP note receivable	5,600		6,035
Other assets	991		1,510
Total assets	$	134,510	$	139,255
Liabilities and Shareholders' Equity:
Liabilities	$	8,751	$	8,738
Shareholders' equity	125,759		130,517
Total liabilities and shareholders' equity	$	134,510	$	139,255

Schedule of Parent Company Information Income Statement

	Years Ended December 31,
Condensed Statements of Income	2012			2011			2010
	(In Thousands)
Interest and dividends on investments	$	159		$	248		$	128
Other income	399			484			223
Total income	558			732			351
Operating expenses	758			1,275			492
Loss before income taxes and equity in undistributed net income	(200		)	(543		)	(141		)
Income tax benefit	(35		)	(185		)	(136		)
Loss before equity in undistributed net income of subsidiary	(165		)	(358		)	(5		)
Equity in undistributed net income of subsidiary	1,283			2,775			3,008
Net income	$	1,118		$	2,417		$	3,003

Schedule of Parent Company Information Cash Flow

	Years Ended December 31,
Condensed Statements of Cash Flows	2012			2011			2010
	(In Thousands)
Cash flows from operating activities:
Net income	$	1,118		$	2,417		$	3,003
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of subsidiary	(1,283		)	(2,775		)	(3,008		)
Excess tax benefit from share-based payment arrangements	(4		)	(3		)	—
Deferred income taxes	60			(104		)	72
Other, net	163			(497		)	(10		)
Cash provided by (used in) operating activities	54			(962		)	57
Cash flows from investing activities:
Purchase of available for sale securities	(1,907		)	(8,277		)	(4,900		)
Proceeds from maturities of available for sale securities	2,069			2,000			4,000
Proceeds from sale of available for sale securities	2,025			2,300			10
Payments received on ESOP note receivable	435			421			290
Issuance of ESOP note receivable	—			(3,141		)	—
Investment in subsidiary	499			(29,450		)	493
Cash provided by (used in) investing activities	3,121			(36,147		)	(107		)
Cash flows from financing activities:
Purchase of shares for equity plan	(2,238		)	—			—
Stock options exercised	10			—			—
Common shares repurchased	(5,301		)	(5		)	(74		)
Cash dividends on common stock	(1,171		)	(1,191		)	(375		)
Excess tax benefit from share-based payment arrangements	4			3			—
Net proceeds from common stock offering	—			51,099			(769		)
Cash (used in) provided by financing activities	(8,696		)	49,906			(1,218		)
Net change in cash and cash equivalents	(5,521		)	12,797			(1,268		)
Cash and cash equivalents at beginning of year	15,112			2,315			3,583
Cash and cash equivalents at end of year	$	9,591		$	15,112		$	2,315

XML

SUBSEQUENT EVENTS (Details) (NewportBancorpInc [Member], USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
NewportBancorpInc [Member]
Business Acquisition [Line Items]
Business Acquisition, Date of Acquisition Agreement	Mar. 05, 2013
Cash Consideration per share	$ 17.55
Stock Consideration Paid per share	$ 1.5129
Assets of Company to be Acquired	$ 449.4
Loans of Company to be Acquired	355.0
Deposits of Company to be Acquired	$ 289.7
Number of Branches Acquired	6

XML

TDR - By Type of Modification (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	$ 2,584		$ 2,130
Adjusted Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	917		0
Principal Deferrals [Member]
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	0	[1]	443	[1]
Combination of Rate and Payment [Member]
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	869	[2]	1,687	[2]
Combination Of Rate And Maturity [Member]
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	721	[3]	0	[3]
Extension of Maturity Date [Member]
Financing Receivable, Modifications [Line Items]
Loans Modified As Troubled Debt Restructurings During Period	$ 77	[3]	$ 0	[3]

[1] (1) Terms of modification include temporary interest-only payments with deferral of principal.

[2] 2) Terms include combination of interest rate adjustments and interest-only payments with deferral of principal.

[3] (3) Terms include combination of interest rate adjustments and extensions of maturity.

XML

Securities (Narrative) (Details) (US Government and Agency Obligations and Government-sponsored Enterprises [Member], USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
US Government and Agency Obligations and Government-sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Pledged Assets Not Separately Reported Securities Pledged for Public Deposits, Amortized Cost	$ 4.5	$ 5.0
Pledged Assets Not Separately Reported Securities Pledged for Public Deposits, Fair Value	$ 4.6	$ 5.1

XML

Goodwill (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Goodwill [Roll Forward]
Balance at beginning of year	$ 4,094	$ 4,094	$ 4,131
Impairment	0	0	(37)
Disposal of SI Trust Servicing	(643)	0	0
Balance at end of year	$ 3,451	$ 4,094	$ 4,094

XML

Reconciliation of Regulatory Capital (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Reconciliation of Company's Total Capital to Bank's Regulatory Capital [Line Items]
Total capital per consolidated financial statements	$ 125,759	$ 130,517	$ 81,104	$ 77,462
Holding company equity not available for regulatory capital	(15,811)	(24,495)
Accumulated losses (gains) on available for sale securities	(1,619)	477
Intangible assets	(3,451)	(3,729)
Disallowed servicing asset	(100)	0
Disallowed deferred tax asset	(1,231)	(1,196)
Total tier 1 capital	103,547	101,574
Allowance for loan and credit losses reduced by excess allowance per regulatory requirements	6,204	5,423
Total capital per regulatory reporting	$ 109,751	$ 106,997

XML

FAIR VALUE OF ASSETS AND LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011.  The Company had no significant transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2012 and 2011.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,035	$	55,224	$	—	$	56,259
Government-sponsored enterprises	—		23,967		—		23,967
Mortgage-backed securities	—		78,733		—		78,733
Corporate debt securities	—		7,694		—		7,694
Collateralized debt obligations	—		—		4,396		4,396
Obligations of state and political subdivisions	—		5,414		—		5,414
Foreign government securities	—		50		—		50
Forward loan sale commitments and derivative loan commitments	—		—		17		17
Total assets	$	1,035	$	171,082	$	4,413	$	176,530
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	4	$	4
Interest rate swap agreements	—		849		—		849
Total liabilities	$	—	$	849	$	4	$	853

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,051	$	88,536	$	—	$	89,587
Government-sponsored enterprises	—		17,666		—		17,666
Mortgage-backed securities	—		97,870		—		97,870
Corporate debt securities	—		14,047		—		14,047
Collateralized debt obligations	—		—		2,917		2,917
Obligations of state and political subdivisions	—		6,766		—		6,766
Tax-exempt securities	—		71		—		71
Foreign government securities	—		75		—		75
Equity securities	1,815		—		—		1,815
Forward loan sale commitments and derivative loan commitments	—		—		82		82
Total assets	$	2,866	$	225,031	$	2,999	$	230,896
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	90	$	90
Interest rate swap agreement	—		462		—		462
Total liabilities	$	—	$	462	$	90	$	552

Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets (liabilities):

	Collateralized Debt Obligations			Derivatives and Forward Loan Sale Commitments, Net
	(In Thousands)
Balance at December 31, 2010	$	2,780		$	(21	)
Total realized and unrealized gains included in net income	120			13
Total unrealized gains included in other comprehensive income	491			—
Sales	(474		)	—
Balance at December 31, 2011	2,917			(8		)
Total unrealized gains included in other comprehensive income	1,479			21
Balance at December 31, 2012	$	4,396		$	13

Fair Value Measurements, Nonrecurring

The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of December 31, 2012 and 2011.  There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2012 and 2011.

	At December 31, 2012						At December 31, 2011
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In Thousands)
Impaired loans	$	—	$	—	$	1,616	$	—	$	—	$	3,002
Other real estate owned	—		—		1,293		—		—		976
Total assets	$	—	$	—	$	2,909	$	—	$	—	$	3,978

Fair Value, Nonrecurring Gain Loss Adjustments

The following table summarizes losses resulting from fair value adjustments for assets measured at fair value on a nonrecurring basis.

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Impaired loans	$	367	$	998	$	800
Other real estate owned	28		175		326
Goodwill	—		—		37
Total assets	$	395	$	1,173	$	1,163

Fair Value, by Balance Sheet Grouping

As of December 31, 2012 and 2011, the recorded carrying amounts and estimated fair values of the Company's financial instruments are as follows:

	December 31, 2012
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	37,689	$	37,689	$	—	$	—	$	37,689
Available for sale securities	176,513		1,035		171,082		4,396		176,513
Loans held for sale	5,069		—		—		5,232		5,232
Loans receivable, net	685,163		—		—		703,925		703,925
Federal Home Loan Bank stock	8,078		—		—		8,078		8,078
Accrued interest receivable	3,215		—		—		3,215		3,215
Financial Liabilities:
Deposits	705,148		—		—		709,357		709,357
Mortgagors' and investors' escrow accounts	3,207		—		—		3,207		3,207
Federal Home Loan Bank advances	98,069		—		102,919		—		102,919
Junior subordinated debt owed to unconsolidated trust	8,248		—		5,268		—		5,268
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	13		—		—		13		13
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Derivative loan commitments	3		—		—		3		3
Forward loan sale commitments	1		—		—		1		1
Interest rate swap agreements	849		—		849		—		849

	December 31, 2011
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	48,412	$	48,412	$	—	$	—	$	48,412
Available for sale securities	230,814		2,866		225,031		2,917		230,814
Loans held for sale	5,558		—		—		5,652		5,652
Loans receivable, net	618,626		—		—		629,142		629,142
Federal Home Loan Bank stock	8,388		—		—		8,388		8,388
Accrued interest receivable	3,539		—		—		3,539		3,539
Financial Liabilities:
Deposits	701,926		—		—		704,333		704,333
Mortgagors' and investors' escrow accounts	3,291		—		—		3,291		3,291
Federal Home Loan Bank advances	100,069		—		105,666		—		105,666
Junior subordinated debt owed to unconsolidated trust	8,248		—		4,399		—		4,399
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	78		—		—		78		78
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Forward loan sale commitments	90		—		—		90		90
Interest rate swap agreement	462		—		462		—		462

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SECURITIES (Tables)

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation

The amortized cost, gross unrealized gains and losses and fair values of available for sale securities at December 31, 2012 and 2011 are as follows:

	December 31, 2012
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	55,027	$	1,255	$	(23	)	$	56,259
Government-sponsored enterprises	23,388		579		—			23,967
Mortgage-backed securities:(2)
Agency - residential	69,399		2,211		(66		)	71,544
Non-agency - residential	4,784		52		(124		)	4,712
Non-agency - HELOC	2,555		—		(78		)	2,477
Corporate debt securities	7,555		188		(49		)	7,694
Collateralized debt obligations	5,993		—		(1,597		)	4,396
Obligations of state and political subdivisions	5,152		262		—			5,414
Foreign government securities	50		—		—			50
Total available for sale securities	$	173,903	$	4,547	$	(1,937	)	$	176,513

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

	December 31, 2011
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	88,917	$	770	$	(100	)	$	89,587
Government-sponsored enterprises	17,204		462		—			17,666
Mortgage-backed securities:(2)
Agency - residential	85,552		3,070		(178		)	88,444
Non-agency - residential	7,766		21		(899		)	6,888
Non-agency - HELOC	3,097		—		(559		)	2,538
Corporate debt securities	14,094		240		(287		)	14,047
Collateralized debt obligations	6,275		—		(3,358		)	2,917
Obligations of state and political subdivisions	6,488		278		—			6,766
Tax-exempt securities	70		1		—			71
Foreign government securities	75		—		—			75
Total debt securities	229,538		4,842		(5,381		)	228,999
Equity securities:
Equity securities - financial services	228		1		(24		)	205
Equity securities - other	1,609		96		(95		)	1,610
Total equity securities	1,837		97		(119		)	1,815
Total available for sale securities	$	231,375	$	4,939	$	(5,500	)	$	230,814

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”) Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

Investments Classified by Contractual Maturity Date

The amortized cost and fair value of debt securities by contractual maturities at December 31, 2012 are presented below.  Actual maturities of mortgage-backed securities ("MBS") may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties.  Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.

	Amortized Cost		Fair Value
	(In Thousands)
Within 1 year	$	8,382	$	8,484
After 1 but within 5 years	25,699		26,475
After 5 but within 10 years	17,223		17,426
After 10 years	45,861		45,395
	97,165		97,780
Mortgage-backed and asset-backed securities	76,738		78,733
Total debt securities	$	173,903	$	176,513

Realized Gain (Loss) on Investments

The following is a summary of realized gains and losses on the sale of securities for the years ended December 31, 2012, 2011 and 2010:

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Gross gains on sales	$	798		$	589		$	1,096
Gross losses on sales	(525		)	(103		)	(218		)
Net gain on sale of securities	$	273		$	486		$	878

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value

The following tables present information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.

	Less Than 12 Months				12 Months or More				Total
December 31, 2012:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	—	$	—	$	1,367	$	23	$	1,367	$	23
Mortgage-backed securities:
Agency - residential	6,923		37		1,404		29		8,327		66
Non-agency - residential	1,926		8		1,417		116		3,343		124
Non-agency - HELOC	—		—		2,477		78		2,477		78
Corporate debt securities	—		—		946		49		946		49
Collateralized debt obligations	—		—		4,396		1,597		4,396		1,597
Total	$	8,849	$	45	$	12,007	$	1,892	$	20,856	$	1,937

	Less Than 12 Months				12 Months Or More				Total
December 31, 2011:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	32,390	$	94	$	415	$	6	$	32,805	$	100
Mortgage-backed securities:
Agency - residential	8,241		111		1,969		67		10,210		178
Non-agency - residential	—		—		5,305		899		5,305		899
Non-agency - HELOC	—		—		2,538		559		2,538		559
Corporate debt securities	3,482		234		946		53		4,428		287
Collateralized debt obligations	—		—		2,917		3,358		2,917		3,358
Equity securities - financial services	169		24		—		—		169		24
Equity securities - other	708		95		—		—		708		95
Total	$	44,990	$	558	$	14,090	$	4,942	$	59,080	$	5,500

Non-agency Mortgage-Backed Securities Rated Below Investment Grade

The following table details the Company’s non-agency residential mortgage-backed securities that were rated below investment grade at December 31, 2012.

Security	Class (1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (2)	Total Credit- Related OTTI (3)		Credit Support Coverage Ratios (4)
(Dollars in Thousands)
MBS 1	SSNR, AS	$	1,533	$	—	$	(116	)	$	1,417	D	$	197	0.00
MBS 2	PT, AS	198		4		—			202		CCC	—		0.24
		$	1,731	$	4	$	(116	)	$	1,619		$	197

⁽¹⁾Class definitions:  PT - Pass Through, AS - Accelerated, and SSNR - Super Senior.

⁽²⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽³⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

⁽⁴⁾ The credit support coverage ratio, which is the ratio that determines the multiple of credit support, is based on assumptions for the performance of the loans within the delinquency pipeline.  The assumptions used are: current collateral support/((60 day delinquencies x .60)+(90 day delinquencies x .70)+(foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.

Other than Temporary Impairment, Credit Losses Recognized in Earnings

The following table presents a roll-forward of the balance of credit losses on the Company’s debt securities for which a portion of OTTI was recognized in other comprehensive income for the years ended December 31, 2012, 2011 and 2010.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,207		$	1,093		$	1,787
Reduction for securities transferred to trading during period	—			—			(1,186		)
Amounts related to credit losses for which OTTI losses were not previously recognized	—			148			—
Additional credit losses for which OTTI losses were previously recognized	123			—			492
Reduction for permanent loss in value of securities during the period	(1,071		)	—			—
Reduction for securities sold during the period (realized)	—			(34		)	—
Balance at end of year	$	259		$	1,207		$	1,093

Collateralized Debt Obligations Rated Below Investment Grade

The following table details the Company’s collateralized debt obligations that were rated below investment grade at December 31, 2012.

Security	Class	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (1)	Total Credit- Related OTTI (2)		% of Current Performing Collateral Coverage
(Dollars in Thousands)
CDO 1	B1	$	1,000	$	—	$	(628	)	$	372	CCC-	$	—	118.6
CDO 2	B3	1,000		—		(612		)	388		CCC-	—		118.6
CDO 3	A2	2,578		—		(150		)	2,428		B-	62		121.0
CDO 4	A1	1,415		—		(207		)	1,208		BB-	—		159.3
		$	5,993	$	—	$	(1,597	)	$	4,396		$	62

⁽¹⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽²⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

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Core Deposit Intangible (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 Core Deposits [Member]	Dec. 31, 2011 Core Deposits [Member]	Jan. 14, 2008 Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Assumption of Deposit Liabilities						$ 18,400
Core deposit intangible				159	159	159
Accumulated amortization				(159)	(148)
Core deposit intangible, net				0	11
Amortization of core deposit intangible	$ 11	$ 21	$ 32

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Parent Company Statements of Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Condensed Financial Statements, Captions [Line Items]
Income (loss) before taxes and equity in undistributed net income	$ 955	$ (1,016)	$ 823	$ 597	$ 1,042	$ 1,076	$ 1,048	$ 254	$ 1,359	$ 3,420	$ 4,316
Income Tax Expense (Benefit)	210	(316)	153	194	281	336	341	45	241	1,003	1,313
Net income (loss)	745	(700)	670	403	761	740	707	209	1,118	2,417	3,003
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Interest and dividends on investments									159	248	128
Other income									399	484	223
Total income									558	732	351
Operating Expenses									758	1,275	492
Income (loss) before taxes and equity in undistributed net income									(200)	(543)	(141)
Income Tax Expense (Benefit)									(35)	(185)	(136)
Income (loss) before equity in undistributed net income of subsidiary									(165)	(358)	(5)
Equity in undistributed net income of subsidiary									1,283	2,775	3,008
Net income (loss)									$ 1,118	$ 2,417	$ 3,003

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Loans Serviced for Others (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Servicing Assets at Amortized Value [Line Items]
Servicing Assets at Amortized Cost, Assumptions Used to Estimate Fair Value, Discount Rate	11.49%
Aggregate of loans serviced for others	$ 195,500	$ 178,500	$ 148,600
Contractually Specified Servicing Fees, Amount	531	463	374
Servicing Asset at Amortized Value, Balance [Roll Forward]
Balance at beginning of period	1,177	977	740
Additions	427	460	439
Amortization	(291)	(260)	(202)
Balance at end of period	1,313	1,177	977
Fair value of mortgage servicing assets	$ 1,349	$ 1,462	$ 1,456
Minimum [Member]
Servicing Assets at Amortized Value [Line Items]
Servicing Assets at Amortized Cost, Assumptions Used to Estimate Fair Value, Prepayment Speed	202.00%
Maximum [Member]
Servicing Assets at Amortized Value [Line Items]
Servicing Assets at Amortized Cost, Assumptions Used to Estimate Fair Value, Prepayment Speed	575.00%

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INCOME TAXES Narrative (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Contingency Reserve for Loan Losses	$ 3.7	$ 3.7
Deferred Income Taxes Related to Contingency Reserve	$ 1.3	$ 1.3

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Summary of Realized Gains/Losses (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Investments, Debt and Equity Securities [Abstract]
Gross gains on sales	$ 798	$ 589	$ 1,096
Gross losses on sales	(525)	(103)	(218)
Net gain on sale of securities	273	486	878
Tax provision applicable to net gain/loss on sale of securities	93	165	299
Proceeds from sales of available for sale securities	$ 44,033	$ 36,883	$ 40,144

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Fair Value - Nonrecurring Hierarchy (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned, net	$ 1,293	$ 976
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other real estate owned, net	0	0
Total assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	0	0
Other real estate owned, net	0	0
Total assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	1,616	3,002
Other real estate owned, net	1,293	976
Total assets, Fair Value Disclosure, Nonrecurring	$ 2,909	$ 3,978

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PREMISES AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Abstract]
Land	$ 2,098	$ 2,098
Buildings	7,052	6,660
Leasehold Improvements	7,563	7,822
Furniture and Equipment	10,867	12,272
Construction in Process	84	20
Total	27,664	28,872
Accumulated depreciation and amortization	(16,448)	(16,221)
Premises and equipment, net	$ 11,216	$ 12,651

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Components of Income Tax Provision (Benefit) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current Income Tax Provision (Benefit) [Abstract]
Federal									$ 1,338	$ 108	$ 1,648
State									3	4	20
Total current income tax provision (benefit)									1,341	112	1,668
Deferred Income Tax Provision (Benefit) [Abstract]
Federal									(1,100)	891	(355)
Total deferred income tax provision (benefit)									(1,100)	891	(355)
Total income tax provision (benefit)	$ 210	$ (316)	$ 153	$ 194	$ 281	$ 336	$ 341	$ 45	$ 241	$ 1,003	$ 1,313

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Contractual Maturities of Certificates of Deposit (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Deposits [Abstract]
Time Deposit Maturities, Next Twelve Months	$ 135,113
Time Deposit Maturities, Year Two	56,675
Time Deposit Maturities, Year Three	49,568
Time Deposit Maturities, Year Four	15,418
Time Deposit Maturities, Year Five	14,293
Time Deposit Maturities, after Year Five	6,169
Total certificates of deposit	$ 277,236	[1]	$ 272,637	[1]

[1] 1) Includes brokered deposits of $4.2 million and $4.0 million at December 31, 2012 and 2011, respectively.

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Reconciliation of the Anticipated Income Tax Provision (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Tax Disclosure [Abstract]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate									34.00%
Income tax provision (benefit) at statutory tax rate									$ 462	$ 1,162	$ 1,467
Dividends received deduction									(2)	(13)	(3)
Bank-owned life insurance									(215)	(139)	(99)
Tax-exempt income									(26)	(39)	(13)
Compensation and employee benefit plans									81	35	61
Nondeductible expenses									5	8	6
Tax credits/adjustments									(63)	0	0
Change in valuation allowance									0	0	(90)
State taxes, net of federal tax benefit									2	2	13
Other									(3)	(13)	(29)
Total income tax provision (benefit)	$ 210	$ (316)	$ 153	$ 194	$ 281	$ 336	$ 341	$ 45	$ 241	$ 1,003	$ 1,313
Effective tax rate									17.80%	29.30%	30.40%

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Premises and Equipment - Narrative (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment [Abstract]
Purchase Obligation	$ 450,000
Depreciation and amortization of premises and equipment	$ 1,900,000	$ 1,900,000	$ 2,000,000

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TDR - Narrative (Details) (USD $)		12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011 Real estate: Multi-family and commercial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment		$ 437,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down		$ 458,000

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivative Financial Instruments

The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates.  These transactions involve both credit and market risk.  The notional amounts are amounts on which calculations, payments and the value of the derivatives are based. Notional amounts do not represent direct credit exposures.  Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any.  Such difference, which represents the fair value of the derivative instruments, is reflected on the Company’s balance sheets as other assets and other liabilities.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures and does not expect any counterparties to fail their obligations.

Derivative instruments are generally either negotiated over-the-counter contracts or standardized contracts executed on a recognized exchange.  Negotiated over-the-counter derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

Derivative Instruments Designated As Hedging Instruments

The Company uses long-term variable rate debt as a source of funds for use in the Company’s lending and investment activities and other general business purposes.  These debt obligations expose the Company to variability in interest payments due to changes in interest rates.  If interest rates increase, interest expense increases.  Conversely, if interest rates decrease, interest expense decreases.  Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore, generally hedges a portion of its variable-rate interest payments.  To meet this objective, management entered into an interest rate swap agreement, characterized as a cash flow hedge, whereby the Company receives variable interest rate payments determined by three-month LIBOR in exchange for making payments at a fixed interest rate.

At December 31, 2012 and 2011, the information pertaining to the outstanding interest rate swap agreement used to hedge variable rate debt is as follows:

	December 31,
	2012			2011
	(Dollars in Thousands)
Notional amount	$	8,000		$	8,000
Weighted average fixed pay rate	2.44		%	2.44		%
Weighted average variable receive rate	0.31		%	0.55		%
Weighted average maturity in years	3.0			4.0
Unrealized loss relating to interest rate swap	$	470		$	462

At December 31, 2012 and 2011, the unrealized loss related to the above mentioned interest rate swap was recorded as a derivative liability. Changes in the fair value of an interest rate swap designated as a hedging instrument of the variability of cash flows associated with long-term debt are reported in other comprehensive income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the long-term debt affects earnings.

Risk management results for the years ended December 31, 2012 and 2011 related to the balance sheet hedging of long-term debt indicate that the hedge was 100% effective and that there was no component of the derivative instrument’s loss which was excluded from the assessment of hedge effectiveness.

The Company’s derivative contract contains a provision establishing a collateral requirement (subject to minimum collateral posting thresholds) based on the Company’s external credit rating.  If the Company’s junior subordinated debt rating was to fall below the level generally recognized as investment grade, the counterparty to such derivative contract could require additional collateral on the derivative transaction in a net liability position (after considering the effect of bilateral netting arrangements and posted collateral).  The Company had previously posted collateral of $600,000 in the normal course of business for a derivative instrument, with a credit-related contingent feature, that was in a net liability position at December 31, 2012 and 2011.

Derivative Instruments Not Designated As Hedging Instruments

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments.  These undesignated derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in other noninterest income.

Interest Rate Swap Agreement - During the first quarter of 2012, management entered into an interest rate swap agreement that does not meet the strict hedge accounting requirements of FASB's "Derivatives and Hedging" standard to manage the Company's exposure to interest rate movements and other identified risks. Changes in fair value of this instrument are recorded as a component of noninterest income. At December 31, 2012, information pertaining to the Company's interest rate swap agreement not designated as a hedge is as follows:

	December 31, 2012
	(Dollars in Thousands)
Notional amount	$	15,000
Weighted average fixed pay rate	1.26		%
Weighted average variable receive rate	0.35		%
Weighted average maturity in years	4.0
Unrealized loss relating to interest rate swap	$	379

The Company reported a loss in fair value on the interest rate swap not designated as a hedge of $379,000 in noninterest income for the year ended December 31, 2012.

Derivative Loan Commitments - Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market.  A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates.  If interest rates increase, the value of these loan commitments decrease. Conversely, if interest rates decrease, the value of these loan commitments increase.  The notional amount of undesignated mortgage loan commitments was $7.8 million and $9.1 million at December 31, 2012 and 2011, respectively.  At December 31, 2012 and 2011, the fair values of such commitments were a net asset of $10,000 and $78,000, respectively.

Forward Loan Sale Commitments - To protect against the price risk inherent in derivative loan commitments, the Company utilizes “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.  If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.  The notional amount of undesignated forward loan sale commitments was $5.9 million and $9.1 million at December 31, 2012 and 2011, respectively.  The fair value of such commitments was a net asset of $3,000 at December 31, 2012 and a net liability of $86,000 at December 31, 2011.

Interest Rate Risk Management - Derivative Instruments

The following table presents the fair values of derivative instruments as well as their classification on the consolidated balance sheets at December 31, 2012 and 2011.

		December 31, 2012					December 31, 2011
	Balance Sheet Location	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
	(In Thousands)
Derivative designated as hedging instrument:
Interest rate swap	Other Liabilities	$	8,000	$	(470	)	$	8,000	(462	)
Derivatives not designated as hedging instruments:
Interest rate swap	Other Liabilities	15,000		(379		)	—		—
Derivative loan commitments	Other Assets	7,844		10			9,074		78
Forward loan sale commitments	Other Assets (Liabilities)	5,919		3			9,108		(86	)

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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) (USD $)	0 Months Ended	12 Months Ended
	Jan. 12, 2011	Dec. 31, 2012	Dec. 31, 2011
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Year Founded		1842
Number of Branch Offices		20
Stock Issued During Period, Shares, New Issues	6,544,493
Sale of Stock, Price Per Share	$ 8.00
Conversion of Stock, Shares Converted	4,032,356
Conversion of Stock, Exchange Ratio Per Share	$ 0.8981
Common Stock, Shares, Outstanding	10,576,849	10,112,310	10,576,302

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OTHER COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Outstanding Financial Instruments Contract Amounts Represent Credit Risk

Financial instruments whose contract amounts represent credit risk at December 31, 2012 and 2011 were as follows:

	December 31,
	2012		2011
	(In Thousands)
Commitments to extend credit:
Future loan commitments	$	11,123	$	31,211
Undisbursed construction loans	3,406		5,673
Undisbursed home equity lines of credit	23,019		23,172
Undisbursed commercial lines of credit	23,842		17,995
Overdraft protection lines	1,190		1,190
Standby letters of credit	611		34
Total commitments	$	63,191	$	79,275

Schedule of Future Minimum Rental Payments for Operating Leases

At December 31, 2012, future minimum rental commitments pursuant to the terms of noncancelable lease agreements, by year and in the aggregate, are as follows (in thousands):

2013	$	1,277
2014	1,275
2015	1,095
2016	929
2017	763
Thereafter	4,924
Total	$	10,263

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Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Other Real Estate Owned [Abstract]
Net (gain) loss on sales or write-downs of other real estate owned	$ 60	$ 236	$ 534
Other real estate expense, net of rental income	441	540	296
Expense from other real estate operations, net	$ 501	$ 776	$ 830

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Summary of Activity for Unvested Restricted Shares (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Unvested restricted shares at beginning of year	7,184
Restricted shares granted	168,000
Restricted shares vested	(2,082)
Unvested restricted shares at end of year	173,102	7,184
Unvested restricted shares at beginning of year, Weighted Average Grant Date Fair Value	$ 6.22
Restricted shares granted, Weighted Average Grant Date Fair Value	$ 11.01
Restricted shares vested, Weighted Average Grant Date Fair Value	$ 5.73
Unvested restricted shares at end of year, Weighted Average Grant Date Fair Value	$ 10.87	$ 6.22
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Total Fair Value	$ 23,000	$ 15,000	$ 281,000

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GOODWILL AND OTHER INTANGIBLES GOODWILL AND OTHER INTANGIBLES (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

Goodwill for the years ended December 31, 2012, 2011 and 2010 is summarized as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Balance at beginning of year	$	4,094		$	4,094	$	4,131
Impairment	—			—		(37		)
Disposal of SI Trust Servicing	(643		)	—		—
Balance at end of year	$	3,451		$	4,094	$	4,094

Schedule of Finite-Lived Intangible Assets

Core deposit intangibles are summarized as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Core deposit intangible	$	159		$	159
Accumulated amortization	(159		)	(148		)
Core deposit intangible, net	$	—		$	11

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Earnings per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Earnings Per Share, Basic and Diluted [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount									323,011	443,026	420,200
Net income	$ 745	$ (700)	$ 670	$ 403	$ 761	$ 740	$ 707	$ 209	$ 1,118	$ 2,417	$ 3,003
Weighted average common shares outstanding:
Basic									9,730,797	9,988,322	10,302,201
Effect of dilutive stock options									24,895	20,538	2,615
Diluted									9,755,692	10,008,860	10,304,816
Earnings per share:
Basic	$ 0.08	$ (0.07)	$ 0.07	$ 0.04	$ 0.08	$ 0.07	$ 0.07	$ 0.02	$ 0.11	$ 0.24	$ 0.29
Diluted	$ 0.08	$ (0.07)	$ 0.07	$ 0.04	$ 0.08	$ 0.07	$ 0.07	$ 0.02	$ 0.11	$ 0.24	$ 0.29

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Additional Info Related to Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	$ 15,176	$ 14,391	$ 6,629
Interest Income Recognized	419	376	165
Interest Income Recognized on Cash Basis	164	29	10
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	6,113	5,739	2,979
Interest Income Recognized	151	64	5
Interest Income Recognized on Cash Basis	126	29	5
Real estate: Multi-family and commercial [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	8,048	8,035	3,169
Interest Income Recognized	260	312	155
Interest Income Recognized on Cash Basis	32	0	0
Real estate: Construction [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment			316
Interest Income Recognized			0
Interest Income Recognized on Cash Basis			0
Commercial business: Other [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	602	421	165
Interest Income Recognized	4	0	5
Interest Income Recognized on Cash Basis	2	0	5
Consumer: Home equity [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	413	196
Interest Income Recognized	4	0
Interest Income Recognized on Cash Basis	$ 4	$ 0

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Fair Value - Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Financial Assets [Abstract]
Cash and cash equivalents	$ 37,689	$ 48,412	$ 78,321	$ 24,204
Available for sale securities, at fair value	176,513	230,814
Loans held for sale	5,100	5,600
Loans and Leases Receivable, Net Amount	685,163	618,626
Federal Home Loan Bank Stock	8,078	8,388
Accrued interest receivable	3,215	3,539
Financial Liabilities [Abstract]
Deposits	705,148	701,926
Mortgagors' and investors' escrow accounts	3,207	3,291
Federal Home Loan Bank advances	98,069	100,069
Junior subordinated debt owed to unconsolidated trust	8,248	8,248
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial Assets [Abstract]
Cash and cash equivalents	37,689	48,412
Available for sale securities, at fair value	176,513	230,814
Loans held for sale	5,069	5,558
Loans and Leases Receivable, Net Amount	685,163	618,626
Federal Home Loan Bank Stock	8,078	8,388
Accrued interest receivable	3,215	3,539
Financial Liabilities [Abstract]
Deposits	705,148	701,926
Mortgagors' and investors' escrow accounts	3,207	3,291
Federal Home Loan Bank advances	98,069	100,069
Junior subordinated debt owed to unconsolidated trust	8,248	8,248
Derivative Assets [Abstract]
Derivative Loan Commitments	13	78
Forward Sale Loan Commitments, Asset	4	4
Derivative Liabilities [Abstract]
Derivative Loan Commitments, Liability	3
Forward Sale Loan Commitments, Liability	1	90
Interest Rate Derivative Liabilities, at Fair Value	849	462
Estimate of Fair Value, Fair Value Disclosure [Member]
Financial Assets [Abstract]
Cash and Cash Equivalents, Fair Value Disclosure	37,689	48,412
Available-for-sale Securities, Fair Value Disclosure	176,513	230,814
Loans Held-for-sale, Fair Value Disclosure	5,232	5,652
Loans Receivable, Fair Value Disclosure	703,925	629,142
Federal Home Loan Bank Stock, Fair Value Disclosure	8,078	8,388
Interest Receivable, Fair Value Disclosure	3,215	3,539
Financial Liabilities [Abstract]
Deposits, Fair Value Disclosure	709,357	704,333
Motgagors' and investors' escrow accounts, Fair Value Disclosure	3,207	3,291
Federal Home Loan Bank Borrowings, Fair Value Disclosure	102,919	105,666
Junior subordinated debt owed to unconsolidated trust, Fair Value Disclosure	5,268	4,399
Derivative Assets [Abstract]
Derivative Loan Commitments	13	78
Forward Sale Loan Commitments, Asset	4	4
Derivative Liabilities [Abstract]
Derivative Loan Commitments, Liability	3
Forward Sale Loan Commitments, Liability	1	90
Interest Rate Derivative Liabilities, at Fair Value	849	462
Fair Value, Inputs, Level 1 [Member]
Financial Assets [Abstract]
Cash and Cash Equivalents, Fair Value Disclosure	37,689	48,412
Available-for-sale Securities, Fair Value Disclosure	1,035	2,866
Loans Held-for-sale, Fair Value Disclosure	0	0
Loans Receivable, Fair Value Disclosure	0	0
Federal Home Loan Bank Stock, Fair Value Disclosure	0	0
Interest Receivable, Fair Value Disclosure	0	0
Financial Liabilities [Abstract]
Deposits, Fair Value Disclosure	0	0
Motgagors' and investors' escrow accounts, Fair Value Disclosure	0	0
Federal Home Loan Bank Borrowings, Fair Value Disclosure	0	0
Junior subordinated debt owed to unconsolidated trust, Fair Value Disclosure	0	0
Derivative Assets [Abstract]
Derivative Loan Commitments	0	0
Forward Sale Loan Commitments, Asset	0	0
Derivative Liabilities [Abstract]
Derivative Loan Commitments, Liability	0
Forward Sale Loan Commitments, Liability	0	0
Interest Rate Derivative Liabilities, at Fair Value	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Assets [Abstract]
Cash and Cash Equivalents, Fair Value Disclosure	0	0
Available-for-sale Securities, Fair Value Disclosure	171,082	225,031
Loans Held-for-sale, Fair Value Disclosure	0	0
Loans Receivable, Fair Value Disclosure	0	0
Federal Home Loan Bank Stock, Fair Value Disclosure	0	0
Interest Receivable, Fair Value Disclosure	0	0
Financial Liabilities [Abstract]
Deposits, Fair Value Disclosure	0	0
Motgagors' and investors' escrow accounts, Fair Value Disclosure	0	0
Federal Home Loan Bank Borrowings, Fair Value Disclosure	102,919	105,666
Junior subordinated debt owed to unconsolidated trust, Fair Value Disclosure	5,268	4,399
Derivative Assets [Abstract]
Derivative Loan Commitments	0	0
Forward Sale Loan Commitments, Asset	0	0
Derivative Liabilities [Abstract]
Derivative Loan Commitments, Liability	0
Forward Sale Loan Commitments, Liability	0	0
Interest Rate Derivative Liabilities, at Fair Value	849	462
Fair Value, Inputs, Level 3 [Member]
Financial Assets [Abstract]
Cash and Cash Equivalents, Fair Value Disclosure	0	0
Available-for-sale Securities, Fair Value Disclosure	4,396	2,917
Loans Held-for-sale, Fair Value Disclosure	5,232	5,652
Loans Receivable, Fair Value Disclosure	703,925	629,142
Federal Home Loan Bank Stock, Fair Value Disclosure	8,078	8,388
Interest Receivable, Fair Value Disclosure	3,215	3,539
Financial Liabilities [Abstract]
Deposits, Fair Value Disclosure	709,357	704,333
Motgagors' and investors' escrow accounts, Fair Value Disclosure	3,207	3,291
Federal Home Loan Bank Borrowings, Fair Value Disclosure	0	0
Junior subordinated debt owed to unconsolidated trust, Fair Value Disclosure	0	0
Derivative Assets [Abstract]
Derivative Loan Commitments	13	78
Forward Sale Loan Commitments, Asset	4	4
Derivative Liabilities [Abstract]
Derivative Loan Commitments, Liability	3
Forward Sale Loan Commitments, Liability	1	90
Interest Rate Derivative Liabilities, at Fair Value	$ 0	$ 0

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Securities OTTI Roll-Forward (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Balance at beginning of period	$ 1,207	$ 1,093	$ 1,787
Reduction for securities transferred to trading during period	0	0	(1,186)
Amounts related to credit losses for which OTTI losses were not previously recognized	0	148	0
Additional credit losses for which OTTI losses were previously recognized	123	0	492
Reduction for permanent loss in value of securities during period	(1,071)	0	0
Reduction for securities sold during the period (realized)	0	(34)	0
Balance at end of period	$ 259	$ 1,207	$ 1,093

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments

At December 31, 2012, information pertaining to the Company's interest rate swap agreement not designated as a hedge is as follows:

	December 31, 2012
	(Dollars in Thousands)
Notional amount	$	15,000
Weighted average fixed pay rate	1.26		%
Weighted average variable receive rate	0.35		%
Weighted average maturity in years	4.0
Unrealized loss relating to interest rate swap	$	379

At December 31, 2012 and 2011, the information pertaining to the outstanding interest rate swap agreement used to hedge variable rate debt is as follows:

	December 31,
	2012			2011
	(Dollars in Thousands)
Notional amount	$	8,000		$	8,000
Weighted average fixed pay rate	2.44		%	2.44		%
Weighted average variable receive rate	0.31		%	0.55		%
Weighted average maturity in years	3.0			4.0
Unrealized loss relating to interest rate swap	$	470		$	462

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following table presents the fair values of derivative instruments as well as their classification on the consolidated balance sheets at December 31, 2012 and 2011.

		December 31, 2012					December 31, 2011
	Balance Sheet Location	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
	(In Thousands)
Derivative designated as hedging instrument:
Interest rate swap	Other Liabilities	$	8,000	$	(470	)	$	8,000	(462	)
Derivatives not designated as hedging instruments:
Interest rate swap	Other Liabilities	15,000		(379		)	—		—
Derivative loan commitments	Other Assets	7,844		10			9,074		78
Forward loan sale commitments	Other Assets (Liabilities)	5,919		3			9,108		(86	)

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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

SI Financial Group, Inc. (the “Company”) is the holding company for Savings Institute Bank and Trust Company (the “Bank”).  Established in 1842, the Bank is a community-oriented financial institution headquartered in Willimantic, Connecticut.  The Bank provides a variety of financial services to individuals, businesses and municipalities through its twenty offices in eastern Connecticut.  Its primary products include savings, checking and certificate of deposit accounts, residential and commercial mortgage loans, commercial business loans and consumer loans.  In addition, wealth management services, which include trust, financial planning, life insurance and investment services, are offered to individuals and businesses through the Bank’s offices.  The Company does not conduct any material business other than owning all of the stock of the Bank and making payments on the subordinated debentures held by the Company.

The Company is the successor to the former federally-chartered SI Financial Group, Inc., the former holding company for the Bank when the Bank was organized in the mutual holding company structure. In January 2011, the Company completed a public stock offering and concurrent conversion of the Bank from the mutual holding company to the stock form of organization. A total of 6,544,493 shares of common stock were sold at $8.00 per share.  Additional shares totaling 4,032,356 were issued in exchange for shares of the former federally-chartered SI Financial Group, Inc., at an exchange ratio of 0.8981.  Shares outstanding after the stock offering and the exchange totaled 10,576,849.  Earnings per share and the weighted average common shares outstanding for the year ended December 31, 2010 have been restated to reflect the exchange.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 803 Financial Corp., SI Mortgage Company and SI Realty Company, Inc.  All significant intercompany accounts and transactions have been eliminated.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheets and reported amounts of revenues and expenses for the years presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment (“OTTI”) of securities, deferred income taxes and the impairment of long-lived assets.

Reclassifications

Certain amounts in the Company’s consolidated financial statements have been reclassified to conform to the 2012 presentation.  Such reclassifications had no effect on net income.

Significant Group Concentrations of Credit Risk

A majority of the Company’s activities are with customers located within eastern Connecticut.  The Company does not have any significant concentrations in any one industry or customer.  See Notes 3 and 4 for details relating to the Company’s investment and lending activities.

Cash and Cash Equivalents and Statements of Cash Flows

Cash and due from banks, federal funds sold and short-term investments with maturities at date of purchase of less than 90 days are recognized as cash equivalents in the statements of cash flows.  Federal funds sold generally mature in one day.  For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.  Cash flows from loans and deposits are reported on a net basis.  The Company maintains amounts due from banks and federal funds sold that, at times, may exceed federally insured limits.  The Company has not experienced any losses from such concentrations.

Fair Value Hierarchy

The Company groups its assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Transfers between levels are recognized at the end of a reporting period, if applicable.

Securities

Management determines the appropriate classification of securities at the date individual securities are acquired, and the appropriateness of such classification is reassessed at each reporting 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.  Securities that are held principally for the purpose of trading in the near term are classified as “trading securities.”  Trading securities are carried at fair value, with unrealized gains and losses recognized in earnings.  Interest and dividends are included in net interest income.  Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of taxes.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

At each reporting period, the Company evaluates securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other than temporary. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an OTTI condition, such as the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuers.  OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other-than-temporary, the declines in fair value are reflected in earnings as realized losses.  For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and noncredit-related OTTI is recognized in other comprehensive income, net of applicable taxes.  See Notes 3 and 15 for more details.

Federal Home Loan Bank Stock

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLB”), is required to maintain an investment in capital stock of the FHLB.  Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost.  At its discretion, the FHLB may declare dividends on its stock.  The stock is redeemable at par by the FHLB and the Company’s ability to redeem the shares owned is dependent on the redemption practices of the FHLB.  The Company reviews its investment in FHLB stock for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.  No impairment charges were recognized for the years ended December 31, 2012, 2011 and 2010.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income.  Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date and reported within mortgage banking activities on the accompanying consolidated statements of income.

Loans Receivable

Loans receivable are stated at current unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees and costs.  Management has the ability and intent to hold its loans receivable for the foreseeable future or until maturity or pay-off.

A loan is impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for residential and commercial mortgage loans and commercial business loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not typically identify individual consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments, due to the borrower’s financial condition, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired.

Management considers all nonaccrual loans, with the exception of certain consumer loans, and TDRs to be impaired.  In most cases, loan payments less than 90 days past due are considered minor collection delays and the related loans are generally not considered impaired.

Allowance for Loan Losses

The allowance for loan losses, a material estimate which could change significantly in the near-term, is established through a provision for loan losses charged to earnings to account for losses that are inherent in the loan portfolio and estimated to occur, and is maintained at a level that management considers adequate to absorb losses in the

loan portfolio.  Loan losses are charged against the allowance for loan losses when management believes that the uncollectibility of the principal loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance for loan losses when received.  In the determination of the allowance for loan losses, management may obtain independent appraisals for significant properties, if necessary.

Management's judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan losses is evaluated on a monthly basis by management and is based on the evaluation of the known and inherent risk characteristics and size and composition of the loan portfolio, the assessment of current economic and real estate market conditions, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, historical loan loss experience, the level of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

The allowance for loan losses consists of the following key elements:

◦ Specific allowance for identified impaired loans.  For loans that are identified as impaired, an allowance is established when the present value of expected cash flows (or observable market price of the loan or fair value of the collateral if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan.

◦ General valuation allowance.  The general component represents a valuation allowance on the remainder of the loan portfolio, after excluding impaired loans.  For this portion of the allowance, loans are segregated by category and assigned an allowance percentage based on historical loan loss experience adjusted for qualitative factors stratified by the following loan segments:  residential one- to four-family, multi-family and commercial real estate, construction, commercial business and consumer.   Management uses a rolling average of historical losses based on the time frame appropriate to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies, classified loans and nonaccrual loans; level of loan charge-offs; trends in volume, nature and terms of loans; existence and effect of/or changes in the level of credit concentrations; effects of changes in risk selection, underwriting standards and other changes in lending policies, procedures and practices; experience/ability and depth of lending management and staff, national and local economic trends and conditions and impact on value of underlying collateral for collateral dependent loans.

The qualitative factors are determined based on the following various risk characteristics for each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential – One- to Four-Family – The Bank primarily originates conventional loans with loan-to-value ratios less than 95% and generally originates loans with loan-to-value ratios in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences.  Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Multi-family and Commercial – Loans in this segment are originated for the purpose of acquiring, developing, improving or refinancing multi-family and commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary repayment source.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Payments on loans secured by income-producing properties often depend on the successful operation and management of the properties. Management continually monitors the cash flows of these loans.

Construction – This segment includes loans to individuals, and to a lesser extent builders, to finance the construction of residential dwellings.  The Bank also originates construction loans for commercial development projects.  Upon the completion of construction, the loan generally converts to a permanent mortgage loan.  Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

Commercial Business – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy and reduced viability of the industry in which the customer operates will have a negative impact on the credit quality in this segment. To a lesser extent, the Bank provides financing for investors in the time share industry, which are secured by consumer receivables, and finances capital improvements for condominium associations, which are secured by the assigned rights to levy special assessments to condominium owners.

Consumer – Loans in this segment primarily include home equity lines of credit (representing both first and second liens), and indirect automobile loans and, to a lesser extent, loans secured by marketable securities, passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, as well as unsecured loans.  Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

In computing the allowance for loan losses, we do not assign a general valuation allowance to the Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans that we purchase as such loans are fully guaranteed.  These loans are included in commercial business loans. See Note 4 for details.

The majority of the Company's loans are collateralized by real estate located in eastern Connecticut. To a lesser extent, certain commercial real estate loans are secured by collateral located outside of our primary market area. Accordingly, the collateral value of a substantial portion of the Company's loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.

Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  Furthermore, while management believes it has established the allowance for loan losses in conformity with U.S. generally accepted accounting principles, the regulatory agencies, in reviewing the loan portfolio, may request us to increase our allowance for loan losses based on judgments different from ours.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate or increases may 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 would adversely affect the Company’s financial condition and results of operations.

Interest and Fees on Loans

Interest on loans is accrued and included in net interest income based on contractual rates applied to principal amounts outstanding.  Accrual of interest is discontinued when loan payments are 90 days or more past due, based on contractual terms, or when, in the judgment of management, collectibility of the loan or loan interest becomes uncertain.  Subsequent recognition of income occurs only to the extent payment is received subject to management's assessment of the collectibility of the remaining interest and principal.  A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectibility of interest and principal is no longer in doubt and the borrower has made regular payments in accordance with the terms of the loan over a period of at least six months.  Interest collected on nonaccrual loans is recognized only to the extent cash payments are received, and may be recorded as a reduction to principal if the collectibility of the principal balance of the loan is unlikely.

Loan origination fees and direct loan origination costs are deferred, and the net amount is recognized as an adjustment of the related loan's yield utilizing the interest method over the contractual life of the loan.

Derivative Financial Instruments

Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and measured at fair value.

Interest Rate Swap Agreements - The Company uses interest rate swap agreements as part of its interest rate risk management strategy.  Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period.  The notional amount on which the interest payments are based is not exchanged.  The Company’s swap agreements are derivative instruments and convert a portion of the Company’s variable-rate debt to a fixed-rate.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk.  If periodic assessment indicates derivatives no longer provide an effective hedge, the derivative contracts would be closed out and settled, or classified as a trading activity. For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the hedged debt is deferred and amortized into net interest income over the life of the hedged debt.  The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in noninterest income.

The Company has characterized one of its interest rate swaps as a cash flow hedge.  Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations, and are recorded at fair value in other assets or liabilities within the Company’s balance sheets. Changes in the fair value of these cash flow hedges are initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects earnings. The ineffective portion of the gain or loss on derivative instruments, if any, is recognized in earnings.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in other noninterest income. One of the Company's interest rate swap agreements is not designated as a hedge.  

Derivative Loan Commitments - Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in noninterest income.

Forward Loan Sale Commitments - To protect against the price risk inherent in derivative loan commitments, the Company utilizes “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.  Mandatory delivery contracts are accounted for as derivative instruments.  Mandatory delivery forward loan sale commitments are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in noninterest income.  Subsequent to inception, changes in the fair value of the loan commitment are recognized based on changes in fair value of the underlying mortgage loan due to interest rate changes, changes in the probability the derivative loan commitment will be exercised and the passage of time.  In estimating fair value, the Company assigns a probability to a loan commitment based on an expectation that it will be exercised and the loan will be funded.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and no condition both constrains the transferee from taking advantage of that right and provides more than a trivial benefit for the transferor and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets.

During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation loan or the government guaranteed portion of a loan.  In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a participating interest.  If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing.  In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan.

Other Real Estate Owned

Other real estate owned consists of properties acquired through, or in lieu of, loan foreclosure or other proceedings and is initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, the properties are held for sale and are carried at the lower of carrying amount or fair value less estimated costs of disposal.  Any write-down to fair value at the time of acquisition is charged to the allowance for loan losses.  Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose.  Revenue and expense from the operation of other real estate owned and the provision to establish and adjust valuation allowances are included in noninterest expenses.  Costs relating to the development and improvement of the property are capitalized, subject to the limit of fair value of the collateral. Gains or losses are included in noninterest expenses upon disposal.  See Note 5 for additional details related to other real estate owned.

Premises and Equipment

Land is carried at cost.  Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the related assets.  Leasehold improvements are amortized over the shorter of the estimated economic lives of the improvements or the expected lease terms.  Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.  

The estimated useful lives of the assets are as follows:

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	5 to 20 years

Gains and losses on dispositions are recognized upon realization.  Maintenance and repairs are expensed as incurred and improvements are capitalized.

Bank-owned Life Insurance

Bank-owned life insurance policies are presented on the consolidated balance sheets at cash surrender value. Changes in cash surrender value, as well as gains on the surrender of policies, are reflected in noninterest income on the consolidated statements of income and are not subject to income taxes.  See Note 11 for additional discussion.

Servicing

The Company services mortgage loans for others.  Mortgage servicing assets are recognized as separate assets at fair value when rights are acquired through purchase or retained through the sale of financial assets.  Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  Capitalized servicing rights are reported in other assets and are amortized into mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the amortized cost. Impairment is determined by stratifying rights by predominant risk characteristics, such as interest rate, loan type and investor type.  Impairment is recognized through a valuation allowance for an individual stratum, to the extent that the fair value is less than the capitalized amount for the stratum.  Changes in the valuation allowance are reported in loan servicing fee income.

Servicing fee income is recorded for fees earned for servicing loans, which is included in mortgage banking income.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  

Impairment of Long-lived Assets

Long-lived assets, including premises and equipment and certain identifiable intangible assets that are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If impairment is indicated by that review, the asset is written down to its estimated fair value through a charge to earnings.

Other Investments

The Company is a limited partner in three Small Business Investment Companies (“SBICs”), which are licensed by the Small Business Administration.  They provide mezzanine financing and private equity investments to small companies which may not otherwise qualify for standard bank financing.  The Company records its investment in the SBICs at cost and evaluates its investment for impairment on a quarterly basis.  Impairment that is considered by management to be other-than-temporary, results in a write-down of the investment which is recognized as a charge to earnings.  See Note 12 regarding the Bank's investment in and outstanding capital commitments to the limited partnerships.

Trust Assets

Trust assets held in a fiduciary or agency capacity, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company.  Trust fees are recognized on the accrual basis of accounting.

Related Party Transactions

Directors, officers and affiliates of the Company and the Bank have been customers of and have had transactions with the Bank, and it is expected that such persons will continue to have such transactions in the future. Management believes that all deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who were not directors, officers or affiliates.  In the opinion of management, the transactions with related parties did not involve more than the normal risk of collectibility, favored treatment or terms or present other unfavorable features.  See Note 13 for details regarding related party transactions.

Employee Stock Ownership Plan

The loans to the Employee Stock Ownership Plan ("ESOP") are repaid from the Bank’s contributions to the ESOP and dividends payable on common stock held by the ESOP over an initial period of 15 years for the first loan and 20 years for the second loan.  Unearned compensation applicable to the ESOP is reflected as a reduction of shareholders’ equity on the consolidated balance sheets. Compensation expense is recognized as ESOP shares are committed to be released and is based on the average fair market value of the shares during the period.  The difference between the average fair value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in capital. Unallocated ESOP shares are not considered outstanding for calculating earnings per share.  Dividends paid on allocated ESOP shares are charged to retained earnings and dividends paid on unallocated ESOP shares are used to satisfy debt service.  See Note 11 for additional discussion.

Equity Incentive Plan

The Company measures and recognizes compensation cost relating to share-based compensation based on the grant date fair value of the equity instruments issued.  Share-based compensation is recognized on a straight-line basis over the period of service or performance for the award.   Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience.  The fair value of each restricted stock allocation, equal to the market price at the date of grant, is recorded as unearned restricted shares.  The fair value of each stock option award is determined on the date of grant using the Black-Scholes option pricing model, which includes several assumptions such as expected volatility, dividends, term and risk-free rate for each stock option award.  See Note 11 for additional discussion.

Income Taxes

Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities.  These judgments require the Company to make projections of future taxable income.  These judgments and estimates, which are inherently subjective, are reviewed periodically as regulatory and business factors change.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company does not have any uncertain tax positions which require accrual or disclosure at December 31, 2012 or 2011.  In accordance with the provisions of applicable accounting guidance, in future periods, the Company may record a liability for unrecognized tax benefits related to the recognition, derecognition or change in measurement of a tax position as a result of new tax positions, changes in management’s judgment about the level of uncertainty of existing tax positions, expiration of open income tax returns due to the statutes of limitation, status of examinations and litigation and legislative activity.  The Company has elected to report future interest and penalties related to unrecognized tax benefits, if any, as income tax expense in the Company’s consolidated statements of income.  No interest or penalties were recorded for the years ended December 31, 2012, 2011 and 2010.

Income tax benefits related to stock compensation in excess of grant date fair value less any proceeds on exercise are recognized as an increase to additional paid-in capital upon vesting or exercising and delivery of the stock.  Any income tax effects related to stock compensation that are less than grant date fair value less any proceeds on exercise would be recognized as a reduction of additional paid-in capital to the extent of previously recognized income tax benefits and then through income tax expense for the remaining amount.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and certain cash flow hedges, are reported as a separate component of shareholders’ equity, such items, along with net income, are components of comprehensive income.  See Note 15 for components of other comprehensive income and the related tax effects.

Common Share Repurchases

The Company is chartered in the state of Maryland. Maryland law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized but unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock and retained earnings balances.

Earnings Per Share

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Unvested restricted shares are considered outstanding in the computation of basic earnings per share since the shares participate in dividends and the rights to the dividends are non-forfeitable.  Diluted earnings per share is computed in a manner similar to basic earnings per 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 equivalents were issued during the period.  The Company’s common stock equivalents relate solely to stock options.  Repurchased common shares and unallocated common shares held by the Bank's ESOP are not deemed outstanding for earnings per share calculations.

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented, and are not considered in diluted earnings per share calculations. The Company had 323,011, 443,026 and 420,200 anti-dilutive common shares outstanding for the years ended December 31, 2012, 2011 and 2010, respectively. The computation of earnings per share is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands, Except Share Amounts)
Net income	$	1,118	$	2,417	$	3,003
Weighted average common shares outstanding:
Basic	9,730,797		9,988,322		10,302,201
Effect of dilutive stock options	24,895		20,538		2,615
Diluted	9,755,692		10,008,860		10,304,816
Earnings per share:
Basic	$	0.11	$	0.24	$	0.29
Diluted	$	0.11	$	0.24	$	0.29

Business Segment Reporting

Public companies are required to report (i) certain financial and descriptive information about “reportable operating segments,” as defined, and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers.  An operating segment is a component of a business for which separate financial information is available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance.  The Company’s operations are limited to financial services provided within the framework of a community bank, and decisions are generally based on specific market areas and or product offerings.  Accordingly, based on the financial information presently evaluated by the Company’s chief operating decision-maker, the Company’s operations are aggregated in one reportable operating segment.

Advertising Costs

Advertising costs are expensed as incurred.

Recent Accounting Pronouncements

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements- In May 2011, the Financial Accounting Standards Board ("FASB") amended its standard related to fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards. The amendments (1) change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurement, (2) clarify the intent of the application of existing fair value measurement requirements and (3) change the requirements for measuring fair value and for disclosing information about fair value. The amendments are not intended to change the application of existing requirements for fair value measurement. The amendments should be applied prospectively effective during the first interim and annual periods beginning after December 15, 2011. The adoption of these amendments did not have a material impact on the Company's consolidated financial statements.

Testing of Goodwill for Impairment - In September 2011, the FASB amended its standard related to how entities test goodwill for impairment. Under this amendment, an entity is now permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Under this amendment, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year. The amendments in this update were effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

Disclosures about Offsetting Assets and Liabilities - In December 2011, the FASB amended its standard related to disclosure requirements for offsetting assets and liabilities. Under this amendment, an entity will be required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities - In January 2013, the FASB issued amendments to clarify that the scope of Disclosures about Offsetting Assets and Liabilities applies to derivatives accounted for in accordance with Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, securities borrowing and securities lending transactions that are either offset in accordance with applicable guidance or subject to an enforceable master netting arrangement or similar agreement. The amendments in this update are effective for fiscal years beginning on or after

January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income - In February 2012, the FASB issued an amendment to improve the transparency of reporting these reclassifications by requiring an organization to 1) present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income and 2) cross-reference to other disclosures currently required under GAAP for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. The amendments are effective for reporting periods beginning after December 15, 2012 with early adoption permitted. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

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COMMON STOCK REPURCHASE PROGRAM (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	May 08, 2012
Common Stock Repurchase Program [Abstract]
Treasury stock purchased			10,517
Stock Repurchase Program, Up to 5% Percent of Company's Stock to be Repurchased				5.00%
Stock Repurchase Program, Number of Shares Authorized to be Repurchased				528,815
Stock Repurchased During Period, Shares	465,788	547
Stock Repurchased During Period, Value	$ 5,300	$ 5

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Loan Portfolio (Details) (USD $) In Thousands, unless otherwise specified																					12 Months Ended										12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Total real estate loans [Member]	Dec. 31, 2011 Total real estate loans [Member]	Dec. 31, 2012 Real estate: Residential - 1 to 4 family [Member]	Dec. 31, 2011 Real estate: Residential - 1 to 4 family [Member]	Dec. 31, 2010 Real estate: Residential - 1 to 4 family [Member]	Dec. 31, 2009 Real estate: Residential - 1 to 4 family [Member]	Dec. 31, 2012 Real estate: Multi-family and commercial [Member]	Dec. 31, 2011 Real estate: Multi-family and commercial [Member]	Dec. 31, 2010 Real estate: Multi-family and commercial [Member]	Dec. 31, 2009 Real estate: Multi-family and commercial [Member]	Dec. 31, 2012 Real estate: Construction [Member]	Dec. 31, 2011 Real estate: Construction [Member]	Dec. 31, 2010 Real estate: Construction [Member]	Dec. 31, 2009 Real estate: Construction [Member]	Dec. 31, 2012 Total commercial business loans [Member]	Dec. 31, 2011 Total commercial business loans [Member]	Dec. 31, 2010 Total commercial business loans [Member]	Dec. 31, 2009 Total commercial business loans [Member]	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Commercial business: Other [Member]	Dec. 31, 2011 Commercial business: Other [Member]	Dec. 31, 2012 Total consumer loans [Member]	Dec. 31, 2011 Total consumer loans [Member]	Dec. 31, 2010 Total consumer loans [Member]	Dec. 31, 2009 Total consumer loans [Member]	Dec. 31, 2012 Consumer: Home equity [Member]	Dec. 31, 2011 Consumer: Home equity [Member]	Dec. 31, 2012 Consumer: Indirect automobile [Member]	Dec. 31, 2011 Consumer: Indirect automobile [Member]	Dec. 31, 2012 Consumer: Other [Member]	Dec. 31, 2011 Consumer: Other [Member]	Dec. 31, 2012 Deferred loan origination costs, net of fees [Member]	Dec. 31, 2011 Deferred loan origination costs, net of fees [Member]	Dec. 31, 2012 Allowance for loan losses [Member]	Dec. 31, 2011 Allowance for loan losses [Member]	Dec. 31, 2010 Allowance for loan losses [Member]	Dec. 31, 2009 Allowance for loan losses [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 689,806	$ 621,883	$ 435,899	$ 418,100	$ 230,664	$ 247,426			$ 201,951	$ 158,384			$ 3,284	$ 12,290			$ 213,527	$ 167,801			$ 148,385	$ 127,359	$ 65,142	$ 40,442	$ 40,380	$ 35,982			$ 28,375	$ 27,425	$ 9,652	$ 5,733	$ 2,353	$ 2,824
Deferred loan origination costs, net of fees																																			1,744	1,713
Allowance for loan losses	(6,387)	(4,970)			(1,125)	(759)	(915)	(1,028)	(3,028)	(2,337)	(2,700)	(2,443)	(22)	(280)	(64)	(221)	(1,735)	(1,148)	(790)	(906)					(477)	(446)	(330)	(293)									(6,387)	(4,970)	(4,799)	(4,891)
Loans receivable, net	685,163	618,626
Financing Receivable, Significant Purchases																					$ 42,907	$ 41,200									$ 6,861	$ 5,802

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

Changes in loans outstanding to such related parties during the years ended December 31, 2012 and 2011 are as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Balance at beginning of year	$	2,063		$	2,038
Additions	362			247
Repayments	(477		)	(222		)
Balance at end of year	$	1,948		$	2,063

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QUARTERLY DATA (UNAUDITED)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information

QUARTERLY DATA (UNAUDITED)

Quarterly results of operations for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31, 2012									Year Ended December 31, 2011
	Fourth Quarter		Third Quarter			Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	(In Thousands, Except Share Amounts)
Interest and dividend income	$	8,863	$	8,862		$	8,878	$	9,221	$	9,265	$	9,451	$	9,584	$	9,520
Interest expense	2,322		2,368			2,392		2,551		2,638		2,815		2,932		2,992
Net interest and dividend income	6,541		6,494			6,486		6,670		6,627		6,636		6,652		6,528
Provision for loan losses	646		1,334			432		484		948		210		190		210
Net interest and dividend income after provision for loan losses	5,895		5,160			6,054		6,186		5,679		6,426		6,462		6,318
Noninterest income	2,398		1,232			2,326		2,761		2,885		2,697		2,896		2,649
Noninterest expenses	7,338		7,408			7,557		8,350		7,522		8,047		8,310		8,713
Income (loss) before income taxes	955		(1,016		)	823		597		1,042		1,076		1,048		254
Income tax provision (benefit)	210		(316		)	153		194		281		336		341		45
Net income (loss)	$	745	$	(700	)	$	670	$	403	$	761	$	740	$	707	$	209
Earnings (loss) per share:
Basic	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02
Diluted	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02

Quarterly per share data may not add to annual data due to rounding

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CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

12 Months Ended

Dec. 31, 2012

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Financial Information of Parent Company Only Disclosure

CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Condensed financial information pertaining only to the parent company, SI Financial Group, Inc., is as follows:

	December 31,
Condensed Balance Sheets	2012		2011
Assets:	(In Thousands)
Cash and cash equivalents	$	9,591	$	15,112
Available for sale securities	8,380		10,575
Investment in Savings Institute Bank and Trust Company	109,948		106,023
ESOP note receivable	5,600		6,035
Other assets	991		1,510
Total assets	$	134,510	$	139,255
Liabilities and Shareholders' Equity:
Liabilities	$	8,751	$	8,738
Shareholders' equity	125,759		130,517
Total liabilities and shareholders' equity	$	134,510	$	139,255

	Years Ended December 31,
Condensed Statements of Income	2012			2011			2010
	(In Thousands)
Interest and dividends on investments	$	159		$	248		$	128
Other income	399			484			223
Total income	558			732			351
Operating expenses	758			1,275			492
Loss before income taxes and equity in undistributed net income	(200		)	(543		)	(141		)
Income tax benefit	(35		)	(185		)	(136		)
Loss before equity in undistributed net income of subsidiary	(165		)	(358		)	(5		)
Equity in undistributed net income of subsidiary	1,283			2,775			3,008
Net income	$	1,118		$	2,417		$	3,003

	Years Ended December 31,
Condensed Statements of Cash Flows	2012			2011			2010
	(In Thousands)
Cash flows from operating activities:
Net income	$	1,118		$	2,417		$	3,003
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of subsidiary	(1,283		)	(2,775		)	(3,008		)
Excess tax benefit from share-based payment arrangements	(4		)	(3		)	—
Deferred income taxes	60			(104		)	72
Other, net	163			(497		)	(10		)
Cash provided by (used in) operating activities	54			(962		)	57
Cash flows from investing activities:
Purchase of available for sale securities	(1,907		)	(8,277		)	(4,900		)
Proceeds from maturities of available for sale securities	2,069			2,000			4,000
Proceeds from sale of available for sale securities	2,025			2,300			10
Payments received on ESOP note receivable	435			421			290
Issuance of ESOP note receivable	—			(3,141		)	—
Investment in subsidiary	499			(29,450		)	493
Cash provided by (used in) investing activities	3,121			(36,147		)	(107		)
Cash flows from financing activities:
Purchase of shares for equity plan	(2,238		)	—			—
Stock options exercised	10			—			—
Common shares repurchased	(5,301		)	(5		)	(74		)
Cash dividends on common stock	(1,171		)	(1,191		)	(375		)
Excess tax benefit from share-based payment arrangements	4			3			—
Net proceeds from common stock offering	—			51,099			(769		)
Cash (used in) provided by financing activities	(8,696		)	49,906			(1,218		)
Net change in cash and cash equivalents	(5,521		)	12,797			(1,268		)
Cash and cash equivalents at beginning of year	15,112			2,315			3,583
Cash and cash equivalents at end of year	$	9,591		$	15,112		$	2,315

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Operating Lease Commitments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Commitments and Contingencies Disclosure [Abstract]
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 1,277
Operating Leases, Future Minimum Payments, Due in Two Years	1,275
Operating Leases, Future Minimum Payments, Due in Three Years	1,095
Operating Leases, Future Minimum Payments, Due in Four Years	929
Operating Leases, Future Minimum Payments, Due in Five Years	763
Operating Leases, Future Minimum Payments, Due Thereafter	4,924
Operating Leases, Future Minimum Payments Due	10,263
Operating Leases, Rent Expense	$ 1,300	$ 1,400	$ 1,300

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Debt Securities by Contractual Maturities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]
Within 1 year, Amortized Cost	$ 8,382
Within 1 year, Fair Value	8,484
After 1 but within 5 years, Amortized Cost	25,699
After 1 but within 5 years, Fair Value	26,475
After 5 but within 10 years, Amortized Cost	17,223
After 5 but within 10 years, Fair Value	17,426
After 10 years, Amortized Cost	45,861
After 10 years, Fair Value	45,395
Available-for-Sale Securities, Debt Maturities, excluding Mortgage-Backed Securities, Amortized Cost	97,165
Available-for-Sale, Debt Securities, excluding Mortgage-Backed Securities	97,780
Mortgage-backed securities, Amortized Cost	76,738
Mortgage-backed securities, Fair Value	78,733
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	173,903
Available-for-sale Securities, Debt Securities	$ 176,513

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REGULATORY CAPITAL (Tables)

12 Months Ended

Dec. 31, 2012

Banking and Thrift [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

The Bank's actual capital amounts and ratios at December 31, 2012 and 2011 were as follows:

December 31, 2012	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	103,547	11.08	%	$	37,382	4.00	%	$	46,727	5.00	%
Tier I Risk-based Capital Ratio	103,547		20.20		20,504		4.00		30,757		6.00
Total Risk-based Capital Ratio	109,751		21.41		41,009		8.00		51,262		10.00
Tangible Equity Ratio	103,547		11.08		14,018		1.50		N/A		N/A

December 31, 2011	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	101,574	10.86	%	$	37,412	4.00	%	$	46,765	5.00	%
Tier I Risk-based Capital Ratio	101,574		21.09		19,265		4.00		28,897		6.00
Total Risk-based Capital Ratio	106,997		22.21		38,540		8.00		48,175		10.00
Tangible Equity Ratio	101,574		10.86		14,030		1.50		N/A		N/A

Reconciliation of US GAAP and Bank Equity

Reconciliations of the Company’s total capital to the Bank’s regulatory capital are as follows:

	December 31,
	2012			2011
	(In Thousands)
Total capital per consolidated financial statements	$	125,759		$	130,517
Holding company equity not available for regulatory capital	(15,811		)	(24,495		)
Accumulated (gains) losses on available for sale securities	(1,619		)	477
Intangible assets	(3,451		)	(3,729		)
Disallowed servicing asset	(100		)	—
Disallowed deferred tax asset	(1,231		)	(1,196		)
Total tier 1 capital	103,547			101,574
Adjustments for total capital:
Allowance for loan and credit losses	6,204			5,423
Total capital per regulatory reporting	$	109,751		$	106,997

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

On March 5, 2013, the Company entered into a definitive merger agreement to acquire Newport Bancorp, Inc. Under the terms of the merger agreement, the shareholders of Newport Bancorp will have the right to elect to receive either $17.55 in cash or 1.5129 shares of SI Financial Group's common stock in exchange for each share of Newport Bancorp held by them, subject to certain conditions. The acquisition will add approximately $449.4 million in assets, $355.0 million in loans and $289.7 million in deposits before acquisition accounting adjustments, as well as six full-service banking offices. The Company anticipates the transaction will close in the third quarter of 2013, subject to shareholder and regulatory approvals.

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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 803 Financial Corp., SI Mortgage Company and SI Realty Company, Inc.  All significant intercompany accounts and transactions have been eliminated.

Basis of Accounting, Policy [Policy Text Block]

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheets and reported amounts of revenues and expenses for the years presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment (“OTTI”) of securities, deferred income taxes and the impairment of long-lived assets.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain amounts in the Company’s consolidated financial statements have been reclassified to conform to the 2012 presentation.  Such reclassifications had no effect on net income.

Significant Group Concentrations of Credit Risk, Policy [Policy Text Block]

Significant Group Concentrations of Credit Risk

A majority of the Company’s activities are with customers located within eastern Connecticut.  The Company does not have any significant concentrations in any one industry or customer.  See Notes 3 and 4 for details relating to the Company’s investment and lending activities.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents and Statements of Cash Flows

Cash and due from banks, federal funds sold and short-term investments with maturities at date of purchase of less than 90 days are recognized as cash equivalents in the statements of cash flows.  Federal funds sold generally mature in one day.  For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.  Cash flows from loans and deposits are reported on a net basis.  The Company maintains amounts due from banks and federal funds sold that, at times, may exceed federally insured limits.  The Company has not experienced any losses from such concentrations.

Fair Value Hierarchy, Policy [Policy Text Block]

Fair Value Hierarchy

The Company groups its assets and liabilities in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Securities, Policy [Policy Text Block]

Securities

Management determines the appropriate classification of securities at the date individual securities are acquired, and the appropriateness of such classification is reassessed at each reporting 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.  Securities that are held principally for the purpose of trading in the near term are classified as “trading securities.”  Trading securities are carried at fair value, with unrealized gains and losses recognized in earnings.  Interest and dividends are included in net interest income.  Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of taxes.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

At each reporting period, the Company evaluates securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other than temporary. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an OTTI condition, such as the type of security, length of time and extent to which the fair value has been less than cost and near-term prospects of the issuers.  OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other-than-temporary, the declines in fair value are reflected in earnings as realized losses.  For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and noncredit-related OTTI is recognized in other comprehensive income, net of applicable taxes.  See Notes 3 and 15 for more details.

Federal Home Loan Bank Stock, Policy [Policy Text Block]

Federal Home Loan Bank Stock

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLB”), is required to maintain an investment in capital stock of the FHLB.  Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost.  At its discretion, the FHLB may declare dividends on its stock.  The stock is redeemable at par by the FHLB and the Company’s ability to redeem the shares owned is dependent on the redemption practices of the FHLB.  The Company reviews its investment in FHLB stock for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.  No impairment charges were recognized for the years ended December 31, 2012, 2011 and 2010.

Loans Held-for-sale, Policy [Policy Text Block]

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income.  Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date and reported within mortgage banking activities on the accompanying consolidated statements of income.

Loans Receivable, Policy [Policy Text Block]

Loans Receivable

Loans receivable are stated at current unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees and costs.  Management has the ability and intent to hold its loans receivable for the foreseeable future or until maturity or pay-off.

A loan is impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for residential and commercial mortgage loans and commercial business loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not typically identify individual consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments, due to the borrower’s financial condition, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired.

Management considers all nonaccrual loans, with the exception of certain consumer loans, and TDRs to be impaired.  In most cases, loan payments less than 90 days past due are considered minor collection delays and the related loans are generally not considered impaired.

Allowance for Loan Losses, Policy [Policy Text Block]

Allowance for Loan Losses

The allowance for loan losses, a material estimate which could change significantly in the near-term, is established through a provision for loan losses charged to earnings to account for losses that are inherent in the loan portfolio and estimated to occur, and is maintained at a level that management considers adequate to absorb losses in the

loan portfolio.  Loan losses are charged against the allowance for loan losses when management believes that the uncollectibility of the principal loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance for loan losses when received.  In the determination of the allowance for loan losses, management may obtain independent appraisals for significant properties, if necessary.

Management's judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan losses is evaluated on a monthly basis by management and is based on the evaluation of the known and inherent risk characteristics and size and composition of the loan portfolio, the assessment of current economic and real estate market conditions, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, historical loan loss experience, the level of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

The allowance for loan losses consists of the following key elements:

◦ Specific allowance for identified impaired loans.  For loans that are identified as impaired, an allowance is established when the present value of expected cash flows (or observable market price of the loan or fair value of the collateral if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan.

◦ General valuation allowance.  The general component represents a valuation allowance on the remainder of the loan portfolio, after excluding impaired loans.  For this portion of the allowance, loans are segregated by category and assigned an allowance percentage based on historical loan loss experience adjusted for qualitative factors stratified by the following loan segments:  residential one- to four-family, multi-family and commercial real estate, construction, commercial business and consumer.   Management uses a rolling average of historical losses based on the time frame appropriate to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies, classified loans and nonaccrual loans; level of loan charge-offs; trends in volume, nature and terms of loans; existence and effect of/or changes in the level of credit concentrations; effects of changes in risk selection, underwriting standards and other changes in lending policies, procedures and practices; experience/ability and depth of lending management and staff, national and local economic trends and conditions and impact on value of underlying collateral for collateral dependent loans.

The qualitative factors are determined based on the following various risk characteristics for each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential – One- to Four-Family – The Bank primarily originates conventional loans with loan-to-value ratios less than 95% and generally originates loans with loan-to-value ratios in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences.  Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Multi-family and Commercial – Loans in this segment are originated for the purpose of acquiring, developing, improving or refinancing multi-family and commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary repayment source.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Payments on loans secured by income-producing properties often depend on the successful operation and management of the properties. Management continually monitors the cash flows of these loans.

Construction – This segment includes loans to individuals, and to a lesser extent builders, to finance the construction of residential dwellings.  The Bank also originates construction loans for commercial development projects.  Upon the completion of construction, the loan generally converts to a permanent mortgage loan.  Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

Commercial Business – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy and reduced viability of the industry in which the customer operates will have a negative impact on the credit quality in this segment. To a lesser extent, the Bank provides financing for investors in the time share industry, which are secured by consumer receivables, and finances capital improvements for condominium associations, which are secured by the assigned rights to levy special assessments to condominium owners.

Consumer – Loans in this segment primarily include home equity lines of credit (representing both first and second liens), and indirect automobile loans and, to a lesser extent, loans secured by marketable securities, passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, as well as unsecured loans.  Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

In computing the allowance for loan losses, we do not assign a general valuation allowance to the Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans that we purchase as such loans are fully guaranteed.  These loans are included in commercial business loans. See Note 4 for details.

The majority of the Company's loans are collateralized by real estate located in eastern Connecticut. To a lesser extent, certain commercial real estate loans are secured by collateral located outside of our primary market area. Accordingly, the collateral value of a substantial portion of the Company's loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.

Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  Furthermore, while management believes it has established the allowance for loan losses in conformity with U.S. generally accepted accounting principles, the regulatory agencies, in reviewing the loan portfolio, may request us to increase our allowance for loan losses based on judgments different from ours.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate or increases may 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 would adversely affect the Company’s financial condition and results of operations.

Interest and Fees on Loans, Policy [Policy Text Block]

Interest and Fees on Loans

Interest on loans is accrued and included in net interest income based on contractual rates applied to principal amounts outstanding.  Accrual of interest is discontinued when loan payments are 90 days or more past due, based on contractual terms, or when, in the judgment of management, collectibility of the loan or loan interest becomes uncertain.  Subsequent recognition of income occurs only to the extent payment is received subject to management's assessment of the collectibility of the remaining interest and principal.  A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectibility of interest and principal is no longer in doubt and the borrower has made regular payments in accordance with the terms of the loan over a period of at least six months.  Interest collected on nonaccrual loans is recognized only to the extent cash payments are received, and may be recorded as a reduction to principal if the collectibility of the principal balance of the loan is unlikely.

Loan origination fees and direct loan origination costs are deferred, and the net amount is recognized as an adjustment of the related loan's yield utilizing the interest method over the contractual life of the loan.

Derivative Financial Instruments, Policy [Policy Text Block]

Derivative Financial Instruments

Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheets and measured at fair value.

Interest Rate Swap Agreements - The Company uses interest rate swap agreements as part of its interest rate risk management strategy.  Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period.  The notional amount on which the interest payments are based is not exchanged.  The Company’s swap agreements are derivative instruments and convert a portion of the Company’s variable-rate debt to a fixed-rate.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk.  If periodic assessment indicates derivatives no longer provide an effective hedge, the derivative contracts would be closed out and settled, or classified as a trading activity. For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the hedged debt is deferred and amortized into net interest income over the life of the hedged debt.  The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in noninterest income.

The Company has characterized one of its interest rate swaps as a cash flow hedge.  Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations, and are recorded at fair value in other assets or liabilities within the Company’s balance sheets. Changes in the fair value of these cash flow hedges are initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the hedged transaction affects earnings. The ineffective portion of the gain or loss on derivative instruments, if any, is recognized in earnings.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in other noninterest income. One of the Company's interest rate swap agreements is not designated as a hedge.  

Derivative Loan Commitments - Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in noninterest income.

Forward Loan Sale Commitments - To protect against the price risk inherent in derivative loan commitments, the Company utilizes “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.  Mandatory delivery contracts are accounted for as derivative instruments.  Mandatory delivery forward loan sale commitments are recognized at fair value on the consolidated balance sheets in other assets and other liabilities with changes in their fair values recorded in noninterest income.  Subsequent to inception, changes in the fair value of the loan commitment are recognized based on changes in fair value of the underlying mortgage loan due to interest rate changes, changes in the probability the derivative loan commitment will be exercised and the passage of time.  In estimating fair value, the Company assigns a probability to a loan commitment based on an expectation that it will be exercised and the loan will be funded.

Transfer of Financial Assets, Policy [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and no condition both constrains the transferee from taking advantage of that right and provides more than a trivial benefit for the transferor and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets.

During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation loan or the government guaranteed portion of a loan.  In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a participating interest.  If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing.  In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan.

Other Real Estate Owned, Policy [Policy Text Block]

Other Real Estate Owned

Other real estate owned consists of properties acquired through, or in lieu of, loan foreclosure or other proceedings and is initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, the properties are held for sale and are carried at the lower of carrying amount or fair value less estimated costs of disposal.  Any write-down to fair value at the time of acquisition is charged to the allowance for loan losses.  Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose.  Revenue and expense from the operation of other real estate owned and the provision to establish and adjust valuation allowances are included in noninterest expenses.  Costs relating to the development and improvement of the property are capitalized, subject to the limit of fair value of the collateral. Gains or losses are included in noninterest expenses upon disposal.  See Note 5 for additional details related to other real estate owned.

Property, Plant and Equipment, Policy [Policy Text Block]

Premises and Equipment

Land is carried at cost.  Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the related assets.  Leasehold improvements are amortized over the shorter of the estimated economic lives of the improvements or the expected lease terms.  Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.  

The estimated useful lives of the assets are as follows:

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	5 to 20 years

Gains and losses on dispositions are recognized upon realization.  Maintenance and repairs are expensed as incurred and improvements are capitalized.

Bank-owned Life Insurance, Policy [Policy Text Block]

Bank-owned Life Insurance

Bank-owned life insurance policies are presented on the consolidated balance sheets at cash surrender value. Changes in cash surrender value, as well as gains on the surrender of policies, are reflected in noninterest income on the consolidated statements of income and are not subject to income taxes.  See Note 11 for additional discussion.

Mortgage Servicing Assets, Policy [Policy Text Block]

Servicing

The Company services mortgage loans for others.  Mortgage servicing assets are recognized as separate assets at fair value when rights are acquired through purchase or retained through the sale of financial assets.  Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  Capitalized servicing rights are reported in other assets and are amortized into mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the amortized cost. Impairment is determined by stratifying rights by predominant risk characteristics, such as interest rate, loan type and investor type.  Impairment is recognized through a valuation allowance for an individual stratum, to the extent that the fair value is less than the capitalized amount for the stratum.  Changes in the valuation allowance are reported in loan servicing fee income.

Servicing fee income is recorded for fees earned for servicing loans, which is included in mortgage banking income.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Impairment of Long-lived Assets

Long-lived assets, including premises and equipment and certain identifiable intangible assets that are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If impairment is indicated by that review, the asset is written down to its estimated fair value through a charge to earnings.

Cost Method Investments, Policy [Policy Text Block]

Other Investments

The Company is a limited partner in three Small Business Investment Companies (“SBICs”), which are licensed by the Small Business Administration.  They provide mezzanine financing and private equity investments to small companies which may not otherwise qualify for standard bank financing.  The Company records its investment in the SBICs at cost and evaluates its investment for impairment on a quarterly basis.  Impairment that is considered by management to be other-than-temporary, results in a write-down of the investment which is recognized as a charge to earnings.  See Note 12 regarding the Bank's investment in and outstanding capital commitments to the limited partnerships.

Trust Assets, Policy [Policy Text Block]

Trust Assets

Trust assets held in a fiduciary or agency capacity, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company.  Trust fees are recognized on the accrual basis of accounting.

Related Party Transactions, Policy [Policy Text Block]

Related Party Transactions

Directors, officers and affiliates of the Company and the Bank have been customers of and have had transactions with the Bank, and it is expected that such persons will continue to have such transactions in the future. Management believes that all deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who were not directors, officers or affiliates.  In the opinion of management, the transactions with related parties did not involve more than the normal risk of collectibility, favored treatment or terms or present other unfavorable features.  See Note 13 for details regarding related party transactions.

Employee Stock Ownership Plan (ESOP), Policy [Policy Text Block]

Employee Stock Ownership Plan

The loans to the Employee Stock Ownership Plan ("ESOP") are repaid from the Bank’s contributions to the ESOP and dividends payable on common stock held by the ESOP over an initial period of 15 years for the first loan and 20 years for the second loan.  Unearned compensation applicable to the ESOP is reflected as a reduction of shareholders’ equity on the consolidated balance sheets. Compensation expense is recognized as ESOP shares are committed to be released and is based on the average fair market value of the shares during the period.  The difference between the average fair value and the cost of the shares allocated by the ESOP is recorded as an adjustment to additional paid-in capital. Unallocated ESOP shares are not considered outstanding for calculating earnings per share.  Dividends paid on allocated ESOP shares are charged to retained earnings and dividends paid on unallocated ESOP shares are used to satisfy debt service.  See Note 11 for additional discussion.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Equity Incentive Plan

The Company measures and recognizes compensation cost relating to share-based compensation based on the grant date fair value of the equity instruments issued.  Share-based compensation is recognized on a straight-line basis over the period of service or performance for the award.   Reductions in compensation expense associated with forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted based on actual forfeiture experience.  The fair value of each restricted stock allocation, equal to the market price at the date of grant, is recorded as unearned restricted shares.  The fair value of each stock option award is determined on the date of grant using the Black-Scholes option pricing model, which includes several assumptions such as expected volatility, dividends, term and risk-free rate for each stock option award.  See Note 11 for additional discussion.

Income Tax, Policy [Policy Text Block]

Income Taxes

Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities.  These judgments require the Company to make projections of future taxable income.  These judgments and estimates, which are inherently subjective, are reviewed periodically as regulatory and business factors change.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The Company does not have any uncertain tax positions which require accrual or disclosure at December 31, 2012 or 2011.  In accordance with the provisions of applicable accounting guidance, in future periods, the Company may record a liability for unrecognized tax benefits related to the recognition, derecognition or change in measurement of a tax position as a result of new tax positions, changes in management’s judgment about the level of uncertainty of existing tax positions, expiration of open income tax returns due to the statutes of limitation, status of examinations and litigation and legislative activity.  The Company has elected to report future interest and penalties related to unrecognized tax benefits, if any, as income tax expense in the Company’s consolidated statements of income.  No interest or penalties were recorded for the years ended December 31, 2012, 2011 and 2010.

Income tax benefits related to stock compensation in excess of grant date fair value less any proceeds on exercise are recognized as an increase to additional paid-in capital upon vesting or exercising and delivery of the stock.  Any income tax effects related to stock compensation that are less than grant date fair value less any proceeds on exercise would be recognized as a reduction of additional paid-in capital to the extent of previously recognized income tax benefits and then through income tax expense for the remaining amount.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and certain cash flow hedges, are reported as a separate component of shareholders’ equity, such items, along with net income, are components of comprehensive income.  See Note 15 for components of other comprehensive income and the related tax effects.

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities are reported as a separate component of shareholders' equity on the balance sheet, such items along with net income are components of comprehensive income.

Stockholders' Equity, Policy [Policy Text Block]

The Company is chartered in the state of Maryland. Maryland law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized but unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock and retained earnings balances.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Unvested restricted shares are considered outstanding in the computation of basic earnings per share since the shares participate in dividends and the rights to the dividends are non-forfeitable.  Diluted earnings per share is computed in a manner similar to basic earnings per 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 equivalents were issued during the period.  The Company’s common stock equivalents relate solely to stock options.  Repurchased common shares and unallocated common shares held by the Bank's ESOP are not deemed outstanding for earnings per share calculations.

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented, and are not considered in diluted earnings per share calculations. The Company had 323,011, 443,026 and 420,200 anti-dilutive common shares outstanding for the years ended December 31, 2012, 2011 and 2010, respectively. The computation of earnings per share is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands, Except Share Amounts)
Net income	$	1,118	$	2,417	$	3,003
Weighted average common shares outstanding:
Basic	9,730,797		9,988,322		10,302,201
Effect of dilutive stock options	24,895		20,538		2,615
Diluted	9,755,692		10,008,860		10,304,816
Earnings per share:
Basic	$	0.11	$	0.24	$	0.29
Diluted	$	0.11	$	0.24	$	0.29

Segment Reporting, Policy [Policy Text Block]

Business Segment Reporting

Public companies are required to report (i) certain financial and descriptive information about “reportable operating segments,” as defined, and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers.  An operating segment is a component of a business for which separate financial information is available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance.  The Company’s operations are limited to financial services provided within the framework of a community bank, and decisions are generally based on specific market areas and or product offerings.  Accordingly, based on the financial information presently evaluated by the Company’s chief operating decision-maker, the Company’s operations are aggregated in one reportable operating segment.

Advertising Cost, Policy, Expensed Advertising Cost [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements- In May 2011, the Financial Accounting Standards Board ("FASB") amended its standard related to fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards. The amendments (1) change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurement, (2) clarify the intent of the application of existing fair value measurement requirements and (3) change the requirements for measuring fair value and for disclosing information about fair value. The amendments are not intended to change the application of existing requirements for fair value measurement. The amendments should be applied prospectively effective during the first interim and annual periods beginning after December 15, 2011. The adoption of these amendments did not have a material impact on the Company's consolidated financial statements.

Testing of Goodwill for Impairment - In September 2011, the FASB amended its standard related to how entities test goodwill for impairment. Under this amendment, an entity is now permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Under this amendment, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year. The amendments in this update were effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

Disclosures about Offsetting Assets and Liabilities - In December 2011, the FASB amended its standard related to disclosure requirements for offsetting assets and liabilities. Under this amendment, an entity will be required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities - In January 2013, the FASB issued amendments to clarify that the scope of Disclosures about Offsetting Assets and Liabilities applies to derivatives accounted for in accordance with Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, securities borrowing and securities lending transactions that are either offset in accordance with applicable guidance or subject to an enforceable master netting arrangement or similar agreement. The amendments in this update are effective for fiscal years beginning on or after

January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income - In February 2012, the FASB issued an amendment to improve the transparency of reporting these reclassifications by requiring an organization to 1) present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income and 2) cross-reference to other disclosures currently required under GAAP for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. The amendments are effective for reporting periods beginning after December 15, 2012 with early adoption permitted. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 1,118,000	$ 2,417,000	$ 3,003,000
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities:
Provision for loan losses	2,896,000	1,558,000	902,000
Employee stock ownership plan expense	543,000	467,000	202,000
Equity incentive plan expense	189,000	100,000	257,000
Excess tax (benefit) expense from share-based compensation	(4,000)	(3,000)	0
Amortization (accretion) of investment premiums and discounts, net	1,168,000	650,000	394,000
Amortization of loan premiums and discounts, net	1,423,000	1,458,000	674,000
Depreciation and amortization of premises and equipment	1,900,000	1,900,000	2,000,000
Amortization of core deposit intangible	11,000	21,000	32,000
Net (gain) loss on sale of securities	(273,000)	(486,000)	(878,000)
Net (gain) loss on trading securities and derivatives	358,000	(195,000)	429,000
Deferred income tax provision (benefit)	(1,100,000)	891,000	(355,000)
Loans originated for sale	(53,552,000)	(47,134,000)	(55,634,000)
Proceeds from sale of loans held for sale	55,260,000	49,098,000	49,107,000
Net loss on disposal of SI Trust Servicing operations	698,000	0	0
Net (gain) loss on sale of loans held for sale	(1,646,000)	(611,000)	(887,000)
Net (gain) loss on sale of loans held for investment	0	(275,000)	0
Net (gain) loss on disposal of equipment	5,000	41,000	5,000
Net (gain) loss on sales or write-downs of other real estate owned	60,000	236,000	534,000
Increase in cash surrender value of bank-owned life insurance	(284,000)	(289,000)	(290,000)
(Gain) loss on bank-owned life insurance proceeds	(349,000)	(122,000)	0
Impairment loss on long-lived assets	392,000	0	0
Other-than-temporary impairment losses on securities	123,000	148,000	492,000
Change in operating assets and liabilities:
Accrued interest receivable	324,000	(443,000)	228,000
Other assets	1,796,000	1,783,000	292,000
Accrued expenses and other liabilities	1,232,000	62,000	2,129,000
Net cash provided by (used in) operating activities	12,240,000	11,319,000	2,607,000
Cash flows from investing activities:
Purchases of available for sale securities	(41,721,000)	(139,919,000)	(91,716,000)
Proceeds from sales of available for sale securities	44,033,000	36,883,000	40,144,000
Proceeds from maturities of and principal repayments on available for sale securities	54,452,000	53,366,000	55,515,000
Net (increase) decrease in loans	(22,875,000)	23,016,000	52,031,000
Purchases of loans	(49,768,000)	(46,999,000)	(53,953,000)
Proceeds from sale of loans held for investment	0	7,966,000	0
Proceeds from sale of other real estate owned	1,361,000	954,000	3,685,000
Purchases of premises and equipment	(1,472,000)	(2,516,000)	(1,133,000)
Proceeds from bank-owned life insurance	585,000	603,000	0
Net cash provided by (used in) investing activities	(15,405,000)	(66,646,000)	4,573,000
Cash flows from financing activities:
Net increase (decrease) in deposits	3,222,000	41,212,000	1,927,000
Net increase (decrease) in mortgagors' and investors' escrow accounts	(84,000)	(134,000)	(166,000)
Proceeds from Federal Home Loan Bank advances	7,000,000	23,000,000	23,355,000
Repayments of Federal Home Loan Bank advances	(9,000,000)	(37,100,000)	(25,286,000)
Net proceeds from common stock offering	0	2,774,000	47,556,000
Excess tax benefit (expense) from share-based compensation	4,000	3,000	0
Purchase of shares by ESOP pursuant to reorganization	0	(3,141,000)	0
Purchase of shares for equity plan	(2,238,000)	0	0
Stock options exercised	10,000	0	0
Cash dividends on common stock	(1,171,000)	(1,191,000)	(375,000)
Common shares repurchased	(5,301,000)	(5,000)	(74,000)
Net cash provided by (used in) financing activities	(7,558,000)	25,418,000	46,937,000
Net change in cash and cash equivalents	(10,723,000)	(29,909,000)	54,117,000
Cash and cash equivalents at beginning of year	48,412,000	78,321,000	24,204,000
Cash and cash equivalents at end of year	37,689,000	48,412,000	78,321,000
Supplemental cash flow information:
Interest paid	9,682,000	11,440,000	13,857,000
Income taxes paid, net	(321,000)	790,000	714,000
Transfer of stock offering escrow for issuance of common shares	0	47,556,000	0
Transfer of loans to other real estate owned	$ 1,787,000	$ 881,000	$ 1,824,000

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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2012

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Property, Plant and Equipment

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	5 to 20 years

Premises and equipment at December 31, 2012 and 2011 are summarized as follows:

	December 31,
	2012			2011
	(In Thousands)
Land	$	2,098		$	2,098
Buildings	7,052			6,660
Leasehold improvements	7,563			7,822
Furniture and equipment	10,867			12,272
Construction in process	84			20
	27,664			28,872
Accumulated depreciation and amortization	(16,448		)	(16,221		)
Premises and equipment, net	$	11,216		$	12,651

Schedule of Earnings Per Share, Basic and Diluted

The computation of earnings per share is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands, Except Share Amounts)
Net income	$	1,118	$	2,417	$	3,003
Weighted average common shares outstanding:
Basic	9,730,797		9,988,322		10,302,201
Effect of dilutive stock options	24,895		20,538		2,615
Diluted	9,755,692		10,008,860		10,304,816
Earnings per share:
Basic	$	0.11	$	0.24	$	0.29
Diluted	$	0.11	$	0.24	$	0.29

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Federal Home Loan Bank Advances - Narrative (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Borrowings [Abstract]
Secured line of credit with the FHLB	$ 10,000,000
Federal Home Loan Bank advances	$ 98,069,000	$ 100,069,000
FHLB advances interest rate range from	0.80%	1.56%
FHLB advances interest rate range to	4.97%	4.97%

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Derivative Fair Value and Balance Sheet Classification (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash Flow Hedging [Member]
Derivatives, Fair Value [Line Items]
Description of Location of Interest Rate Derivatives on Balance Sheet	Other Liabilities
Notional Amount of Interest Rate Cash Flow Hedge Derivatives	$ 8,000	$ 8,000
Interest Rate Cash Flow Hedge Liability at Fair Value	(470)	(462)
Not Designated as Hedging Instrument [Member]
Derivatives, Fair Value [Line Items]
Interest Rate Cash Flow Hedge Liability at Fair Value	379
Description of Location of Interest Rate Derivative Instruments Not Designated as Hedging Instruments on Balance Sheet	Other Liabilities
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	15,000	0
Interest Rate Derivative Instruments Not Designated as Hedging Instruments, Liability at Fair Value	(379)	0
Description of Location of Derivative Loan Commitments Not Designated as Hedging Instruments on Balance Sheet	Other Assets
Derivative Loan Commitments, Notional Amount, Net	7,844	9,074
Derivative Loan Commitments, Fair Value, Net	10	78
Description of Location of Forward Sale Loan Commitments Not Designated as Hedging Instruments on Balance Sheet	Other Assets (Liabilities)
Forward Sale Loan Commitments, Notional Amount, Net	5,919	9,108
Forward Sale Loan Commitments, Fair Value, Net	$ 3	$ (86)

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

The components of the income tax provision for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Current income tax provision:
Federal	$	1,338		$	108	$	1,648
State	3			4		20
Total current income tax provision	1,341			112		1,668
Deferred income tax (benefit) provision:
Federal	(1,100		)	891		(355		)
Total deferred income tax (benefit) provision	(1,100		)	891		(355		)
Total income tax provision	$	241		$	1,003	$	1,313

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the anticipated income tax provision, based on the statutory tax rate of 34.0%, to the income tax provision as reported in the consolidated statements of income is as follows:

	Years Ended December 31,
	2012			2011			2010
	(Dollars in Thousands)
Income tax provision at statutory tax rate	$	462		$	1,162		$	1,467
Increase (decrease) resulting from:
Dividends received deduction	(2		)	(13		)	(3		)
Bank-owned life insurance	(215		)	(139		)	(99		)
Tax-exempt income	(26		)	(39		)	(13		)
Compensation and employee benefit plans	81			35			61
Nondeductible expenses	5			8			6
Tax credits/adjustments	(63		)	—			—
Change in valuation allowance	—			—			(90		)
State taxes, net of federal tax benefit	2			2			13
Other	(3		)	(13		)	(29		)
Total income tax provision	$	241		$	1,003		$	1,313
Effective tax rate	17.8		%	29.3		%	30.4		%

Schedule of Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
	2012			2011
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,303		$	1,852
Unrealized losses on available for sale securities	659			1,870
Depreciation of premises and equipment	765			572
Other-than-temporary impairment	452			435
Impairment - long lived asset	133			—
Charitable contribution carry-forward	14			153
Deferred compensation	2,313			2,064
Employee benefit plans	380			348
Capital loss carry-forward	65			—
Interest receivable on nonaccrual loans	159			107
Deferred other real estate owned expenses	38			137
Net unrealized loss on derivative instruments	284			159
Other	290			205
Total deferred tax assets	7,855			7,902
Less valuation allowance	(49		)	(49		)
Total deferred tax assets, net of valuation allowance	7,806			7,853
Deferred tax liabilities:
Unrealized gains on available for sale securities	1,546			1,679
Goodwill and other intangibles	330			319
Deferred loan costs	844			841
Mortgage servicing asset	447			400
Total deferred tax liabilities	3,167			3,239
Deferred tax asset, net	$	4,639		$	4,614

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RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted Cash and Cash Equivalents	$ 700	$ 858
Contractual Clearing Balance Requirement with Federal Reserve Bank		$ 3,000

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LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES Loans Held for Sale - Narrative (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 5.1	$ 5.6

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CONSOLIDATED BALANCE SHEETS (USD $)	Dec. 31, 2012	Dec. 31, 2011
Cash and due from banks:
Noninterest-bearing	$ 16,364,000	$ 13,980,000
Interest-bearing	21,325,000	34,432,000
Total cash and cash equivalents	37,689,000	48,412,000
Available for sale securities, at fair value	176,513,000	230,814,000
Loans held for sale	5,100,000	5,600,000
Loans receivable (net of allowance for loan losses of $6,387 and $4,970 at December 31, 2012 and 2011, respectively)	685,163,000	618,626,000
Federal Home Loan Bank Stock, at cost	8,078,000	8,388,000
Bank-owned life insurance	9,060,000	9,012,000
Premises and equipment, net	11,216,000	12,651,000
Goodwill and other intangibles	3,451,000	4,105,000
Accrued interest receivable	3,215,000	3,539,000
Deferred tax assets, net	4,639,000	4,614,000
Other real estate owned, net	1,293,000	976,000
Prepaid FDIC deposit insurance assessment	1,312,000	1,974,000
Other assets	6,552,000	6,378,000
Total assets	953,250,000	955,047,000
Deposits:
Noninterest-bearing	89,834,000	85,958,000
Interest-bearing	615,314,000	615,968,000
Total deposits	705,148,000	701,926,000
Mortgagors' and investors' escrow accounts	3,207,000	3,291,000
Federal Home Loan Bank advances	98,069,000	100,069,000
Junior subordinated debt owed to unconsolidated trust	8,248,000	8,248,000
Accrued expenses and other liabilities	12,819,000	10,996,000
Total liabilities	827,491,000	824,530,000
Commitments and contingencies (Notes 6, 11 and 12)
Shareholders' Equity:
Preferred Stock ($.01 par value; 1,000,000 shares authorized; none issued)	0	0
Common Stock ($.01 par value; 35,000,000 shares authorized; 10,112,310 shares issued and outstanding at December 31, 2012; 10,576,849 shares issued and 10,576,302 shares outstanding at December 31, 2011)	101,000	106,000
Additional paid-in-capital	94,810,000	94,612,000
Unallocated common shares held by ESOP	(5,088,000)	(5,568,000)
Unearned restricted shares	(2,210,000)	(38,000)
Retained earnings	36,733,000	42,080,000
Accumulated other comprehensive income (loss)	1,413,000	(675,000)
Total shareholders' equity	125,759,000	130,517,000
Total liabilities and shareholders' equity	$ 953,250,000	$ 955,047,000

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OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Schedule of Comprehensive Income (Loss)

Components of other comprehensive income and related tax effects are as follows:

	Year Ended December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	1,905		$	(647	)	$	1,258
Reclassification adjustment for gains realized in net income	(273		)	93			(180		)
Credit portion of OTTI losses recognized in net income	123			(42		)	81
Noncredit portion of OTTI gains on available for sale securities	1,416			(482		)	934
Unrealized holding gains on available for sale securities,  net of taxes	3,171			(1,078		)	2,093
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(8		)	3			(5		)
Other comprehensive income	$	3,163		$	(1,075	)	$	2,088

	Year Ended December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	3,058		$	(1,040	)	$	2,018
Reclassification adjustment for gains realized in net income	(486		)	165			(321		)
Credit portion of OTTI losses recognized in net income	148			(50		)	98
Noncredit portion of OTTI losses on available for sale securities	(1,730		)	588			(1,142		)
Unrealized holding gains on available for sale securities,  net of taxes	990			(337		)	653
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(333		)	113			(220		)
Other comprehensive income	$	657		$	(224	)	$	433

	Year Ended December 31, 2010
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding losses on available for sale securities	$	(87	)	$	29		$	(58	)
Reclassification adjustment for gains realized in net income	(878		)	299			(579		)
Credit portion of OTTI losses recognized in net income	492			(167		)	325
Noncredit portion of OTTI gains on available for sale securities	1,554			(528		)	1,026
Unrealized holding gains on available for sale securities,  net of taxes	1,081			(367		)	714
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(129		)	44			(85		)
Other comprehensive income	$	952		$	(323	)	$	629

Schedule of Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) included in shareholders’ equity are as follows:

	December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	2,876		$	(977	)	$	1,899
Noncredit portion of OTTI losses on available for sale securities	(266		)	90			(176		)
Net unrealized loss on effective cash flow hedging derivative	(470		)	160			(310		)
Accumulated other comprehensive income	$	2,140		$	(727	)	$	1,413

	December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	1,121		$	(381	)	$	740
Noncredit portion of OTTI losses on available for sale securities	(1,682		)	572			(1,110		)
Net unrealized loss on effective cash flow hedging derivative	(462		)	157			(305		)
Accumulated other comprehensive loss	$	(1,023	)	$	348		$	(675	)

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Summary of Stock Option Activity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options outstanding at beginning of year	505,887
Options granted	412,500
Options exercised	(1,796)	0
Options forfeited	(10,992)
Options outstanding at end of year	905,599	505,887
Options exercisable at end of year	407,682
Options outstanding at beginning of year, Weighted Average Exercise Price	$ 10.47
Options granted, Weighted Average Exercise Price	$ 11.03
Options exercised, Weighted Average Exercise Price	$ 5.68
Options forfeited, Weighted Average Exercise Price	$ 10.40
Options outstanding at end of year, Weighted Average Exercise Price	$ 10.73	$ 10.47
Options exercisable at end of year, Weighted Average Exercise Price	$ 11.06
Options outstanding at end of year, Weighted Average Remaining Contractual Term	6 years 6 months 2 days
Options exercisable at end of year, Weighted Average Remaining Contractual Term	2 years 11 months 20 days
Options outstanding, Intrinsic Value	$ 764
Options Exercisable, Intrinsic Value	$ 247

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Derivative Instrument - Nonhedge (Details) (Not Designated as Hedging Instrument [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Not Designated as Hedging Instrument [Member]
Derivative [Line Items]
Notional Amount	$ 15,000	$ 0
Weighted average fixed pay rate	1.26%
Weighted average variable receive rate	0.35%
Weighted average maturity in years	4 years 0 months 0 days
Interest Rate Cash Flow Hedge Liability at Fair Value	379
Derivative Loan Commitments, Notional Amount, Net	7,844	9,074
Derivative Loan Commitments, Fair Value, Net	10	78
Forward Sale Loan Commitments, Notional Amount, Net	5,919	9,108
Forward Sale Loan Commitments, Fair Value, Net	$ 3	$ (86)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Unallocated Common Shares Held By ESOP [Member]	Unearned Restricted Shares [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2009	$ 77,462	$ 126	$ 52,230	$ (3,230)	$ (193)	$ 38,883	$ (2,389)	$ (7,965)
Balance (in shares) at Dec. 31, 2009		12,563,750
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect adjustment for change in accounting principle for embedded credit derivatives	0					(652)	652
Net income	3,003					3,003
Other comprehensive income	629						629
Total comprehensive income	3,632
Cash dividends declared	(375)					(375)
Equity incentive plan compensation	257		89		168
Allocation of ESOP shares	202		(121)	323
Treasury stock purchased, shares	10,517
Treasury stock purchased	(74)							(74)
Balance at Dec. 31, 2010	81,104	126	52,198	(2,907)	(25)	40,859	(1,108)	(8,039)
Balance (in shares) at Dec. 31, 2010		12,563,750
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exchange of common stock pursant to reorganization and concurrent second step stock offering (shares)		(1,986,901)
Exchange of common stock pursant to reorganization and concurrent second step stock offering	50,330	(20)	42,311					8,039
Net income	2,417					2,417
Other comprehensive income	433						433
Total comprehensive income	2,850
Cash dividends declared	(1,191)					(1,191)
Restricted shares activity	0		22		(22)
Equity incentive plan compensation	100		91		9
Shares purchased by ESOP pursuant to reorganization	(3,141)			(3,141)
Allocation of ESOP shares	467		(13)	480
Tax benefit from share-based compensation	3		3
Treasury stock purchased, shares		(547)
Treasury stock purchased	(5)					(5)
Stock Options exercised, shares	0
Balance at Dec. 31, 2011	130,517	106	94,612	(5,568)	(38)	42,080	(675)	0
Balance (in shares) at Dec. 31, 2011		10,576,302
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,118					1,118
Other comprehensive income	2,088						2,088
Total comprehensive income	3,206
Cash dividends declared	(1,171)					(1,171)
Restricted shares activity	(2,238)				(2,226)	(12)
Equity incentive plan compensation	189		135		54
Allocation of ESOP shares	543		63	480
Tax benefit from share-based compensation	4		4
Stock Options exercised, shares	1,796	1,796
Stock options exercised, Value	10		(4)			14
Common shares repurchased, Shares		(465,788)
Common shares repurchased, Value	(5,301)	(5)				(5,296)
Balance at Dec. 31, 2012	$ 125,759	$ 101	$ 94,810	$ (5,088)	$ (2,210)	$ 36,733	$ 1,413	$ 0
Balance (in shares) at Dec. 31, 2012		10,112,310

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Equity Incentive Plans - Narrative (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jan. 12, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 189,000	$ 100,000	$ 257,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	412,500
Conversion of Stock, Exchange Ratio Per Share				$ 0.8981
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Based Compensation Arrangement, Maximum Contractual Term	10 years 0 months 0 days
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years 0 months 0 days
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	150,290
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	412,500	67,500	62,861
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	1,200,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	2 years 6 months 0 days
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	33,918
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 1,800,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition	2 years 8 months 3 days
The 2005 Equity Incentive Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	552,891
The 2005 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	221,154
The 2012 Equity Incentive Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	504,794
The 2012 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	201,918

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Below Investment Grade Non-Agency Mortgage-Backed Securities (Details) (USD $) In Thousands, unless otherwise specified				12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2012 MBS 1 [Member]		Dec. 31, 2012 MBS 2 [Member]		Dec. 31, 2012 Below Investment Grade Non-Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Class				SSNR, AS	[1]	PT, AS	[1]
Amortized Cost		$ 231,375	[2]	$ 1,533		$ 198		$ 1,731
Gross Unrealized Gains		4,939		0		4		4
Gross Unrealized Losses		5,500		(116)		0		(116)
Fair Value	176,513	230,814		1,417		202		1,619
Lowest Credit Rating				D	[3]	CCC	[3]
Total Credit Related OTTI				$ 197	[4]	$ 0	[4]	$ 197	[4]
Credit Support Coverage Ratio				0.00%	[5]	0.24%	[5]

[1] (1) Class definitions: PT - Pass Through, AS - Accelerated, and SSNR - Super Senior.

[2] (1) Net of OTTI write-downs recognized in earnings.

[3] (2) The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

[4] (3) The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

[5] (4) The credit support coverage ratio, which is the ratio that determines the multiple of credit support, is based on assumptions for the performance of the loans within the delinquency pipeline. The assumptions used are: current collateral support/((60 day delinquencies x .60)+(90 day delinquencies x .70)+(foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.

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Loan Commitments and Letters of Credit (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Loss Contingencies [Line Items]
Future loan commitments	$ 11,123	$ 31,211
Undisbursed construction loans	3,406	5,673
Undisbursed home equity lines of credit	23,019	23,172
Undisbursed commercial lines of credit	23,842	17,995
Overdraft protection lines	1,190	1,190
Standby letters of credit	611	34
Total loan commitments and letters of credit	63,191	79,275
Future fixed rate loan commitments	$ 10,600	$ 16,000
Future fixed rate loan commitments rate, stated percentage rate range, minimum	2.63%	3.00%
Future fixed rate loan commitments rate, stated percentage rate range, maximum	7.00%	6.25%

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OTHER REAL ESTATE OWNED Other Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2012

Other Real Estate Owned [Abstract]

Other Real Estate Owned [Table Text Block]

A summary of expenses applicable to other real estate operations for the years ended December 31, 2012, 2011 and 2010, is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Net loss from sales or write-downs of other real estate owned, net	$	60	$	236	$	534
Other real estate expense, net of rental income	441		540		296
Expense from other real estate operations, net	$	501	$	776	$	830

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Past Due Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	$ 12,664	$ 7,210
60 to 89 Days Past Due	2,812	1,322
90 Days or More Past Due	5,453	6,430
Total 30 Days or More Past Due	20,929	14,962
Current and Not Past Due	668,877	606,921
Total Loans	689,806	621,883
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	3,245	4,065
60 to 89 Days Past Due	1,725	995
90 Days or More Past Due	3,285	3,835
Total 30 Days or More Past Due	8,255	8,895
Current and Not Past Due	222,409	238,531
Total Loans	230,664	247,426
Real estate: Multi-family and commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	4,149	292
60 to 89 Days Past Due	0	0
90 Days or More Past Due	1,266	1,703
Total 30 Days or More Past Due	5,415	1,995
Current and Not Past Due	196,536	156,389
Total Loans	201,951	158,384
Real estate: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	0	0
60 to 89 Days Past Due	0	0
90 Days or More Past Due	0	0
Total 30 Days or More Past Due	0	0
Current and Not Past Due	3,284	12,290
Total Loans	3,284	12,290
Commercial business: SBA and USDA guaranteed [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	5,014	2,729
60 to 89 Days Past Due	1,087	327
90 Days or More Past Due	0	0
Total 30 Days or More Past Due	6,101	3,056
Current and Not Past Due	142,284	124,303
Total Loans	148,385	127,359
Commercial business: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	0	0
60 to 89 Days Past Due	0	0
90 Days or More Past Due	541	623
Total 30 Days or More Past Due	541	623
Current and Not Past Due	64,601	39,819
Total Loans	65,142	40,442
Consumer: Home equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	216	0
60 to 89 Days Past Due	0	0
90 Days or More Past Due	361	269
Total 30 Days or More Past Due	577	269
Current and Not Past Due	27,798	27,156
Total Loans	28,375	27,425
Consumer: Indirect automobile [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	19	0
60 to 89 Days Past Due	0	0
90 Days or More Past Due	0	0
Total 30 Days or More Past Due	19	0
Current and Not Past Due	9,633	5,733
Total Loans	9,652	5,733
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 to 59 Days Past Due	21	124
60 to 89 Days Past Due	0	0
90 Days or More Past Due	0	0
Total 30 Days or More Past Due	21	124
Current and Not Past Due	2,332	2,700
Total Loans	$ 2,353	$ 2,824

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REGULATORY CAPITAL

12 Months Ended

Dec. 31, 2012

Banking and Thrift [Abstract]

Regulatory Capital

REGULATORY CAPITAL

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to total assets (as defined).  As of December 31, 2012 and 2011, the Bank met the conditions to be classified as “well capitalized” under the regulatory framework for prompt corrective action.  There are no conditions or events since then that management believes have changed the Bank’s regulatory category.  As a savings and loan holding company regulated by the FRB, the Company is not currently subject to any separate regulatory capital requirements. The Dodd-Frank Act, however, requires the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, quantitatively in terms of components of capital, than those applicable to institutions themselves. There is a five-year transition period before the capital requirements will apply to savings and loan holding companies.

The Bank's actual capital amounts and ratios at December 31, 2012 and 2011 were as follows:

December 31, 2012	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	103,547	11.08	%	$	37,382	4.00	%	$	46,727	5.00	%
Tier I Risk-based Capital Ratio	103,547		20.20		20,504		4.00		30,757		6.00
Total Risk-based Capital Ratio	109,751		21.41		41,009		8.00		51,262		10.00
Tangible Equity Ratio	103,547		11.08		14,018		1.50		N/A		N/A

December 31, 2011	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tier I Capital Ratio	$	101,574	10.86	%	$	37,412	4.00	%	$	46,765	5.00	%
Tier I Risk-based Capital Ratio	101,574		21.09		19,265		4.00		28,897		6.00
Total Risk-based Capital Ratio	106,997		22.21		38,540		8.00		48,175		10.00
Tangible Equity Ratio	101,574		10.86		14,030		1.50		N/A		N/A

Reconciliations of the Company’s total capital to the Bank’s regulatory capital are as follows:

	December 31,
	2012			2011
	(In Thousands)
Total capital per consolidated financial statements	$	125,759		$	130,517
Holding company equity not available for regulatory capital	(15,811		)	(24,495		)
Accumulated (gains) losses on available for sale securities	(1,619		)	477
Intangible assets	(3,451		)	(3,729		)
Disallowed servicing asset	(100		)	—
Disallowed deferred tax asset	(1,231		)	(1,196		)
Total tier 1 capital	103,547			101,574
Adjustments for total capital:
Allowance for loan and credit losses	6,204			5,423
Total capital per regulatory reporting	$	109,751		$	106,997

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Classification	Estimated Useful Lives
Buildings	5 to 40 years
Furniture and equipment	3 to 10 years
Leasehold improvements	5 to 20 years

Premises and equipment at December 31, 2012 and 2011 are summarized as follows:

	December 31,
	2012			2011
	(In Thousands)
Land	$	2,098		$	2,098
Buildings	7,052			6,660
Leasehold improvements	7,563			7,822
Furniture and equipment	10,867			12,272
Construction in process	84			20
	27,664			28,872
Accumulated depreciation and amortization	(16,448		)	(16,221		)
Premises and equipment, net	$	11,216		$	12,651

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Bank-Owned Life Insurance (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Compensation and Retirement Disclosure [Abstract]
Bank-owned life insurance	$ 9,060	$ 9,012
Bank Owned Life Insurance Income	284	289	290
Gain On Bank Owned Life Insurance	$ 349	$ 122	$ 0

XML

FAIR VALUE OF ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures

FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The following methods and assumptions were used by the Company in estimating fair value disclosures of its financial instruments:

◦ Cash and cash equivalents.The carrying amounts of cash and short-term instruments approximate the fair values based on the short-term nature of the assets.

◦ Securities available for sale.  Included in the available for sale category are both debt and equity securities.  The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. The Company utilizes a nationally-recognized third-party pricing service to estimate fair value measurements for the majority of its portfolio.  The pricing service evaluates each asset class based on relevant market information considering observable data, but these prices do not represent binding quotes.  The fair value prices on all investments are reviewed for reasonableness by management.  Securities measured at fair value in Level 3 include collateralized debt obligations that are backed by trust preferred securities issued by banks, thrifts and insurance companies. Management determined that an orderly and active market for these securities and similar securities did not exist based on a significant reduction in trading volume and widening spreads relative to historical levels. The Company estimates future cash flows discounted using a rate management believes is representative of current market conditions.  Factors in determining the discount rate include the current level of deferrals and/or defaults, changes in credit rating and the financial condition of the debtors within the underlying securities, broker quotes for securities with similar structure and credit risk, interest rate movements and pricing for new issuances.

◦ Federal Home Loan Bank stock.  The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

◦ Loans held for sale.  The fair value of loans held for sale is estimated using quoted market prices.

◦ Loans receivable.  For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values.  The fair value of fixed-rate loans are estimated by discounting the future cash flows using the rates at the end of the period in which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

◦ Accrued interest receivable.  The carrying amount of accrued interest approximates fair value.

◦ Deposits.  The fair value of demand deposits, negotiable orders of withdrawal, regular savings, certain money market deposits and mortgagors’ and investors’ escrow accounts is the amount payable on demand at the reporting date.  The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits.

◦ Federal Home Loan Bank advances.  The fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances.

◦ Junior subordinated debt owed to unconsolidated trust.  Rates currently available for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

◦ Interest rate swap agreements.  The fair value of the Company’s interest rate swaps are obtained from a third-party pricing service and are determined using a discounted cash flow analysis on the expected cash flows of the derivative.  The pricing analysis is based on observable inputs for the contractual term of the derivative, including the period to maturity and interest rate curves.

◦ Forward loan sale commitments and derivative loan commitments.  Forward loan sale commitments and derivative loan commitments are based on the fair values of the underlying mortgage loans, including the servicing rights for derivative loan commitments, and the probability of such commitments being exercised.  Significant management judgment and estimation is required in determining these fair value measurements.

◦ Off-balance sheet instruments.  Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011.  The Company had no significant transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2012 and 2011.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,035	$	55,224	$	—	$	56,259
Government-sponsored enterprises	—		23,967		—		23,967
Mortgage-backed securities	—		78,733		—		78,733
Corporate debt securities	—		7,694		—		7,694
Collateralized debt obligations	—		—		4,396		4,396
Obligations of state and political subdivisions	—		5,414		—		5,414
Foreign government securities	—		50		—		50
Forward loan sale commitments and derivative loan commitments	—		—		17		17
Total assets	$	1,035	$	171,082	$	4,413	$	176,530
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	4	$	4
Interest rate swap agreements	—		849		—		849
Total liabilities	$	—	$	849	$	4	$	853

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
U.S. Government and agency obligations	$	1,051	$	88,536	$	—	$	89,587
Government-sponsored enterprises	—		17,666		—		17,666
Mortgage-backed securities	—		97,870		—		97,870
Corporate debt securities	—		14,047		—		14,047
Collateralized debt obligations	—		—		2,917		2,917
Obligations of state and political subdivisions	—		6,766		—		6,766
Tax-exempt securities	—		71		—		71
Foreign government securities	—		75		—		75
Equity securities	1,815		—		—		1,815
Forward loan sale commitments and derivative loan commitments	—		—		82		82
Total assets	$	2,866	$	225,031	$	2,999	$	230,896
Liabilities:
Forward loan sale commitments and derivative loan commitments	$	—	$	—	$	90	$	90
Interest rate swap agreement	—		462		—		462
Total liabilities	$	—	$	462	$	90	$	552

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets (liabilities):

	Collateralized Debt Obligations			Derivatives and Forward Loan Sale Commitments, Net
	(In Thousands)
Balance at December 31, 2010	$	2,780		$	(21	)
Total realized and unrealized gains included in net income	120			13
Total unrealized gains included in other comprehensive income	491			—
Sales	(474		)	—
Balance at December 31, 2011	2,917			(8		)
Total unrealized gains included in other comprehensive income	1,479			21
Balance at December 31, 2012	$	4,396		$	13

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may also be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with generally accepted accounting principles.  These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.  The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of December 31, 2012 and 2011.  There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2012 and 2011.

	At December 31, 2012						At December 31, 2011
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In Thousands)
Impaired loans	$	—	$	—	$	1,616	$	—	$	—	$	3,002
Other real estate owned	—		—		1,293		—		—		976
Total assets	$	—	$	—	$	2,909	$	—	$	—	$	3,978

The following table summarizes losses resulting from fair value adjustments for assets measured at fair value on a nonrecurring basis.

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Impaired loans	$	367	$	998	$	800
Other real estate owned	28		175		326
Goodwill	—		—		37
Total assets	$	395	$	1,173	$	1,163

The Company measures the impairment of loans that are collateral dependent based on the fair value of the collateral (Level 3).  The fair value of collateral used by the Company represents the amount expected to be received from the sale of the property, net of selling costs, as determined by an independent, licensed or certified appraiser using observable market data.  This data includes information such as selling price of similar properties, expected future cash flows or earnings of the subject property based on current market expectations and relevant legal, physical and economic factors.  The appraised values of collateral are adjusted as necessary by management based on unobservable inputs for specific properties. Losses applicable to write-downs of impaired loans are based on the appraised market value of the underlying collateral, assuming foreclosure of these loans is imminent.

The amount of other real estate owned represents the carrying value of the collateral based on the appraised value of the underlying collateral less estimated selling costs.  The loss on foreclosed assets represents adjustments in the valuation recorded during the time period indicated and not for losses incurred on sales.

In accordance with applicable accounting guidance, the Company evaluates its goodwill for impairment.  Based on this evaluation, no goodwill impairment was recorded during the years ended December 31, 2012 and 2011. During the year ended December 31, 2010, goodwill related to the Company's Colchester, Connecticut branch acquisition was written down to its implied fair value.

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are presented in the following table.  Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at December 31, 2012 or 2011.  The estimated fair value amounts for 2012 and 2011 have been measured as of their respective year-ends, and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.  The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company's assets. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company's disclosures and those of other banks may not be meaningful.

As of December 31, 2012 and 2011, the recorded carrying amounts and estimated fair values of the Company's financial instruments are as follows:

	December 31, 2012
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	37,689	$	37,689	$	—	$	—	$	37,689
Available for sale securities	176,513		1,035		171,082		4,396		176,513
Loans held for sale	5,069		—		—		5,232		5,232
Loans receivable, net	685,163		—		—		703,925		703,925
Federal Home Loan Bank stock	8,078		—		—		8,078		8,078
Accrued interest receivable	3,215		—		—		3,215		3,215
Financial Liabilities:
Deposits	705,148		—		—		709,357		709,357
Mortgagors' and investors' escrow accounts	3,207		—		—		3,207		3,207
Federal Home Loan Bank advances	98,069		—		102,919		—		102,919
Junior subordinated debt owed to unconsolidated trust	8,248		—		5,268		—		5,268
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	13		—		—		13		13
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Derivative loan commitments	3		—		—		3		3
Forward loan sale commitments	1		—		—		1		1
Interest rate swap agreements	849		—		849		—		849

	December 31, 2011
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial Assets:	(In Thousands)
Cash and cash equivalents	$	48,412	$	48,412	$	—	$	—	$	48,412
Available for sale securities	230,814		2,866		225,031		2,917		230,814
Loans held for sale	5,558		—		—		5,652		5,652
Loans receivable, net	618,626		—		—		629,142		629,142
Federal Home Loan Bank stock	8,388		—		—		8,388		8,388
Accrued interest receivable	3,539		—		—		3,539		3,539
Financial Liabilities:
Deposits	701,926		—		—		704,333		704,333
Mortgagors' and investors' escrow accounts	3,291		—		—		3,291		3,291
Federal Home Loan Bank advances	100,069		—		105,666		—		105,666
Junior subordinated debt owed to unconsolidated trust	8,248		—		4,399		—		4,399
On-balance Sheet Derivative Financial Instruments:
Assets:
Derivative loan commitments	78		—		—		78		78
Forward loan sale commitments	4		—		—		4		4
Liabilities:
Forward loan sale commitments	90		—		—		90		90
Interest rate swap agreement	462		—		462		—		462

XML

Credit Quality Information (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 689,806	$ 621,883
Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	148,385	127,359
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	511,699	458,924
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,443	14,028
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	20,279	21,572
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total real estate loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	435,899	418,100
Total real estate loans [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total real estate loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	410,687	388,470
Total real estate loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	6,044	10,051
Total real estate loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	19,168	19,579
Total real estate loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total real estate loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	230,664	247,426
Real estate: Residential - 1 to 4 family [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Residential - 1 to 4 family [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	222,262	240,904
Real estate: Residential - 1 to 4 family [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	723	769
Real estate: Residential - 1 to 4 family [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	7,679	5,753
Real estate: Residential - 1 to 4 family [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Residential - 1 to 4 family [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Multi-family and commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	201,951	158,384
Real estate: Multi-family and commercial [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Multi-family and commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	185,141	135,859
Real estate: Multi-family and commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	5,321	8,699
Real estate: Multi-family and commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	11,489	13,826
Real estate: Multi-family and commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Multi-family and commercial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,284	12,290
Real estate: Construction [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,284	11,707
Real estate: Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	583
Real estate: Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Real estate: Construction [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total commercial business loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	213,527	167,801
Total commercial business loans [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	148,385	127,359
Total commercial business loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	61,047	34,788
Total commercial business loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,399	3,977
Total commercial business loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	696	1,677
Total commercial business loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total commercial business loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: SBA and USDA guaranteed [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	148,385	127,359
Commercial business: SBA and USDA guaranteed [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	148,385	127,359
Commercial business: SBA and USDA guaranteed [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: SBA and USDA guaranteed [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: SBA and USDA guaranteed [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: SBA and USDA guaranteed [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: SBA and USDA guaranteed [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	65,142	40,442
Commercial business: Other [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	61,047	34,788
Commercial business: Other [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	3,399	3,977
Commercial business: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	696	1,677
Commercial business: Other [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Commercial business: Other [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total consumer loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	40,380	35,982
Total consumer loans [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total consumer loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	39,965	35,666
Total consumer loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total consumer loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	415	316
Total consumer loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Total consumer loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	28,375	27,425
Consumer: Home equity [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Home equity [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	27,960	27,109
Consumer: Home equity [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Home equity [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	415	316
Consumer: Home equity [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Home equity [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Indirect automobile [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,652	5,733
Consumer: Indirect automobile [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Indirect automobile [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	9,652	5,733
Consumer: Indirect automobile [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Indirect automobile [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Indirect automobile [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Indirect automobile [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,353	2,824
Consumer: Other [Member] | Not Rated [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	2,353	2,824
Consumer: Other [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Other [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	0	0
Consumer: Other [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross	$ 0	$ 0

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Reconciliation of Level 3 Assets and Liabilities - Recurring (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Collateralized Debt Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Abstract]
Beginning balance	$ 2,917	$ 2,780
Total realized and unrealized gains (losses) included in net income		120
Total realized gains (losses) included in other comprehensive income	1,479	491
Sales		(474)
Ending balance	4,396	2,917
Derivative Loan and Forward Loan Sale Commitments, Net [Member]
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Abstract]
Beginning balance	(8)	(21)
Total realized and unrealized gains (losses) included in net income		13
Total realized gains (losses) included in other comprehensive income	21	0
Sales		0
Ending balance	$ 13	$ (8)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash dividends declared per share	$ 0.12	$ 0.12	$ 0.09
Allocation of ESOP shares	48,637	48,637	29,004
Treasury stock purchased			10,517
Purchase of shares by ESOP pursuant to reorganization, shares		392,670

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS:
Loans receivable, allowance for loan losses	$ 6,387	$ 4,970
LIABILITIES AND SHAREHOLDERS' EQUITY:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Preferred stock, issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	35,000,000	35,000,000
Common stock, shares issued	10,112,310	10,576,849
Common stock, outstanding (in shares)	10,112,310	10,576,302

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BORROWINGS

12 Months Ended

Dec. 31, 2012

Borrowings [Abstract]

Borrowings

BORROWINGS

Federal Home Loan Bank Advances

As a member of the FHLB, the Bank has access to a pre-approved secured line of credit with the FHLB of $10.0 million and the capacity to obtain additional advances up to a certain percentage of the value of its qualified collateral, as defined in the FHLB Statement of Credit Policy.  FHLB advances are secured by qualified collateral, which is based on a percentage of its outstanding residential first mortgage loans.  In accordance with an agreement with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.  At December 31, 2012 and 2011, there were no advances outstanding under the line of credit.  Other outstanding advances from the FHLB aggregated $98.1 million and $100.1 million at December 31, 2012 and 2011, respectively, at interest rates ranging from 0.80% to 4.97% and 1.56% to 4.97%, respectively.

Junior Subordinated Debt Owed to Unconsolidated Trust

SI Capital Trust II (the “Trust”), a wholly-owned subsidiary of the Company, was formed on August 31, 2006.  The Trust had no independent assets or operations, and was formed to issue $8.0 million of trust securities and invest the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company.  The trust preferred securities mature in 2036 and bear interest at three-month LIBOR plus 1.70%.  The Company may redeem the trust preferred securities, in whole or in part.

The Company entered into an interest rate swap agreement on July 1, 2010 to effectively convert the floating rate interest on its junior subordinated debentures to a fixed interest rate.  See Note 17 for a discussion of derivative instruments and hedging activities.

The subordinated debt securities are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company.  The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities.  If the Company defers interest payments on the junior subordinated debt securities, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders.

The contractual maturities of borrowings, by year, at December 31, 2012 are as follows:

	FHLB Advances			Subordinated Debt			Total
	(Dollars in Thousands)
2013	$	21,000		$	—		$	21,000
2014	24,000			—			24,000
2015	26,069			—			26,069
2016	18,000			—			18,000
2017 (1)	5,000			—			5,000
Thereafter (2)	4,000			8,248			12,248
Total	$	98,069		$	8,248		$	106,317
Weighted average rate	3.25		%	4.14		%	3.32		%

⁽¹⁾ Includes FHLB advance of $3.0 million that is callable during 2013.

⁽²⁾ Includes FHLB advance of $2.0 million that is callable during 2013.

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REGULATORY CAPITAL (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier One Leverage Capital	$ 103,547	$ 101,574
Tier One Leverage Capital to Average Assets	11.08%	10.86%
Tier One Leverage Capital Required for Capital Adequacy	37,382	37,412
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	4.00%	4.00%
Tier One Leverage Capital Required to be Well Capitalized	46,727	46,765
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%	5.00%
Tier One Risk Based Capital	103,547	101,574
Tier One Risk Based Capital to Risk Weighted Assets	20.20%	21.09%
Tier One Risk Based Capital Required for Capital Adequacy	20,504	19,265
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	4.00%	4.00%
Tier One Risk Based Capital Required to be Well Capitalized	30,757	28,897
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	6.00%	6.00%
Capital	109,751	106,997
Capital to Risk Weighted Assets	21.41%	22.21%
Capital Required for Capital Adequacy	41,009	38,540
Capital Required for Capital Adequacy to Risk Weighted Assets	8.00%	8.00%
Capital Required to be Well Capitalized	51,262	48,175
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Tangible Capital	103,547	101,574
Tangible Capital to Tangible Assets	11.08%	10.86%
Tangible Capital Required for Capital Adequacy	$ 14,018	$ 14,030
Tangible Capital Required for Capital Adequacy to Tangible Assets	1.50%	1.50%

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Shares Held by ESOP (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Allocated	184,674	158,431
Committed to be allocated	48,637	48,637
Unallocated	556,438	605,075
Total shares	789,749	812,143
Fair value of unallocated shares	$ 6,399	$ 5,960

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Employee Stock Ownership Plan - Narrative (Details) (USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended		12 Months Ended
	Jan. 12, 2011	Sep. 30, 2004	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Compensation and Retirement Disclosure [Abstract]
Employee Stock Ownership Plan (ESOP), Debt Structure, Direct Loan, Amount	$ 3,100	$ 4,900
Employee Stock Ownership Plan (ESOP), Shares Contributed to ESOP	392,670	492,499
ESOP Loan, Interest Rate, Stated Percentage	3.25%	4.75%
ESOP Loan, Maturity in Years	20 years 0 months 0 days	15 years 0 months 0 days
Employee stock ownership plan expense			$ 543	$ 467	$ 202

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Parent Company Statements of Cash Flows (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 1,118	$ 2,417	$ 3,003
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities:
Excess tax (benefit) expense from share-based compensation	(4)	(3)	0
Deferred income tax provision (benefit)	(1,100)	891	(355)
Net cash provided by (used in) operating activities	12,240	11,319	2,607
Cash flows from investing activities:
Purchases of available for sale securities	(41,721)	(139,919)	(91,716)
Proceeds from maturities of and principal repayments on available for sale securities	54,452	53,366	55,515
Proceeds from sales of available for sale securities	44,033	36,883	40,144
Net cash provided by (used in) investing activities	(15,405)	(66,646)	4,573
Cash flows from financing activities:
Purchase of shares for equity plan	(2,238)	0	0
Stock options exercised	10	0	0
Common shares repurchased	(5,301)	(5)	(74)
Cash dividends on common stock	(1,171)	(1,191)	(375)
Excess tax benefit (expense) from share-based compensation	4	3	0
Net proceeds from common stock offering	0	(2,774)	(47,556)
Net cash provided by (used in) financing activities	(7,558)	25,418	46,937
Net change in cash and cash equivalents	(10,723)	(29,909)	54,117
Cash and cash equivalents at beginning of year	48,412	78,321	24,204
Cash and cash equivalents at end of year	37,689	48,412	78,321
Parent Company [Member]
Cash flows from operating activities:
Net income	1,118	2,417	3,003
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities:
Equity in undistributed net income of subsidiary	(1,283)	(2,775)	(3,008)
Excess tax (benefit) expense from share-based compensation	(4)	(3)	0
Deferred income tax provision (benefit)	60	(104)	72
Other, net	163	(497)	(10)
Net cash provided by (used in) operating activities	54	(962)	57
Cash flows from investing activities:
Purchases of available for sale securities	(1,907)	(8,277)	(4,900)
Proceeds from maturities of and principal repayments on available for sale securities	2,069	2,000	4,000
Proceeds from sales of available for sale securities	2,025	2,300	10
Payments received on ESOP note receivable	435	421	290
Issuance of ESOP note receivable	0	(3,141)	0
Investment in subsidiary	499	(29,450)	493
Net cash provided by (used in) investing activities	3,121	(36,147)	(107)
Cash flows from financing activities:
Purchase of shares for equity plan	(2,238)	0	0
Stock options exercised	10	0	0
Common shares repurchased	(5,301)	(5)	(74)
Cash dividends on common stock	(1,171)	(1,191)	(375)
Excess tax benefit (expense) from share-based compensation	4	3	0
Net proceeds from common stock offering	0	51,099	(769)
Net cash provided by (used in) financing activities	(8,696)	49,906	(1,218)
Net change in cash and cash equivalents	(5,521)	12,797	(1,268)
Cash and cash equivalents at beginning of year	15,112	2,315	3,583
Cash and cash equivalents at end of year	$ 9,591	$ 15,112	$ 2,315

XML

Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 01, 2013
Entity Information [Line Items]
Entity Registrant Name	SI Financial Group, Inc.
Entity Central Index Key	0001500213
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		10,112,310
Entity Public Float	$ 104,467,426

XML

INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure

INCOME TAXES

The components of the income tax provision for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Current income tax provision:
Federal	$	1,338		$	108	$	1,648
State	3			4		20
Total current income tax provision	1,341			112		1,668
Deferred income tax (benefit) provision:
Federal	(1,100		)	891		(355		)
Total deferred income tax (benefit) provision	(1,100		)	891		(355		)
Total income tax provision	$	241		$	1,003	$	1,313

A reconciliation of the anticipated income tax provision, based on the statutory tax rate of 34.0%, to the income tax provision as reported in the consolidated statements of income is as follows:

	Years Ended December 31,
	2012			2011			2010
	(Dollars in Thousands)
Income tax provision at statutory tax rate	$	462		$	1,162		$	1,467
Increase (decrease) resulting from:
Dividends received deduction	(2		)	(13		)	(3		)
Bank-owned life insurance	(215		)	(139		)	(99		)
Tax-exempt income	(26		)	(39		)	(13		)
Compensation and employee benefit plans	81			35			61
Nondeductible expenses	5			8			6
Tax credits/adjustments	(63		)	—			—
Change in valuation allowance	—			—			(90		)
State taxes, net of federal tax benefit	2			2			13
Other	(3		)	(13		)	(29		)
Total income tax provision	$	241		$	1,003		$	1,313
Effective tax rate	17.8		%	29.3		%	30.4		%

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities are presented below:

	December 31,
	2012			2011
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,303		$	1,852
Unrealized losses on available for sale securities	659			1,870
Depreciation of premises and equipment	765			572
Other-than-temporary impairment	452			435
Impairment - long lived asset	133			—
Charitable contribution carry-forward	14			153
Deferred compensation	2,313			2,064
Employee benefit plans	380			348
Capital loss carry-forward	65			—
Interest receivable on nonaccrual loans	159			107
Deferred other real estate owned expenses	38			137
Net unrealized loss on derivative instruments	284			159
Other	290			205
Total deferred tax assets	7,855			7,902
Less valuation allowance	(49		)	(49		)
Total deferred tax assets, net of valuation allowance	7,806			7,853
Deferred tax liabilities:
Unrealized gains on available for sale securities	1,546			1,679
Goodwill and other intangibles	330			319
Deferred loan costs	844			841
Mortgage servicing asset	447			400
Total deferred tax liabilities	3,167			3,239
Deferred tax asset, net	$	4,639		$	4,614

Due to the uncertainties of realization, the Company maintains a valuation allowance of $49,000 related to other-than-temporary impairment losses on certain securities at December 31, 2012.  At December 31, 2012 and 2011, the Company maintained a charitable contribution carry-forward, primarily related to a cash contribution paid to SI Financial Group Foundation, Inc. in 2011.  The utilization of charitable contributions for any tax year is limited to 10% of taxable income without regard to charitable contributions, net operating losses and dividend received deductions.  An organization is permitted to carry over contributions that exceed the annual 10% limitation as a deduction to the five succeeding tax years provided the organization has sufficient earnings.  

Retained earnings at December 31, 2012 and 2011 includes a contingency reserve for loan losses of $3.7 million, which represents the tax reserve balance existing at December 31, 1987, and is maintained in accordance with provisions of the Internal Revenue Code applicable to savings banks.  Amounts transferred to the reserve have been claimed as deductions from taxable income, and, if the reserve is used for purposes other than to absorb losses on loans, a federal income tax liability could be incurred.  It is not anticipated that the Company will incur a federal income tax liability relating to this reserve balance, and accordingly, deferred income taxes of approximately $1.3 million at December 31, 2012 and 2011 have not been recognized.

Financial service companies doing business in Connecticut are permitted to establish a “passive investment company” (“PIC”) to hold and manage loans secured by real property.  PICs are exempt from Connecticut corporation business tax, and dividends received by the financial services companies from PICs are not taxable.  In January 1999, the Bank established a PIC, as a wholly-owned subsidiary, and in June 2000, transferred a portion of its residential and commercial mortgage loan portfolios from the Bank to the PIC.  A substantial portion of the Company’s interest income is now derived from the PIC, an entity whose net income is exempt from State of Connecticut taxes, and accordingly, state income taxes are minimal.  The Bank’s ability to continue to realize the tax benefits of the PIC is subject to the PIC continuing to comply with all statutory requirements related to the operations of the PIC.

With limited exception, the Company is no longer subject to United States federal, state and local income tax examinations by the tax authorities for the years prior to 2009.

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Summary of Deposit Balances (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Deposits [Abstract]
Noninterest-bearing demand deposit	$ 89,834		$ 85,958
Interest-bearing accounts: [Abstract]
Business checking	2		0
NOW and money market accounts	300,050		306,002
Savings accounts	38,026		37,329
Certificates of deposit	277,236	[1]	272,637	[1]
Total interest-bearing accounts	615,314		615,968
Total deposits	705,148		701,926
Brokered deposits	4,209		4,033
Certificates of Deposit, $100,000 or More	$ 112,446		$ 99,500

[1] 1) Includes brokered deposits of $4.2 million and $4.0 million at December 31, 2012 and 2011, respectively.

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BENEFIT PLANS - Narrative (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Compensation and Retirement Disclosure [Abstract]
Percentage of Employer Match for up to Six Percent of Participants Earnings	50.00%
Percentage of Employee Match for Employer Contribution	6.00%
Defined Contribution Plan, Cost Recognized	$ 248,000	$ 260,000	$ 263,000
Group Term Replacement Plan, Cost Recognized	47,000	40,000	89,000
Executive Supplemental Retirement Agreements, Cost Recognized	725,000	882,000	810,000
Performance-Based Incentive Plan Expense	339,000	366,000	534,000
Supplemental Executive Retirement Plan, Cost Recognized	$ 19,000	$ 11,000	$ 11,000

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income:
Loans, including fees	$ 30,462	$ 30,969	$ 33,381
Securities:
Taxable interest	5,267	6,702	6,319
Tax-exempt interest	3	5	38
Dividends	46	79	23
Other	46	65	114
Total interest and dividend income	35,824	37,820	39,875
Interest expense:
Deposits	6,019	7,262	9,437
Federal Home Loan Bank advances	3,276	3,779	4,214
Subordinated debt	338	336	173
Total interest expense	9,633	11,377	13,824
Net interest income	26,191	26,443	26,051
Provision for loan losses	2,896	1,558	902
Net interest income after provision for loan losses	23,295	24,885	25,149
Noninterest income:
Total other-than-temporary impairment losses on securities	(239)	(1,841)	(492)
Portion of losses recognized in other comprehensive income (loss)	116	1,693	0
Net impairment losses recognized in earnings	(123)	(148)	(492)
Service fees	4,935	4,820	5,093
Wealth management fees	1,975	4,108	4,083
Increase in cash surrender value of bank-owned life insurance	284	289	290
Net gain (loss) on sale of securities	273	486	878
Mortgage banking	1,893	814	1,090
Net (loss) gain on trading securities and derivatives	(358)	195	(429)
Net loss on disposal of SI Trust Servicing operations	(698)	0	0
Impairment loss on long-lived assets	(392)	0	0
Net gain (loss) on disposal of equipment	(5)	(41)	(5)
Other	933	604	177
Total noninterest income	8,717	11,127	10,685
Noninterest expenses:
Salaries and employee benefits	15,868	16,043	15,487
Occupancy and equipment	5,480	5,838	5,628
Computer and electronic banking services	3,738	3,867	3,785
Outside professional services	1,309	1,054	944
Marketing and advertising	705	823	757
Supplies	442	467	491
FDIC deposit insurance and regulatory assessments	933	894	1,306
Contribution to SI Financial Group Foundation	0	500	0
Other	2,178	3,106	3,120
Total noninterest expenses	30,653	32,592	31,518
Income (loss) before income tax provision (benefit)	1,359	3,420	4,316
Income tax provision (benefit)	241	1,003	1,313
Net income (loss)	$ 1,118	$ 2,417	$ 3,003
Earnings per share:
Basic	$ 0.11	$ 0.24	$ 0.29
Diluted	$ 0.11	$ 0.24	$ 0.29

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LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loan Portfolio

The composition of the Company's loan portfolio at December 31, 2012 and 2011 is as follows:

	December 31,
	2012			2011
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	230,664		$	247,426
Multi-family and commercial	201,951			158,384
Construction	3,284			12,290
Total real estate loans	435,899			418,100
Commercial business loans:
SBA and USDA guaranteed	148,385			127,359
Other	65,142			40,442
Total commercial business loans	213,527			167,801
Consumer loans:
Home equity	28,375			27,425
Indirect automobile	9,652			5,733
Other	2,353			2,824
Total consumer loans	40,380			35,982
Total loans	689,806			621,883
Deferred loan origination costs, net of fees	1,744			1,713
Allowance for loan losses	(6,387		)	(4,970		)
Loans receivable, net	$	685,163		$	618,626

The Company purchased commercial business loans totaling $42.9 million and $41.2 million and consumer loans totaling $6.9 million and $5.8 million during 2012 and 2011, respectively.

Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Residential - 1 to 4 Family			Multi-family and Commercial			Construction			Commercial Business			Consumer			Total
	(In Thousands)
Balance at December 31, 2009	$	1,028		$	2,443		$	221		$	906		$	293		$	4,891
Provision for loan losses	171			464			136			47			84			902
Loans charged-off	(285		)	(221		)	(293		)	(166		)	(50		)	(1,015		)
Recoveries of loans previously charged-off	1			14			—			3			3			21
Balance at December 31, 2010	915			2,700			64			790			330			4,799
Provision for loan losses	530			228			15			588			197			1,558
Loans charged-off	(686		)	(606		)	(83		)	(267		)	(84		)	(1,726		)
Recoveries of loans previously charged-off	—			15			284			37			3			339
Balance at December 31, 2011	759			2,337			280			1,148			446			4,970
Provision (credit) for loan losses	561			1,818			(258		)	556			219			2,896
Loans charged-off	(299		)	(1,267		)	—			—			(251		)	(1,817		)
Recoveries of loans previously charged-off	104			140			—			31			63			338
Balance at December 31, 2012	$	1,125		$	3,028		$	22		$	1,735		$	477		$	6,387

Further information pertaining to the allowance for loan losses at December 31, 2012 and 2011 is as follows:

December 31, 2012	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	454	$	88	$	—	$	39	$	—	$	581
Allowance for loans individually or collectively evaluated and not deemed to be impaired	671		2,940		22		1,696		477		5,806
Total loan loss allowance	$	1,125	$	3,028	$	22	$	1,735	$	477	$	6,387
Loans individually evaluated and deemed to be impaired	$	6,991	$	5,873	$	—	$	618	$	361	$	13,843
Loans individually or collectively evaluated and not deemed to be impaired	223,673		196,078		3,284		212,909		40,019		675,963
Total loans	$	230,664	$	201,951	$	3,284	$	213,527	$	40,380	$	689,806

December 31, 2011	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	33	$	107	$	—	$	105	$	—	$	245
Allowance for loans individually or collectively evaluated and not deemed to be impaired	726		2,230		280		1,043		446		4,725
Total loan loss allowance	$	759	$	2,337	$	280	$	1,148	$	446	$	4,970
Loans individually evaluated and deemed to be impaired	$	5,590	$	8,650	$	—	$	654	$	316	$	15,210
Loans individually or collectively evaluated and not deemed to be impaired	241,836		149,734		12,290		167,147		35,666		606,673
Total loans	$	247,426	$	158,384	$	12,290	$	167,801	$	35,982	$	621,883

Past Due Loans

The following represents an aging of loans at December 31, 2012 and 2011:

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	3,245	$	1,725	$	3,285	$	8,255	$	222,409	$	230,664
Multi-family and commercial	4,149		—		1,266		5,415		196,536		201,951
Construction	—		—		—		—		3,284		3,284
Commercial Business:
SBA and USDA guaranteed	5,014		1,087		—		6,101		142,284		148,385
Other	—		—		541		541		64,601		65,142
Consumer:
Home equity	216		—		361		577		27,798		28,375
Indirect automobile	19		—		—		19		9,633		9,652
Other	21		—		—		21		2,332		2,353
Total	$	12,664	$	2,812	$	5,453	$	20,929	$	668,877	$	689,806

December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	4,065	$	995	$	3,835	$	8,895	$	238,531	$	247,426
Multi-family and commercial	292		—		1,703		1,995		156,389		158,384
Construction	—		—		—		—		12,290		12,290
Commercial Business:
SBA and USDA guaranteed	2,729		327		—		3,056		124,303		127,359
Other	—		—		623		623		39,819		40,442
Consumer:
Home equity	—		—		269		269		27,156		27,425
Indirect automobile	—		—		—		—		5,733		5,733
Other	124		—		—		124		2,700		2,824
Total	$	7,210	$	1,322	$	6,430	$	14,962	$	606,921	$	621,883

The Company did not have any loans that were past due 90 days or more and still accruing at December 31, 2012 or 2011.

Impaired and Nonaccrual Loans

The following is a summary of impaired and nonaccrual loans at December 31, 2012 and 2011:

	Impaired Loans
December 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	3,866	$	4,013	$	—	$	3,855
Multi-family and commercial	4,407		4,407		—		1,522
Commercial business - Other	546		546		—		470
Consumer - Home equity	361		435		—		366
Total impaired loans without valuation allowance	9,180		9,401		—		6,213
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	3,125		3,125		454		1,133
Multi-family and commercial	1,466		1,556		88		236
Commercial business - Other	72		72		39		72
Total impaired loans with valuation allowance	4,663		4,753		581		1,441
Total impaired loans	$	13,843	$	14,154	$	581	$	7,654

	Impaired Loans
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	5,232	$	5,536	$	—	$	5,232
Multi-family and commercial	4,757		5,215		—		3,795
Commercial business - Other	31		31		—		31
Consumer	316		331		—		316
Total impaired loans without valuation allowance	10,336		11,113		—		9,374
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	358		358		33		358
Multi-family and commercial	3,893		3,983		107		236
Commercial business - Other	623		623		105		623
Total impaired loans with valuation allowance	4,874		4,964		245		1,217
Total impaired loans	$	15,210	$	16,077	$	245	$	10,591

The Company reviews and establishes, if necessary, an allowance for certain impaired loans for the amount by which the present value of expected cash flows (or observable market price of loan or fair value of the collateral if the loan is collateral dependent) are lower than the carrying value of the loan.  For the periods presented, the Company concluded that certain impaired loans required no valuation allowance as a result of management’s measurement of impairment. No additional funds are committed to be advanced to those borrowers whose loans are deemed impaired.

Additional information related to impaired loans is as follows:

	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In Thousands)
Year Ended December 31, 2012
Residential - 1 to 4 family	$	6,113	$	151	$	126
Multi-family and commercial	8,048		260		32
Commercial business - Other	602		4		2
Consumer - Home equity	413		4		4
Total	$	15,176	$	419	$	164
Year Ended December 31, 2011
Residential - 1 to 4 family	$	5,739	$	64	$	29
Multi-family and commercial	8,035		312		—
Commercial business - Other	421		—		—
Consumer - Home equity	196		—		—
Total	$	14,391	$	376	$	29
Year Ended December 31, 2010
Residential - 1 to 4 family	$	2,979	$	5	$	5
Multi-family and commercial	3,169		155		—
Construction	316		—		—
Commercial business - Other	165		5		5
Total	$	6,629	$	165	$	10

Credit Quality Information

The Company utilizes an eight-grade internal loan rating system for all loans in the portfolio, with the exception of its purchased SBA and USDA commercial business loans that are fully guaranteed by the U.S. government, as follows:

◦ Pass (Ratings 1-4):  Loans in these categories are considered low to average risk.

◦ Special Mention (Rating 5): Loans in this category are starting to show signs of potential weakness and are being closely monitored by management.

◦ Substandard (Rating 6): Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged.  There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

◦ Doubtful (Rating 7):  Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

◦ Loss (Rating 8):  Loans in this category are considered uncollectible and of such little value that their continuance as loans is not warranted.

Management periodically reviews the ratings described above and the Company’s internal audit function reviews components of the credit files, including the assigned risk ratings, of certain commercial loans as part of its loan review.  

The following tables present the Company’s loans by risk rating at December 31, 2012 and 2011.

December 31, 2012	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	222,262	$	723	$	7,679	$	—	$	—	$	230,664
Multi-family and commercial	—		185,141		5,321		11,489		—		—		201,951
Construction	—		3,284		—		—		—		—		3,284
Total real estate loans	—		410,687		6,044		19,168		—		—		435,899
Commercial business loans:
SBA and USDA guaranteed	148,385		—		—		—		—		—		148,385
Other	—		61,047		3,399		696		—		—		65,142
Total commercial business loans	148,385		61,047		3,399		696		—		—		213,527
Consumer loans:
Home equity	—		27,960		—		415		—		—		28,375
Indirect automobile	—		9,652		—		—		—		—		9,652
Other	—		2,353		—		—		—		—		2,353
Total consumer loans	—		39,965		—		415		—		—		40,380
Total loans	$	148,385	$	511,699	$	9,443	$	20,279	$	—	$	—	$	689,806

December 31, 2011	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	240,904	$	769	$	5,753	$	—	$	—	$	247,426
Multi-family and commercial	—		135,859		8,699		13,826		—		—		158,384
Construction	—		11,707		583		—		—		—		12,290
Total real estate loans	—		388,470		10,051		19,579		—		—		418,100
Commercial business loans:
SBA and USDA guaranteed	127,359		—		—		—		—		—		127,359
Other	—		34,788		3,977		1,677		—		—		40,442
Total commercial business loans	127,359		34,788		3,977		1,677		—		—		167,801
Consumer loans:
Home equity	—		27,109		—		316		—		—		27,425
Indirect automobile	—		5,733		—		—		—		—		5,733
Other	—		2,824		—		—		—		—		2,824
Total consumer loans	—		35,666		—		316		—		—		35,982
Total loans	$	127,359	$	458,924	$	14,028	$	21,572	$	—	$	—	$	621,883

Troubled Debt Restructurings

A modified loan is considered a TDR when two conditions are met: 1) the borrower is experiencing documented financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower with similar risk characteristics. The most common types of modifications include below market interest rate reductions, deferrals of principal and maturity extensions. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is handled by the Company's Collections Department for resolution, which may result in foreclosure. The Company's determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification.

The Company's nonaccrual policy is followed for TDRs. If the loan was current prior to modification, nonaccrual status would not be required. If the loan was on nonaccrual prior to modification or if the payment amount significantly increases, the loan will remain on nonaccrual for a period of at least six months. Loans qualify for return to accrual status once the borrower has demonstrated the willingness and the ability to perform in accordance with the restructured terms of the loan agreement for a period of not less than six consecutive months.

All TDRs are initially reported as impaired. Impaired classification may be removed after the year of restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar risk characteristics at the time of restructuring.

The following table provides information on loans modified as a TDR during the years ended December 31, 2012 and 2011.

	For Years Ended December 31,
	2012					2011
				Allowance for					Allowance for
	Number	Recorded		Loan Losses		Number	Recorded		Loan Losses
	of Loans	Investment		(End of Period)		of Loans	Investment		(End of Period)
	(Dollars in Thousands)
Residential - 1 to 4 family	16	$	2,507	$	296	—	$	—	$	—
Multi-family and commercial	1	77		—		3	2,130		12
Total	17	$	2,584	$	296	3	$	2,130	$	12

During the modification process, there were no loan charge-offs or principal reductions for loans included in the table above for all periods presented.

The following table provides the recorded investment, by type of modification, for loans identified as TDRs and modified during the years ended December 31, 2012 and 2011.

	Years Ended December 31,
	2012		2011
	(In Thousands)
Interest rate adjustments	$	917	$	—
Principal deferrals (1)	—		443
Combination of rate and payment (2)	869		1,687
Combination of rate and maturity (3)	721		—
Maturity only	77		—
Total	$	2,584	$	2,130

⁽¹⁾ Terms of modification include temporary interest-only payments with deferral of principal.

⁽²⁾ Terms include combination of interest rate adjustments and interest-only payments with deferral of principal.

⁽³⁾ Terms include combination of interest rate adjustments and extensions of maturity.

For the year ended December 31, 2012, there were no troubled debt restructurings that were in payment default (defined as 90 days or more past due). For the year ended December 31, 2011, one commercial real estate loan totaling $437,000 included in the above table was in payment default. A partial loan charge-off in the amount of $458,000 was recorded on the aforementioned loan during 2011. This loan was paid in full during 2012 and therefore, is no longer in default at December 31, 2012.

Related Party Loans

Related party transactions, including loans with related parties, are discussed in further detail in Note 13.

Loans Held for Sale

Total loans held for sale amounted to $5.1 million and $5.6 million, consisting of fixed-rate residential mortgage loans, at December 31, 2012 and 2011, respectively.

Loans Serviced for Others

The Company services certain loans that it has sold with and without recourse to third parties and other loans for which the Company acquired the servicing rights.  Loans serviced for others are not included in the Company’s consolidated balance sheets.  The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was determined using a discount rate of 11.49%, PSA prepayment speeds ranging from 202% to 575% and minimal anticipated credit losses. At December 31, 2012, 2011 and 2010, the aggregate of loans serviced for others amounted to $195.5 million, $178.5 million and $148.6 million, respectively.

The following summarizes mortgage servicing rights capitalized and amortized.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,177		$	977		$	740
Additions	427			460			439
Amortization	(291		)	(260		)	(202		)
Balance at end of year	$	1,313		$	1,177		$	977
Fair value of mortgage servicing assets	$	1,349		$	1,462		$	1,456

Contractually specified servicing fees included in loan servicing fee income were$531,000, $463,000 and $374,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

XML

SECURITIES

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Securities

SECURITIES

Available for sale securities:

The amortized cost, gross unrealized gains and losses and fair values of available for sale securities at December 31, 2012 and 2011 are as follows:

	December 31, 2012
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	55,027	$	1,255	$	(23	)	$	56,259
Government-sponsored enterprises	23,388		579		—			23,967
Mortgage-backed securities:(2)
Agency - residential	69,399		2,211		(66		)	71,544
Non-agency - residential	4,784		52		(124		)	4,712
Non-agency - HELOC	2,555		—		(78		)	2,477
Corporate debt securities	7,555		188		(49		)	7,694
Collateralized debt obligations	5,993		—		(1,597		)	4,396
Obligations of state and political subdivisions	5,152		262		—			5,414
Foreign government securities	50		—		—			50
Total available for sale securities	$	173,903	$	4,547	$	(1,937	)	$	176,513

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

	December 31, 2011
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Debt securities:
U.S. Government and agency obligations	$	88,917	$	770	$	(100	)	$	89,587
Government-sponsored enterprises	17,204		462		—			17,666
Mortgage-backed securities:(2)
Agency - residential	85,552		3,070		(178		)	88,444
Non-agency - residential	7,766		21		(899		)	6,888
Non-agency - HELOC	3,097		—		(559		)	2,538
Corporate debt securities	14,094		240		(287		)	14,047
Collateralized debt obligations	6,275		—		(3,358		)	2,917
Obligations of state and political subdivisions	6,488		278		—			6,766
Tax-exempt securities	70		1		—			71
Foreign government securities	75		—		—			75
Total debt securities	229,538		4,842		(5,381		)	228,999
Equity securities:
Equity securities - financial services	228		1		(24		)	205
Equity securities - other	1,609		96		(95		)	1,610
Total equity securities	1,837		97		(119		)	1,815
Total available for sale securities	$	231,375	$	4,939	$	(5,500	)	$	230,814

⁽¹⁾ Net of OTTI write-downs recognized in earnings.

⁽²⁾ Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”) Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

At December 31, 2012 and 2011, U.S. government and agency obligations and government-sponsored enterprise securities with an amortized cost of $4.5 million and $5.0 million, respectively, and a fair value of $4.6 million and $5.1 million, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The amortized cost and fair value of debt securities by contractual maturities at December 31, 2012 are presented below.  Actual maturities of mortgage-backed securities ("MBS") may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties.  Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.

	Amortized Cost		Fair Value
	(In Thousands)
Within 1 year	$	8,382	$	8,484
After 1 but within 5 years	25,699		26,475
After 5 but within 10 years	17,223		17,426
After 10 years	45,861		45,395
	97,165		97,780
Mortgage-backed and asset-backed securities	76,738		78,733
Total debt securities	$	173,903	$	176,513

The following is a summary of realized gains and losses on the sale of securities for the years ended December 31, 2012, 2011 and 2010:

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Gross gains on sales	$	798		$	589		$	1,096
Gross losses on sales	(525		)	(103		)	(218		)
Net gain on sale of securities	$	273		$	486		$	878

The tax provision applicable to the above net realized gains amounted to $93,000, $165,000 and $299,000 for the years ended December 31, 2012, 2011 and 2010, respectively.   Proceeds from the sale of available for sale securities totaled $44.0 million, $36.9 million and $40.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The following tables present information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.

	Less Than 12 Months				12 Months or More				Total
December 31, 2012:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	—	$	—	$	1,367	$	23	$	1,367	$	23
Mortgage-backed securities:
Agency - residential	6,923		37		1,404		29		8,327		66
Non-agency - residential	1,926		8		1,417		116		3,343		124
Non-agency - HELOC	—		—		2,477		78		2,477		78
Corporate debt securities	—		—		946		49		946		49
Collateralized debt obligations	—		—		4,396		1,597		4,396		1,597
Total	$	8,849	$	45	$	12,007	$	1,892	$	20,856	$	1,937

	Less Than 12 Months				12 Months Or More				Total
December 31, 2011:	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government and agency obligations	$	32,390	$	94	$	415	$	6	$	32,805	$	100
Mortgage-backed securities:
Agency - residential	8,241		111		1,969		67		10,210		178
Non-agency - residential	—		—		5,305		899		5,305		899
Non-agency - HELOC	—		—		2,538		559		2,538		559
Corporate debt securities	3,482		234		946		53		4,428		287
Collateralized debt obligations	—		—		2,917		3,358		2,917		3,358
Equity securities - financial services	169		24		—		—		169		24
Equity securities - other	708		95		—		—		708		95
Total	$	44,990	$	558	$	14,090	$	4,942	$	59,080	$	5,500

For debt securities with OTTI losses, the Company estimated the portion of loss attributable to credit using a discounted cash flow model in accordance with applicable guidance.  Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate.  Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type.  Significant inputs for the collateralized debt obligations included estimated cash flows and prospective deferrals, defaults and recoveries based on the underlying seniority status and subordination structure of the pooled trust preferred debt tranche at the time of measurement.  Prospective deferral, default and recovery estimates affecting projected cash flows were based on an analysis of the underlying financial condition of the individual issuers, with consideration of the account’s capital adequacy, credit quality, lending concentrations and other factors.  All cash flow estimates were based on the securities’ tranche structure and contractual rate and maturity terms.  The Company utilized the services of an independent third-party valuation firm to obtain information about the structure in order to determine how the underlying collateral cash flows will be distributed to each security issued from the structure.  The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss, if any.

To the extent that continued changes in interest rates, credit movements and other factors that influence fair value of investments occur, the Company may be required to record additional impairment charges for OTTI in future periods.

At December 31, 2012, fourteen debt securities with gross unrealized losses had aggregate depreciation of approximately 8.5% of the Company’s amortized cost basis.  The majority of the unrealized losses related to the Company’s collateralized debt obligations and non-agency mortgage-backed securities.  For the years ended December 31, 2012, 2011 and 2010, the Company recognized $123,000, $148,000 and $492,000, respectively, of net impairment charges on investments deemed other-than-temporarily impaired. The following summarizes, by security type, the basis for management’s determination during the preparation of the financial statements of whether the applicable investments within the Company’s securities portfolio were other-than-temporarily impaired at December 31, 2012.

U.S. Government and Agency Obligations.  The unrealized losses on the Company’s U.S. Government and agency obligations related primarily to a widening of the rate spread to comparable treasury securities.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the securities before their anticipated recovery, which may be at maturity, the Company did not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Mortgage-backed Securities - Agency - Residential. The unrealized losses on the Company’s agency–residential mortgage-backed securities were caused by increases in the rate spread to comparable treasury securities. The Company does not expect these securities to settle at a price less than the amortized cost basis of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at December 31, 2012.

Mortgage-backed Securities - Non-agency - Residential.  Despite significant improvement in the market, these securities continue to trade well below historic levels, particularly those backed by jumbo or hybrid loan collateral.  At December 31, 2012, management evaluated credit rating details for the tranche, as well as credit information on subordinate tranches, potential future credit losses and loss analyses.  Additionally, management reviewed reports prepared by an independent third party for certain non-agency mortgage-backed securities. The Company has not recorded any further impairment losses as of December 31, 2012 because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.

The following table details the Company’s non-agency residential mortgage-backed securities that were rated below investment grade at December 31, 2012.

Security	Class (1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (2)	Total Credit- Related OTTI (3)		Credit Support Coverage Ratios (4)
(Dollars in Thousands)
MBS 1	SSNR, AS	$	1,533	$	—	$	(116	)	$	1,417	D	$	197	0.00
MBS 2	PT, AS	198		4		—			202		CCC	—		0.24
		$	1,731	$	4	$	(116	)	$	1,619		$	197

⁽¹⁾Class definitions:  PT - Pass Through, AS - Accelerated, and SSNR - Super Senior.

⁽²⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽³⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

⁽⁴⁾ The credit support coverage ratio, which is the ratio that determines the multiple of credit support, is based on assumptions for the performance of the loans within the delinquency pipeline.  The assumptions used are: current collateral support/((60 day delinquencies x .60)+(90 day delinquencies x .70)+(foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.

Mortgage-backed Securities - Non-agency - HELOC.  The unrealized loss on the Company’s non-agency - HELOC mortgage-backed security is related to one investment grade security whose market has been illiquid.  This security is collateralized by home equity lines of credit secured by first and second liens and insured by Financial Security Assurance.  At December 31, 2012, management evaluated credit rating details, collateral support and loss analyses.  All of the unrealized losses on this security relate to factors other than credit.  Because the Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell this security before the recovery of its amortized cost basis, which may be at maturity, the Company did not record an impairment loss at December 31, 2012.

Corporate Debt Securities. Substantially all of the corporate debt securities are rated investment-grade, including those in an unrealized loss position. Various factors were considered in assessing whether the Company expects to recover the amortized cost of corporate debt securities including, but not limited to, the strength of issuer credit ratings, the financial condition of guarantors and the length of time and the extent to which a security's fair value has been less than its amortized cost. Based on management's assessment, the Company expects to recover the entire amortized cost basis of all corporate debt securities that were in an unrealized loss position as of December 31, 2012.

Collateralized Debt Obligations.  The unrealized losses on the Company’s collateralized debt obligations relate to investments in pooled trust preferred securities (“PTPS”).  The PTPS market has stabilized at depressed market values as a result of market saturation.  Transactions for PTPS have been limited and have occurred primarily as a result of distressed or forced liquidation sales. The securities were widely held by hedge funds and European banks and used to offset interest rate exposure tied to LIBOR. As the positions have unwound, an excess supply of these securities have saturated the market.

Management evaluated current credit ratings, credit support and stress testing for future defaults related to the Company’s PTPS.  Management also reviewed analytics provided by the trustee and independent OTTI reviews and associated cash flow analyses performed by an independent third party.  The unrealized losses on the Company’s PTPS investments were caused by a lack of liquidity, credit downgrades and decreasing credit support.  The increased number of bank and insurance company failures has decreased the level of credit support for these investments.  A number of lower tranches have foregone payments or have received payment in kind through increased principal allocations.  However, the number of deferring securities has been decreasing and a number of reinstatements have occurred recently. Based on the existing credit profile of the remainder of the Company's PTPS investments, management does not believe that these investments will suffer from any further credit-related losses.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not record additional impairment losses as of December 31, 2012.  

The following table details the Company’s collateralized debt obligations that were rated below investment grade at December 31, 2012.

Security	Class	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Lowest Credit Rating (1)	Total Credit- Related OTTI (2)		% of Current Performing Collateral Coverage
(Dollars in Thousands)
CDO 1	B1	$	1,000	$	—	$	(628	)	$	372	CCC-	$	—	118.6
CDO 2	B3	1,000		—		(612		)	388		CCC-	—		118.6
CDO 3	A2	2,578		—		(150		)	2,428		B-	62		121.0
CDO 4	A1	1,415		—		(207		)	1,208		BB-	—		159.3
		$	5,993	$	—	$	(1,597	)	$	4,396		$	62

⁽¹⁾ The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

⁽²⁾ The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

The following table presents a roll-forward of the balance of credit losses on the Company’s debt securities for which a portion of OTTI was recognized in other comprehensive income for the years ended December 31, 2012, 2011 and 2010.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,207		$	1,093		$	1,787
Reduction for securities transferred to trading during period	—			—			(1,186		)
Amounts related to credit losses for which OTTI losses were not previously recognized	—			148			—
Additional credit losses for which OTTI losses were previously recognized	123			—			492
Reduction for permanent loss in value of securities during the period	(1,071		)	—			—
Reduction for securities sold during the period (realized)	—			(34		)	—
Balance at end of year	$	259		$	1,207		$	1,093

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OTHER COMPREHENSIVE INCOME (LOSS)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Other Comprehensive Income (Loss)

OTHER COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities are reported as a separate component of shareholders' equity on the balance sheet, such items along with net income are components of comprehensive income.

Components of other comprehensive income and related tax effects are as follows:

	Year Ended December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	1,905		$	(647	)	$	1,258
Reclassification adjustment for gains realized in net income	(273		)	93			(180		)
Credit portion of OTTI losses recognized in net income	123			(42		)	81
Noncredit portion of OTTI gains on available for sale securities	1,416			(482		)	934
Unrealized holding gains on available for sale securities,  net of taxes	3,171			(1,078		)	2,093
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(8		)	3			(5		)
Other comprehensive income	$	3,163		$	(1,075	)	$	2,088

	Year Ended December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding gains on available for sale securities	$	3,058		$	(1,040	)	$	2,018
Reclassification adjustment for gains realized in net income	(486		)	165			(321		)
Credit portion of OTTI losses recognized in net income	148			(50		)	98
Noncredit portion of OTTI losses on available for sale securities	(1,730		)	588			(1,142		)
Unrealized holding gains on available for sale securities,  net of taxes	990			(337		)	653
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(333		)	113			(220		)
Other comprehensive income	$	657		$	(224	)	$	433

	Year Ended December 31, 2010
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Securities:
Unrealized holding losses on available for sale securities	$	(87	)	$	29		$	(58	)
Reclassification adjustment for gains realized in net income	(878		)	299			(579		)
Credit portion of OTTI losses recognized in net income	492			(167		)	325
Noncredit portion of OTTI gains on available for sale securities	1,554			(528		)	1,026
Unrealized holding gains on available for sale securities,  net of taxes	1,081			(367		)	714
Derivative instrument:
Change in fair value of effective cash flow hedging derivative	(129		)	44			(85		)
Other comprehensive income	$	952		$	(323	)	$	629

The components of accumulated other comprehensive income (loss) included in shareholders’ equity are as follows:

	December 31, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	2,876		$	(977	)	$	1,899
Noncredit portion of OTTI losses on available for sale securities	(266		)	90			(176		)
Net unrealized loss on effective cash flow hedging derivative	(470		)	160			(310		)
Accumulated other comprehensive income	$	2,140		$	(727	)	$	1,413

	December 31, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized gains on available for sale securities	$	1,121		$	(381	)	$	740
Noncredit portion of OTTI losses on available for sale securities	(1,682		)	572			(1,110		)
Net unrealized loss on effective cash flow hedging derivative	(462		)	157			(305		)
Accumulated other comprehensive loss	$	(1,023	)	$	348		$	(675	)

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BENEFIT PLANS

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Compensation and Employee Benefit Plans [Text Block]

BENEFIT PLANS

Profit Sharing and 401(k) Savings Plan

The Bank’s Profit Sharing and 401(k) Savings Plan (the “Plan”) is a tax-qualified defined contribution plan for the benefit of its eligible employees.  The Bank’s profit sharing contribution to the Plan is a discretionary amount authorized by the Board of Directors, based on the financial results of the Bank.  An employee’s share of the profit sharing contribution represents the ratio of the employee’s salary to the total salary expense of the Bank. Participants vest in the Bank’s discretionary profit sharing contributions based on years of service, with 100% vesting attained upon five years of service.  There were no profit sharing contributions for the years ended December 31, 2012, 2011 and 2010.

The Plan also includes a 401(k) feature.  Eligible participants may make salary deferral contributions of up to 100% of earnings subject to Internal Revenue Services limitations.  The Bank makes matching contributions equal to 50% of the participants’ contributions up to 6% of the participants’ earnings.  Participants are immediately vested in their salary deferral contributions, employer matching contributions and earnings thereon.  Bank contributions were $248,000, $260,000 and $263,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Group Term Replacement Plan

The Bank maintains the Group Term Replacement Plan to provide a death benefit to executives designated by the Compensation Committee of the Board of Directors.  The death benefits are funded through certain insurance policies that are owned by the Bank on the lives of the participating executives.  The Bank pays the life insurance premiums, which fund the death benefits from its general assets, and is the beneficiary of any death benefits exceeding any executive’s maximum dollar amount specified in his or her split-dollar endorsement policy.  The maximum dollar amount of each executive’s split-dollar death benefit equals three times the executive’s annual compensation less amount of pre-retirement life insurance benefit and three times final annual compensation post-retirement not to exceed a specified dollar amount.  For purposes of the plan, annual compensation includes an executive’s base compensation, commissions and cash bonuses earned under the Bank’s bonus plan.  Participation in the plan ceases if an executive is terminated for cause or the executive terminates employment for reasons other than death, disability or retirement.  If the Bank wishes to maintain the insurance after a participant’s termination in the plan, the Bank will be the direct beneficiary of the entire death proceeds of the insurance policies. Total expense recognized under this plan was $47,000, $40,000 and $89,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Executive Supplemental Retirement Agreements – Defined Benefit

The Bank maintains unfunded supplemental defined benefit retirement agreements with its directors and members of senior management.  These agreements provide for supplemental retirement benefits to certain executives based upon average annual compensation and years of service.  Entitlement of benefits commence upon the earlier of the executive’s termination of employment (other than for cause), at or after attaining age 65 or, depending on the executive, on the date when the executive’s years of service and age total 80 or 78.  Total expense incurred under these agreements for the years ended December 31, 2012, 2011 and 2010 was $725,000, $882,000 and $810,000, respectively.

Performance-Based Incentive Plan

The Bank has an incentive plan whereby all employees are eligible to receive a bonus tied to both the Company and individual performance.  Non-discretionary contributions to the plan require the approval of the Board of Directors’ Compensation Committee.  Total expense recognized was $339,000, $366,000 and $534,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Supplemental Executive Retirement Plan

The Bank maintains the Supplemental Executive Retirement Plan to provide restorative payments to executives, designated by the Board of Directors, who are prevented from receiving the full benefits of the Bank’s Profit Sharing and 401(k) Savings Plan and Employee Stock Ownership Plan.  The supplemental executive retirement plan also provides supplemental benefits to participants upon a change in control prior to the complete scheduled repayment of the ESOP loan.  For the years ended December 31, 2012, 2011 and 2010, the President and Chief Executive Officer was designated by the Board of Directors to participate in the plan.  Total expense incurred under this plan was $19,000, $11,000 and $11,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Employee Stock Ownership Plan

In September 2004, the Bank established an ESOP for the benefit of its eligible employees.  The Company provided a loan to the Savings Institute Bank and Trust Company Employee Stock Ownership Plan of $4.9 million which was used to purchase 492,499 shares of the Company’s outstanding stock.  The loan bears interest equal to 4.75% and provides for annual payments of interest and principal over the 15-year term of the loan.

In January 2011, the Company completed its public stock offering. At that time, the Company provided an additional loan to the Savings Institute Bank and Trust Employee Stock Ownership Plan of $3.1 million, which was used to purchase 392,670 shares of the Company's common stock. The new loan bears interest equal to 3.25% and provides for annual payments of interest and principal over the 20-year term of the loan.

At December 31, 2012, the remaining principal balance on the ESOP debt is payable as follows (in thousands):

2013	$	455
2014	475
2015	495
2016	516
2017	539
Thereafter	3,120
Total	$	5,600

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loans.  The loans are secured by the shares purchased, which are held in a suspense account for allocation among participants as the loans are repaid.  Shares held by the ESOP include the following at December 31, 2012 and 2011:

	December 31,
	2012		2011
	(Dollars In Thousands)
Allocated	184,674		158,431
Committed to be allocated	48,637		48,637
Unallocated	556,438		605,075
Total shares	789,749		812,143
Fair value of unallocated shares	$	6,399	$	5,960

Total compensation expense recognized in connection with the ESOP was $543,000, $467,000 and $202,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Equity Incentive Plans

The Company's equity incentive plans consist of stock options and shares of restricted stock that may be granted to its employees, officers, directors and directors emeritus.  Both incentive stock options and non-statutory stock options may be granted under these plans.  The 2005 Equity Incentive Plan allows the Company to grant up to 552,891 stock options and 221,154 shares of restricted stock. The 2012 Equity Incentive Plan allows the Company to grant up to 504,794 stock options and 201,918 shares of restricted stock.  All options have a contractual life of ten years and vest equally over a period of five years beginning on the first anniversary of the date of grant.  Under the 2012 Equity Incentive Plan, both performance and time-based restricted stock awards may be granted under the plan. At December 31, 2012, a total of 150,290 stock options and 33,918 shares of restricted stock were available for future grants under the plans.  

For the years ended December 31, 2012, 2011 and 2010, the Company recognized share-based compensation expense related to the stock option and restricted stock awards of $189,000, $100,000 and $257,000, respectively.

The Company granted stock options totaling 412,500, 67,500 and 62,861 during the years ended December 31, 2012, 2011 and 2010, respectively. The number of shares granted during 2010 is reflective of the conversion exchange rate of 0.8981. The fair value of each option was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

	2012			2011			2010
Expected term (years)	10.00			10.00			10.00
Expected dividend yield	1.45		%	1.70		%	1.50		%
Expected volatility	24.06		%	39.27		%	38.98		%
Risk-free interest rate	1.86		%	3.36		%	3.70		%
Fair value of options granted	$	2.96		$	4.04		$	2.55

The expected term was based on the estimated life of the stock options.  The dividend yield assumption was based on the Company’s historical and expected dividend pay-outs.  The expected volatility represents the Company’s historical volatility.  The risk-free interest rate was based on the implied yields of U.S. Treasury zero-coupon issues for periods within the contractual life of the awards in effect at the time of the stock option grants.

The following is a summary of activity for the Company’s stock options for the year ended December 31, 2012:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Options outstanding at beginning of year	505,887		$	10.47
Options granted	412,500		11.03
Options exercised	(1,796	)	5.68
Options forfeited	(10,992	)	10.40
Options outstanding at end of year	905,599		10.73		6.51
Options exercisable at end of year	407,682		11.06		2.97

There were 1,796 options exercised during the year ended December 31, 2012 and no options were exercised during the year ended December 31, 2011.  The intrinsic value of stock options outstanding and exercisable at December 31, 2012 was $764,000 and $247,000, respectively.  At December 31, 2012, there was $1.2 million of total unrecognized compensation costs related to outstanding stock options, which is expected to be recognized over a weighted average period of 2.5 years.

The following table presents the summary of activity for the Company’s unvested restricted shares for the year ended December 31, 2012.

	Shares		Weighted Average Grant Date Fair Value
Unvested restricted shares at beginning of year	7,184		$	6.22
Restricted shares granted	168,000		11.01
Restricted shares vested	(2,082	)	5.73
Unvested restricted shares at end of year	173,102		10.87

At December 31, 2012, there were 33,918 shares available for future grants.  The aggregate fair value of restricted stock awards that vested during the years ended December 31, 2012, 2011 and 2010 was $23,000, $15,000 and $281,000, respectively.  At December 31, 2012, there was $1.8 million of total unrecognized compensation costs related to unvested restricted stock awards granted under the incentive plans, which are expected to be recognized over a weighted average period of 2.7 years.

Bank-Owned Life Insurance

The Company has an investment in, and is the beneficiary of, life insurance policies on the lives of certain officers.  The purpose of these life insurance investments is to provide income through the appreciation in cash surrender value of the policies, which is used to offset the costs of various benefit and retirement plans.  The Company’s investment in bank-owned life insurance does not exceed the regulatory limitation of 25 percent of Tier 1 capital plus the allowance for loan and lease losses.  The aggregate cash surrender value of all policies owned by the Company amounted to $9.1 million and $9.0 million at December 31, 2012 and 2011, respectively. Income earned on these life insurance policies aggregated $284,000, $289,000 and $290,000 for the years ended December 31, 2012, 2011 and 2010, respectively.The Company recognized gains of $349,000 and $122,000 on death benefit proceeds received from a bank-owned life insurance policy during the years ended December 31, 2012 and 2011, respectively. There were no gains recognized on death benefit proceeds received during the year ended December 31, 2010.

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Junior Subordinated Debt Owed to Unconsolidated Trust - Narrative (Details) (Junior Subordinated Debt [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Junior Subordinated Debt [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount	$ 8.0
Debt Instrument, Description of Variable Rate Basis	three-month LIBOR
Debt Instrument, Basis Spread on Variable Rate	1.70%

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GOODWILL AND OTHER INTANGIBLES

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure

 GOODWILL AND OTHER INTANGIBLES

Goodwill

Goodwill for the years ended December 31, 2012, 2011 and 2010 is summarized as follows:

	Years Ended December 31,
	2012			2011		2010
	(In Thousands)
Balance at beginning of year	$	4,094		$	4,094	$	4,131
Impairment	—			—		(37		)
Disposal of SI Trust Servicing	(643		)	—		—
Balance at end of year	$	3,451		$	4,094	$	4,094

At December 31, 2012, the Company’s goodwill relates to two branch locations acquired in 2008.  During 2012, the Company sold its SI Trust Servicing operations and, in connection with the sale, disposed of the associated goodwill. Annually, or more frequently if events or changes in circumstances warrant such evaluation, the Company evaluates its goodwill for impairment.  As a result of the Company’s goodwill impairment evaluation, the Company recorded goodwill impairment of $37,000 relating to the Colchester branch acquisition during the year ended December 31, 2010. No goodwill impairment was recorded for the years ended December 31, 2012 and 2011.

Core Deposit Intangibles

In connection with the assumption of $18.4 million of deposit liabilities from the Colchester, Connecticut branch office acquisition in January 2008, the Bank recorded a core deposit premium intangible of $159,000.  The resulting core deposit premium intangible was amortized over five years using the sum-of-the-years-digits method.  Core deposit intangibles are summarized as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Core deposit intangible	$	159		$	159
Accumulated amortization	(159		)	(148		)
Core deposit intangible, net	$	—		$	11

Amortization expense was $11,000, $21,000 and $32,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

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Below Investment Grade Collateralized Debt Obligations (Details) (USD $) In Thousands, unless otherwise specified				12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011		Dec. 31, 2012 CDO 1 [Member]		Dec. 31, 2012 CDO 2 [Member]		Dec. 31, 2012 CDO 3 [Member]		Dec. 31, 2012 CDO 4 [Member]		Dec. 31, 2012 Below Investment Grade Collateralized Debt Obligations [Domain]
Schedule of Available-for-sale Securities [Line Items]
Class				B1		B3		A2		A1
Amortized Cost		$ 231,375	[1]	$ 1,000		$ 1,000		$ 2,578		$ 1,415		$ 5,993
Gross Unrealized Gains		4,939		0		0		0		0		0
Gross Unrealized Losses		5,500		(628)		(612)		(150)		(207)		(1,597)
Fair Value	176,513	230,814		372		388		2,428		1,208		4,396
Lowest Credit Rating				CCC-	[2]	CCC-	[2]	B-	[2]	BB-	[2]
Total Credit Related OTTI				$ 0	[3]	$ 0	[3]	$ 62	[3]	$ 0	[3]	$ 62	[3]
Percent of Current Performing Collateral Coverage				118.60%		118.60%		121.00%		159.30%

[1] (1) Net of OTTI write-downs recognized in earnings.

[2] (1) The Company utilized credit ratings provided by Moody's, S&P and Fitch in its evaluation of issuers.

[3] (2) The OTTI amounts provided in the table represent cumulative credit loss amounts through December 31, 2012.

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Fair Value - Nonrecurring Gain/Loss Adjustments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Goodwill	$ 0	$ 0	$ (37)
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans	367	998	800
Other real estate owned	28	175	326
Goodwill	0	0	37
Total Adjustments to Fair Value, Assets Measured on a Nonrecurring Basis	$ 395	$ 1,173	$ 1,163

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2012

Other Real Estate Owned [Abstract]

Real Estate Owned [Text Block]

OTHER REAL ESTATE OWNED

At December 31, 2012, other real estate owned consisted of three residential and three commercial real estate properties. At December 31, 2011, other real estate owned consisted of four residential and two commercial real estate properties which were held for sale. A summary of expenses applicable to other real estate operations for the years ended December 31, 2012, 2011 and 2010, is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
Net loss from sales or write-downs of other real estate owned, net	$	60	$	236	$	534
Other real estate expense, net of rental income	441		540		296
Expense from other real estate operations, net	$	501	$	776	$	830

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure

PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2012 and 2011 are summarized as follows:

	December 31,
	2012			2011
	(In Thousands)
Land	$	2,098		$	2,098
Buildings	7,052			6,660
Leasehold improvements	7,563			7,822
Furniture and equipment	10,867			12,272
Construction in process	84			20
	27,664			28,872
Accumulated depreciation and amortization	(16,448		)	(16,221		)
Premises and equipment, net	$	11,216		$	12,651

At December 31, 2012, construction in process related to design and site costs associated with a new branch location for which there was an outstanding commitment for the purchase of land totaling $450,000.  At December 31, 2011, there were no outstanding commitments for the construction of new branches.

Depreciation and amortization expense was $1.9 million, $1.9 million and $2.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.  See Note 12 for a schedule of future minimum rental commitments pursuant to the terms of noncancelable lease agreements.

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DEPOSITS

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Deposit Liabilities Disclosures

DEPOSITS

A summary of deposit balances, by type, at December 31, 2012 and 2011 is as follows:

	December 31,
	2012		2011
	(In Thousands)
Noninterest-bearing demand deposits	$	89,834	$	85,958
Interest-bearing accounts:
Business checking	2		—
NOW and money market accounts	300,050		306,002
Savings accounts	38,026		37,329
Certificates of deposit (1)	277,236		272,637
Total interest-bearing accounts	615,314		615,968
Total deposits	$	705,148	$	701,926

^{( 1)} Includes brokered deposits of $4.2 million and $4.0 million at December 31, 2012 and 2011, respectively.

Certificates of deposit in denominations of $100,000 or more were $112.4 million and $99.5 million at December 31, 2012 and 2011, respectively. Effective July 21, 2010, with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FDIC permanently raised deposit insurance levels to $250,000 per depositor.  Prior to the increase, deposits in excess of $100,000, with the exception of self-directed retirement accounts which are insured up to $250,000, were not federally insured.

Contractual maturities of certificates of deposit as of December 31, 2012 are summarized below (in thousands).

2013	$	135,113
2014	56,675
2015	49,568
2016	15,418
2017	14,293
Thereafter	6,169
Total certificates of deposit	$	277,236

A summary of interest expense, by account type, for the years ended December 31, 2012, 2011 and 2010 is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
NOW and money market accounts	$	627	$	1,294	$	1,618
Savings accounts (1)	106		197		295
Certificates of deposit (2)	5,286		5,771		7,524
Total	$	6,019	$	7,262	$	9,437

⁽¹⁾ Includes interest expense on mortgagors' and investors' escrow accounts.

⁽²⁾ Includes interest expense on brokered deposits.

Related Party Deposits

Reference Note 13 for a discussion of related party transactions, including deposits from related parties.

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Allowance for Loan Losses, Futher Information (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	$ 581	$ 245
Allowance for loans individually or collectively evaluated and not deemed to be impaired	5,806	4,725
Total loan loss allowance	6,387	4,970
Loans individually evaluated and deemed to be impaired	13,843	15,210
Loans individually or collectively evaluated and not deemed to be impaired	675,963	606,673
Total Loans	689,806	621,883
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	454	33
Allowance for loans individually or collectively evaluated and not deemed to be impaired	671	726
Total loan loss allowance	1,125	759	915	1,028
Loans individually evaluated and deemed to be impaired	6,991	5,590
Loans individually or collectively evaluated and not deemed to be impaired	223,673	241,836
Total Loans	230,664	247,426
Real estate: Multi-family and commercial [Member]
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	88	107
Allowance for loans individually or collectively evaluated and not deemed to be impaired	2,940	2,230
Total loan loss allowance	3,028	2,337	2,700	2,443
Loans individually evaluated and deemed to be impaired	5,873	8,650
Loans individually or collectively evaluated and not deemed to be impaired	196,078	149,734
Total Loans	201,951	158,384
Real estate: Construction [Member]
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	0	0
Allowance for loans individually or collectively evaluated and not deemed to be impaired	22	280
Total loan loss allowance	22	280	64	221
Loans individually evaluated and deemed to be impaired	0	0
Loans individually or collectively evaluated and not deemed to be impaired	3,284	12,290
Total Loans	3,284	12,290
Commercial Business [Member]
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	39	105
Allowance for loans individually or collectively evaluated and not deemed to be impaired	1,696	1,043
Total loan loss allowance	1,735	1,148	790	906
Loans individually evaluated and deemed to be impaired	618	654
Loans individually or collectively evaluated and not deemed to be impaired	212,909	167,147
Total Loans	213,527	167,801
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Allowance for loans individually evaluated and deemed to be impaired	0	0
Allowance for loans individually or collectively evaluated and not deemed to be impaired	477	446
Total loan loss allowance	477	446	330	293
Loans individually evaluated and deemed to be impaired	361	316
Loans individually or collectively evaluated and not deemed to be impaired	40,019	35,666
Total Loans	$ 40,380	$ 35,982

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QUARTERLY DATA (UNAUDITED) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income	$ 8,863	$ 8,862	$ 8,878	$ 9,221	$ 9,265	$ 9,451	$ 9,584	$ 9,520	$ 35,824	$ 37,820	$ 39,875
Interest expense	2,322	2,368	2,392	2,551	2,638	2,815	2,932	2,992	9,633	11,377	13,824
Net interest income	6,541	6,494	6,486	6,670	6,627	6,636	6,652	6,528	26,191	26,443	26,051
Provision for loan losses	646	1,334	432	484	948	210	190	210	2,896	1,558	902
Net interest income after provision for loan losses	5,895	5,160	6,054	6,186	5,679	6,426	6,462	6,318	23,295	24,885	25,149
Noninterest income	2,398	1,232	2,326	2,761	2,885	2,697	2,896	2,649	8,717	11,127	10,685
Noninterest expenses	7,338	7,408	7,557	8,350	7,522	8,047	8,310	8,713	30,653	32,592	31,518
Income (loss) before income tax provision (benefit)	955	(1,016)	823	597	1,042	1,076	1,048	254	1,359	3,420	4,316
Income tax provision (benefit)	210	(316)	153	194	281	336	341	45	241	1,003	1,313
Net income (loss)	$ 745	$ (700)	$ 670	$ 403	$ 761	$ 740	$ 707	$ 209	$ 1,118	$ 2,417	$ 3,003
Earnings (loss) per common share:
Basic	$ 0.08	$ (0.07)	$ 0.07	$ 0.04	$ 0.08	$ 0.07	$ 0.07	$ 0.02	$ 0.11	$ 0.24	$ 0.29
Diluted	$ 0.08	$ (0.07)	$ 0.07	$ 0.04	$ 0.08	$ 0.07	$ 0.07	$ 0.02	$ 0.11	$ 0.24	$ 0.29

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Contractual Maturities of Borrowings (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Debt Instrument [Line Items]
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months	$ 21,000
Long-term Debt, Maturities, Repayments of Principal in Year Two	24,000
Long-term Debt, Maturities, Repayments of Principal in Year Three	26,069
Long-term Debt, Maturities, Repayments of Principal in Year Four	18,000
Long-term Debt, Maturities, Repayments of Principal in Year Five	5,000	[1]
Long-term Debt, Maturities, Repayments of Principal after Year Five	12,248	[2]
Long-term Debt	106,317
Long-term Debt, Weighted Average Interest Rate	3.32%
FHLB Advances, maturity in year five, callable during 2013	3,000
FHLB Advances, maturity after year five, callable during 2013	2,000
Federal Home Loan Bank Advances [Member]
Debt Instrument [Line Items]
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months	21,000
Long-term Debt, Maturities, Repayments of Principal in Year Two	24,000
Long-term Debt, Maturities, Repayments of Principal in Year Three	26,069
Long-term Debt, Maturities, Repayments of Principal in Year Four	18,000
Long-term Debt, Maturities, Repayments of Principal in Year Five	5,000	[1]
Long-term Debt, Maturities, Repayments of Principal after Year Five	4,000
Long-term Debt	98,069
Long-term Debt, Weighted Average Interest Rate	3.25%
Junior Subordinated Debt [Member]
Debt Instrument [Line Items]
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months	0
Long-term Debt, Maturities, Repayments of Principal in Year Two	0
Long-term Debt, Maturities, Repayments of Principal in Year Three	0
Long-term Debt, Maturities, Repayments of Principal in Year Four	0
Long-term Debt, Maturities, Repayments of Principal in Year Five	0
Long-term Debt, Maturities, Repayments of Principal after Year Five	8,248
Long-term Debt	$ 8,248
Long-term Debt, Weighted Average Interest Rate	4.14%

[1] (1) Includes FHLB advance of $3.0 million that is callable during 2013.

[2] (2) Includes FHLB advance of $2.0 million that is callable during 2013.

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Impaired Loans and Non Accrual Loans by Class (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Total impaired loans, Recorded Investment	$ 13,843	$ 15,210
Total impaired loans, Unpaid Principal Balance	14,154	16,077
Impaired loans, Related Allowance	581	245
Total impaired loans, Nonaccrual Loans	7,654	10,591
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans without valuation allowance, Recorded Investment	3,866	5,232
Impaired loans without valuation allowance, Unpaid Principal Balance	4,013	5,536
Impaired loans, Related Allowance	0	0
Impaired loans without valuation allowance, Nonaccrual Loans	3,855	5,232
Real estate: Multi-family and commercial [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans without valuation allowance, Recorded Investment	4,407	4,757
Impaired loans without valuation allowance, Unpaid Principal Balance	4,407	5,215
Impaired loans, Related Allowance	0	0
Impaired loans without valuation allowance, Nonaccrual Loans	1,522	3,795
Commercial business: Other [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans without valuation allowance, Recorded Investment	546	31
Impaired loans without valuation allowance, Unpaid Principal Balance	546	31
Impaired loans, Related Allowance	0	0
Impaired loans without valuation allowance, Nonaccrual Loans	470	31
Consumer: Home equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans without valuation allowance, Recorded Investment	361	316
Impaired loans without valuation allowance, Unpaid Principal Balance	435	331
Impaired loans, Related Allowance	0	0
Impaired loans without valuation allowance, Nonaccrual Loans	366	316
Total impaired loans without valuation allowance [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans without valuation allowance, Recorded Investment	9,180	10,336
Impaired loans without valuation allowance, Unpaid Principal Balance	9,401	11,113
Impaired loans, Related Allowance	0	0
Impaired loans without valuation allowance, Nonaccrual Loans	6,213	9,374
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with valuation allowance, Recorded Investment	3,125	358
Impaired loans with valuation allowance, Unpaid Principal Balance	3,125	358
Impaired loans, Related Allowance	454	33
Impaired loans with valuation allowance, Nonaccrual Loans	1,133	358
Real estate: Multi-family and commercial [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with valuation allowance, Recorded Investment	1,466	3,893
Impaired loans with valuation allowance, Unpaid Principal Balance	1,556	3,983
Impaired loans, Related Allowance	88	107
Impaired loans with valuation allowance, Nonaccrual Loans	236	236
Commercial business: Other [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with valuation allowance, Recorded Investment	72	623
Impaired loans with valuation allowance, Unpaid Principal Balance	72	623
Impaired loans, Related Allowance	39	105
Impaired loans with valuation allowance, Nonaccrual Loans	72	623
Total impaired loans with valuation allowance [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with valuation allowance, Recorded Investment	4,663	4,874
Impaired loans with valuation allowance, Unpaid Principal Balance	4,753	4,964
Impaired loans, Related Allowance	581	245
Impaired loans with valuation allowance, Nonaccrual Loans	$ 1,441	$ 1,217

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Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Related Party Transaction [Line Items]
Balance at beginning of year, loans receivable, related parties	$ 2,063	$ 2,038
Loans and Leases Receivable, Related Parties, Additions	362	247
Loans and Leases Receivable, Related Parties, Collections	(477)	(222)
Balance at end of year, loans receivable, related parties	1,948	2,063
Related Party Deposit Liabilities	$ 1,300	$ 1,200

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Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				$ 4,970					$ 4,970
Provision for loan losses	(646)	(1,334)	(432)	(484)	(948)	(210)	(190)	(210)	(2,896)	(1,558)	(902)
Balance at end of period	6,387				4,970				6,387	4,970
Allowance for loan losses [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				4,970				4,799	4,970	4,799	4,891
Provision for loan losses									2,896	1,558	902
Loans charged-off									(1,817)	(1,726)	(1,015)
Recoveries of loans previously charged-off									338	339	21
Balance at end of period	6,387				4,970				6,387	4,970	4,799
Real estate: Residential - 1 to 4 family [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				759				915	759	915	1,028
Provision for loan losses									561	530	171
Loans charged-off									(299)	(686)	(285)
Recoveries of loans previously charged-off									104	0	1
Balance at end of period	1,125				759				1,125	759	915
Real estate: Multi-family and commercial [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				2,337				2,700	2,337	2,700	2,443
Provision for loan losses									1,818	228	464
Loans charged-off									(1,267)	(606)	(221)
Recoveries of loans previously charged-off									140	15	14
Balance at end of period	3,028				2,337				3,028	2,337	2,700
Real estate: Construction [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				280				64	280	64	221
Provision for loan losses									(258)	15	136
Loans charged-off									0	(83)	(293)
Recoveries of loans previously charged-off									0	284	0
Balance at end of period	22				280				22	280	64
Commercial Business [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				1,148				790	1,148	790	906
Provision for loan losses									556	588	47
Loans charged-off									0	(267)	(166)
Recoveries of loans previously charged-off									31	37	3
Balance at end of period	1,735				1,148				1,735	1,148	790
Consumer [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Balance at beginning of period				446				330	446	330	293
Provision for loan losses									219	197	84
Loans charged-off									(251)	(84)	(50)
Recoveries of loans previously charged-off									63	3	3
Balance at end of period	$ 477				$ 446				$ 477	$ 446	$ 330

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Schedule of ESOP Debt Payable (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
ESOP Loan [Line Items]
ESOP Loan, Principal balance payable in 2013	$ 455
ESOP Loan, Principal balance payable in 2014	475
ESOP Loan, Principal balance payable in 2015	495
ESOP Loan, Principal balance payable in 2016	516
ESOP Loan, Principal balance payable in 2017	539
ESOP Loan, Principal balance payable Thereafter	3,120
ESOP Loan	$ 5,600

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LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Composition of the Company's loan portfolio

The composition of the Company's loan portfolio at December 31, 2012 and 2011 is as follows:

	December 31,
	2012			2011
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	230,664		$	247,426
Multi-family and commercial	201,951			158,384
Construction	3,284			12,290
Total real estate loans	435,899			418,100
Commercial business loans:
SBA and USDA guaranteed	148,385			127,359
Other	65,142			40,442
Total commercial business loans	213,527			167,801
Consumer loans:
Home equity	28,375			27,425
Indirect automobile	9,652			5,733
Other	2,353			2,824
Total consumer loans	40,380			35,982
Total loans	689,806			621,883
Deferred loan origination costs, net of fees	1,744			1,713
Allowance for loan losses	(6,387		)	(4,970		)
Loans receivable, net	$	685,163		$	618,626

Allowance for Credit Losses on Financing Receivables

Changes in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Residential - 1 to 4 Family			Multi-family and Commercial			Construction			Commercial Business			Consumer			Total
	(In Thousands)
Balance at December 31, 2009	$	1,028		$	2,443		$	221		$	906		$	293		$	4,891
Provision for loan losses	171			464			136			47			84			902
Loans charged-off	(285		)	(221		)	(293		)	(166		)	(50		)	(1,015		)
Recoveries of loans previously charged-off	1			14			—			3			3			21
Balance at December 31, 2010	915			2,700			64			790			330			4,799
Provision for loan losses	530			228			15			588			197			1,558
Loans charged-off	(686		)	(606		)	(83		)	(267		)	(84		)	(1,726		)
Recoveries of loans previously charged-off	—			15			284			37			3			339
Balance at December 31, 2011	759			2,337			280			1,148			446			4,970
Provision (credit) for loan losses	561			1,818			(258		)	556			219			2,896
Loans charged-off	(299		)	(1,267		)	—			—			(251		)	(1,817		)
Recoveries of loans previously charged-off	104			140			—			31			63			338
Balance at December 31, 2012	$	1,125		$	3,028		$	22		$	1,735		$	477		$	6,387

Additional Information on Allowance for Credit Losses on Financing Receivables

Further information pertaining to the allowance for loan losses at December 31, 2012 and 2011 is as follows:

December 31, 2012	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	454	$	88	$	—	$	39	$	—	$	581
Allowance for loans individually or collectively evaluated and not deemed to be impaired	671		2,940		22		1,696		477		5,806
Total loan loss allowance	$	1,125	$	3,028	$	22	$	1,735	$	477	$	6,387
Loans individually evaluated and deemed to be impaired	$	6,991	$	5,873	$	—	$	618	$	361	$	13,843
Loans individually or collectively evaluated and not deemed to be impaired	223,673		196,078		3,284		212,909		40,019		675,963
Total loans	$	230,664	$	201,951	$	3,284	$	213,527	$	40,380	$	689,806

December 31, 2011	Residential - 1 to 4 Family		Multi-family and Commercial		Construction		Commercial Business		Consumer		Total
	(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired	$	33	$	107	$	—	$	105	$	—	$	245
Allowance for loans individually or collectively evaluated and not deemed to be impaired	726		2,230		280		1,043		446		4,725
Total loan loss allowance	$	759	$	2,337	$	280	$	1,148	$	446	$	4,970
Loans individually evaluated and deemed to be impaired	$	5,590	$	8,650	$	—	$	654	$	316	$	15,210
Loans individually or collectively evaluated and not deemed to be impaired	241,836		149,734		12,290		167,147		35,666		606,673
Total loans	$	247,426	$	158,384	$	12,290	$	167,801	$	35,982	$	621,883

Past Due Loans Receivables

The following represents an aging of loans at December 31, 2012 and 2011:

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	3,245	$	1,725	$	3,285	$	8,255	$	222,409	$	230,664
Multi-family and commercial	4,149		—		1,266		5,415		196,536		201,951
Construction	—		—		—		—		3,284		3,284
Commercial Business:
SBA and USDA guaranteed	5,014		1,087		—		6,101		142,284		148,385
Other	—		—		541		541		64,601		65,142
Consumer:
Home equity	216		—		361		577		27,798		28,375
Indirect automobile	19		—		—		19		9,633		9,652
Other	21		—		—		21		2,332		2,353
Total	$	12,664	$	2,812	$	5,453	$	20,929	$	668,877	$	689,806

December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total 30 Days or More Past Due		Current		Total Loans
	(In Thousands)
Real Estate:
Residential - 1 to 4 family	$	4,065	$	995	$	3,835	$	8,895	$	238,531	$	247,426
Multi-family and commercial	292		—		1,703		1,995		156,389		158,384
Construction	—		—		—		—		12,290		12,290
Commercial Business:
SBA and USDA guaranteed	2,729		327		—		3,056		124,303		127,359
Other	—		—		623		623		39,819		40,442
Consumer:
Home equity	—		—		269		269		27,156		27,425
Indirect automobile	—		—		—		—		5,733		5,733
Other	124		—		—		124		2,700		2,824
Total	$	7,210	$	1,322	$	6,430	$	14,962	$	606,921	$	621,883

Impaired Financing Receivables

The following is a summary of impaired and nonaccrual loans at December 31, 2012 and 2011:

	Impaired Loans
December 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	3,866	$	4,013	$	—	$	3,855
Multi-family and commercial	4,407		4,407		—		1,522
Commercial business - Other	546		546		—		470
Consumer - Home equity	361		435		—		366
Total impaired loans without valuation allowance	9,180		9,401		—		6,213
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	3,125		3,125		454		1,133
Multi-family and commercial	1,466		1,556		88		236
Commercial business - Other	72		72		39		72
Total impaired loans with valuation allowance	4,663		4,753		581		1,441
Total impaired loans	$	13,843	$	14,154	$	581	$	7,654

	Impaired Loans
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Nonaccrual Loans
	(In Thousands)
Impaired loans without valuation allowance:
Real Estate:
Residential - 1 to 4 family	$	5,232	$	5,536	$	—	$	5,232
Multi-family and commercial	4,757		5,215		—		3,795
Commercial business - Other	31		31		—		31
Consumer	316		331		—		316
Total impaired loans without valuation allowance	10,336		11,113		—		9,374
Impaired loans with valuation allowance:
Real Estate:
Residential - 1 to 4 family	358		358		33		358
Multi-family and commercial	3,893		3,983		107		236
Commercial business - Other	623		623		105		623
Total impaired loans with valuation allowance	4,874		4,964		245		1,217
Total impaired loans	$	15,210	$	16,077	$	245	$	10,591

Additional Information Related to Impaired Loans

Additional information related to impaired loans is as follows:

	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In Thousands)
Year Ended December 31, 2012
Residential - 1 to 4 family	$	6,113	$	151	$	126
Multi-family and commercial	8,048		260		32
Commercial business - Other	602		4		2
Consumer - Home equity	413		4		4
Total	$	15,176	$	419	$	164
Year Ended December 31, 2011
Residential - 1 to 4 family	$	5,739	$	64	$	29
Multi-family and commercial	8,035		312		—
Commercial business - Other	421		—		—
Consumer - Home equity	196		—		—
Total	$	14,391	$	376	$	29
Year Ended December 31, 2010
Residential - 1 to 4 family	$	2,979	$	5	$	5
Multi-family and commercial	3,169		155		—
Construction	316		—		—
Commercial business - Other	165		5		5
Total	$	6,629	$	165	$	10

Financing Receivable Credit Quality Indicators

The following tables present the Company’s loans by risk rating at December 31, 2012 and 2011.

December 31, 2012	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	222,262	$	723	$	7,679	$	—	$	—	$	230,664
Multi-family and commercial	—		185,141		5,321		11,489		—		—		201,951
Construction	—		3,284		—		—		—		—		3,284
Total real estate loans	—		410,687		6,044		19,168		—		—		435,899
Commercial business loans:
SBA and USDA guaranteed	148,385		—		—		—		—		—		148,385
Other	—		61,047		3,399		696		—		—		65,142
Total commercial business loans	148,385		61,047		3,399		696		—		—		213,527
Consumer loans:
Home equity	—		27,960		—		415		—		—		28,375
Indirect automobile	—		9,652		—		—		—		—		9,652
Other	—		2,353		—		—		—		—		2,353
Total consumer loans	—		39,965		—		415		—		—		40,380
Total loans	$	148,385	$	511,699	$	9,443	$	20,279	$	—	$	—	$	689,806

December 31, 2011	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential - 1 to 4 family	$	—	$	240,904	$	769	$	5,753	$	—	$	—	$	247,426
Multi-family and commercial	—		135,859		8,699		13,826		—		—		158,384
Construction	—		11,707		583		—		—		—		12,290
Total real estate loans	—		388,470		10,051		19,579		—		—		418,100
Commercial business loans:
SBA and USDA guaranteed	127,359		—		—		—		—		—		127,359
Other	—		34,788		3,977		1,677		—		—		40,442
Total commercial business loans	127,359		34,788		3,977		1,677		—		—		167,801
Consumer loans:
Home equity	—		27,109		—		316		—		—		27,425
Indirect automobile	—		5,733		—		—		—		—		5,733
Other	—		2,824		—		—		—		—		2,824
Total consumer loans	—		35,666		—		316		—		—		35,982
Total loans	$	127,359	$	458,924	$	14,028	$	21,572	$	—	$	—	$	621,883

Loans Modified as Troubled Debt Restructurings

The following table provides information on loans modified as a TDR during the years ended December 31, 2012 and 2011.

	For Years Ended December 31,
	2012					2011
				Allowance for					Allowance for
	Number	Recorded		Loan Losses		Number	Recorded		Loan Losses
	of Loans	Investment		(End of Period)		of Loans	Investment		(End of Period)
	(Dollars in Thousands)
Residential - 1 to 4 family	16	$	2,507	$	296	—	$	—	$	—
Multi-family and commercial	1	77		—		3	2,130		12
Total	17	$	2,584	$	296	3	$	2,130	$	12

Troubled Debt Restructurings on Financing Receivables

The following table provides the recorded investment, by type of modification, for loans identified as TDRs and modified during the years ended December 31, 2012 and 2011.

	Years Ended December 31,
	2012		2011
	(In Thousands)
Interest rate adjustments	$	917	$	—
Principal deferrals (1)	—		443
Combination of rate and payment (2)	869		1,687
Combination of rate and maturity (3)	721		—
Maturity only	77		—
Total	$	2,584	$	2,130

⁽¹⁾ Terms of modification include temporary interest-only payments with deferral of principal.

⁽²⁾ Terms include combination of interest rate adjustments and interest-only payments with deferral of principal.

⁽³⁾ Terms include combination of interest rate adjustments and extensions of maturity.

Schedule of Servicing Assets at Amortized Value

The following summarizes mortgage servicing rights capitalized and amortized.

	Years Ended December 31,
	2012			2011			2010
	(In Thousands)
Balance at beginning of year	$	1,177		$	977		$	740
Additions	427			460			439
Amortization	(291		)	(260		)	(202		)
Balance at end of year	$	1,313		$	1,177		$	977
Fair value of mortgage servicing assets	$	1,349		$	1,462		$	1,456

XML

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Premises and Equipment (Details)	12 Months Ended
	Dec. 31, 2012
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	5
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	40
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	3
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	10
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	5
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	20

XML

RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure

RELATED PARTY TRANSACTIONS

Loans Receivable

In the normal course of business, the Bank grants loans to related parties.  Related parties include directors and certain officers of the Company and its subsidiaries and their immediate family members and respective affiliates in which they have a controlling interest.  These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with customers, and did not involve more than the normal risk of collectibility.  At December 31, 2012 and 2011, all related party loans were performing in accordance with their terms.

Changes in loans outstanding to such related parties during the years ended December 31, 2012 and 2011 are as follows:

	Years Ended December 31,
	2012			2011
	(In Thousands)
Balance at beginning of year	$	2,063		$	2,038
Additions	362			247
Repayments	(477		)	(222		)
Balance at end of year	$	1,948		$	2,063

Deposits

Deposit accounts of directors, certain officers and other related parties aggregated $1.3 million and $1.2 million at December 31, 2012 and 2011, respectively.

XML

RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Restrictions on Dividends, Loans and Advances [Abstract]
Amount Available for Dividend Distribution without Prior Approval from Regulatory Agency	$ 6.4	$ 5.6
Equity Restrictions	$ 103.5	$ 100.4

XML

RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

12 Months Ended

Dec. 31, 2012

Restrictions on Dividends, Loans and Advances [Abstract]

Restrictions on Dividends, Loans and Advances

RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

Federal regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company.  The total amount of dividends which may be declared in a given calendar year without regulatory approval is generally limited to the net income of the Bank for that year plus retained net income for the preceding two years.

At December 31, 2012 and 2011, the Bank’s retained earnings available for payment of dividends was $6.4 million and $5.6 million, respectively.  Accordingly, $103.5 million and $100.4 million of the Company’s equity in the net assets of the Bank were restricted at December 31, 2012 and 2011, respectively.

In addition, the Company is further restricted, under its junior subordinated debt obligation, from paying dividends to its shareholders if the Company has deferred interest payments or has otherwise defaulted on its junior subordinated debt obligation.

Under federal regulation, the Bank is also limited to the amount it may loan to the Company, unless such loans are collateralized by specific obligations.  Loans or advances to the Company by the Bank are limited to 10% of the Bank’s capital stock and surplus on a secured basis.  In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof, would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

XML

Weighted Average Assumptions - Stock Options (Details) (Stock Options [Member], USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term	10 years 0 months 0 days	10 years 0 months 0 days	10 years 0 months 0 days
Expected Dividend Yield	1.45%	1.70%	1.50%
Expected Volatility	24.06%	39.27%	38.98%
Risk Free Interest Rate	1.86%	3.36%	3.70%
Fair Value of Options Granted	$ 2.96	$ 4.04	$ 2.55

XML

QUARTERLY DATA (UNAUDITED) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

Quarterly results of operations for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31, 2012									Year Ended December 31, 2011
	Fourth Quarter		Third Quarter			Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	(In Thousands, Except Share Amounts)
Interest and dividend income	$	8,863	$	8,862		$	8,878	$	9,221	$	9,265	$	9,451	$	9,584	$	9,520
Interest expense	2,322		2,368			2,392		2,551		2,638		2,815		2,932		2,992
Net interest and dividend income	6,541		6,494			6,486		6,670		6,627		6,636		6,652		6,528
Provision for loan losses	646		1,334			432		484		948		210		190		210
Net interest and dividend income after provision for loan losses	5,895		5,160			6,054		6,186		5,679		6,426		6,462		6,318
Noninterest income	2,398		1,232			2,326		2,761		2,885		2,697		2,896		2,649
Noninterest expenses	7,338		7,408			7,557		8,350		7,522		8,047		8,310		8,713
Income (loss) before income taxes	955		(1,016		)	823		597		1,042		1,076		1,048		254
Income tax provision (benefit)	210		(316		)	153		194		281		336		341		45
Net income (loss)	$	745	$	(700	)	$	670	$	403	$	761	$	740	$	707	$	209
Earnings (loss) per share:
Basic	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02
Diluted	$	0.08	$	(0.07	)	$	0.07	$	0.04	$	0.08	$	0.07	$	0.07	$	0.02

XML

Components of Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Securities: [Abstract]
Unrealized holding gains on available for sale securities, Before Tax Amount	$ 1,905	$ 3,058	$ (87)
Unrealized holding gains on available for sale securities, Tax Effects	(647)	(1,040)	29
Unrealized holding gains on available for sale securities, Net of Tax Amount	1,258	2,018	(58)
Reclassification adjustment for gains realized in net income, Before Tax Amount	(273)	(486)	(878)
Reclassification adjustment for gains realized in net income, Tax Effects	93	165	299
Reclassification adjustment for gains realized in net income, Net of Tax Amount	(180)	(321)	(579)
Credit portion of OTTI losses recognized in net income, Before Tax Amount	123	148	492
Credit portion of OTTI losses recognized in net income, Tax Effects	(42)	(50)	(167)
Credit portion of OTTI losses recognized in net income, Net of Tax Amount	81	98	325
Noncredit portion of OTTI gains (losses) on available for sale securities, Before Tax Amount	1,416	(1,730)	1,554
Noncredit portion of OTTI gains (losses) on available for sale securities, Tax Effects	(482)	588	(528)
Noncredit portion of OTTI gains (losses) on available for sale securities, Net of Tax Amount	934	(1,142)	(1,026)
Net unrealized holding gains on available for sale securities, Before Tax Amount	3,171	990	1,081
Net unrealized holding gains on available for sale securities, Tax Effects	(1,078)	(337)	(367)
Net unrealized holding gains (losses) on available for sale securities, Net of Tax Amount	2,093	653	714
Derivative instrument: [Abstract]
Change in fair value of effective cash flow hedging derivative, Before Tax Amount	(8)	(333)	(129)
Change in fair value of effective cash flow hedgeing derivative, Tax Effects	3	113	44
Change in fair value of effective cash flow hedging derivative, Net of Tax Amount	(5)	(220)	(85)
Other comprehensive income, Before Tax Amount	3,163	657	952
Other comprehensive income, Tax Effects	(1,075)	(224)	(323)
Other comprehensive income, Net of Tax Amount	$ 2,088	$ 433	$ 629

XML

BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Schedule of Maturities of ESOP Debt [Table Text Block]

At December 31, 2012, the remaining principal balance on the ESOP debt is payable as follows (in thousands):

2013	$	455
2014	475
2015	495
2016	516
2017	539
Thereafter	3,120
Total	$	5,600

Schedule of Share-based Compensation, Employee Stock Purchase Plan, Activity [Table Text Block]

Shares held by the ESOP include the following at December 31, 2012 and 2011:

	December 31,
	2012		2011
	(Dollars In Thousands)
Allocated	184,674		158,431
Committed to be allocated	48,637		48,637
Unallocated	556,438		605,075
Total shares	789,749		812,143
Fair value of unallocated shares	$	6,399	$	5,960

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The fair value of each option was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

	2012			2011			2010
Expected term (years)	10.00			10.00			10.00
Expected dividend yield	1.45		%	1.70		%	1.50		%
Expected volatility	24.06		%	39.27		%	38.98		%
Risk-free interest rate	1.86		%	3.36		%	3.70		%
Fair value of options granted	$	2.96		$	4.04		$	2.55

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following is a summary of activity for the Company’s stock options for the year ended December 31, 2012:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Options outstanding at beginning of year	505,887		$	10.47
Options granted	412,500		11.03
Options exercised	(1,796	)	5.68
Options forfeited	(10,992	)	10.40
Options outstanding at end of year	905,599		10.73		6.51
Options exercisable at end of year	407,682		11.06		2.97

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

The following table presents the summary of activity for the Company’s unvested restricted shares for the year ended December 31, 2012.

	Shares		Weighted Average Grant Date Fair Value
Unvested restricted shares at beginning of year	7,184		$	6.22
Restricted shares granted	168,000		11.01
Restricted shares vested	(2,082	)	5.73
Unvested restricted shares at end of year	173,102		10.87

XML

Fair Value Measurements - Recurring (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	$ 176,530	$ 230,896
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	853	552
Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	1,035	2,866
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	171,082	225,031
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	849	462
Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	4,413	2,999
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	4	90
Forward loan sale commitments and derivative loan commitments [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	17	82
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	4	90
Forward loan sale commitments and derivative loan commitments [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	0	0
Forward loan sale commitments and derivative loan commitments [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	0	0
Forward loan sale commitments and derivative loan commitments [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	17	82
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	4	90
Interest rate swap agreement [Member]
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	849	462
Interest rate swap agreement [Member] | Fair Value, Inputs, Level 1 [Member]
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	0	0
Interest rate swap agreement [Member] | Fair Value, Inputs, Level 2 [Member]
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	849	462
Interest rate swap agreement [Member] | Fair Value, Inputs, Level 3 [Member]
Liabilities, Fair Value Disclosure [Abstract]
Liabilities, Fair Value Disclosure, Recurring	0	0
U.S. Government and agency obligations [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	56,259	89,587
U.S. Government and agency obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	1,035	1,051
U.S. Government and agency obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	55,224	88,536
U.S. Government and agency obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Government-sponsored enterprises [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	23,967	17,666
Government-sponsored enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Government-sponsored enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	23,967	17,666
Government-sponsored enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Mortgage-backed securities [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	78,733	97,870
Mortgage-backed securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Mortgage-backed securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	78,733	97,870
Mortgage-backed securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Corporate debt securities [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	7,694	14,047
Corporate debt securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Corporate debt securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	7,694	14,047
Corporate debt securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Collateralized debt obligations [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	4,396	2,917
Collateralized debt obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Collateralized debt obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Collateralized debt obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	4,396	2,917
Obligations of state and political subdivisions [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	5,414	6,766
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	5,414	6,766
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Tax-exempt securities [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		71
Tax-exempt securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		0
Tax-exempt securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		71
Tax-exempt securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		0
Foreign government securities [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	50	75
Foreign government securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Foreign government securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	50	75
Foreign government securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring	0	0
Equity securities [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		1,815
Equity securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		1,815
Equity securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		0
Equity securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Assets, Fair Value Disclosure, Recurring		$ 0

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Net income	$ 1,118	$ 2,417	$ 3,003
Net unrealized gain (loss) on available for sale securities:
Net unrealized holding gain (loss) on available for sale securities	1,258	2,018	(58)
Reclassification adjustment for losses (gains) recognized in net income	(180)	(321)	(579)
Plus: credit portion of OTTI losses recognized in net income	81	98	325
Plus: noncredit portion of OTTI gains (losses) on available for sale securities	934	(1,142)	1,026
Net unrealized holding gains (losses) on available for sale securities, Net of Tax Amount	2,093	653	714
Net unrealized gain (loss) on interest-rate swap derivative	(5)	(220)	(85)
Other comprehensive income, Net of Tax Amount	2,088	433	629
Comprehensive income	$ 3,206	$ 2,850	$ 3,632

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Schedule of Deferred Tax Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred Tax Assets, Gross [Abstract]
Allowance for loan losses	$ 2,303	$ 1,852
Unrealized losses on available for sale securities	659	1,870
Depreciation of premises and equipment	765	572
Other-than-temporary impairment	452	435
Impairment - long lived asset	133	0
Charitable contribution carry-forward	14	153
Deferred compensation	2,313	2,064
Employee benefit plans	380	348
Capital loss carry-forward	65	0
Interest receivable on nonaccrual Loans	159	107
Deferred other real estate owned expenses	38	137
Net unrealized loss on derivative instruments	284	159
Other	290	205
Total deferred tax assets	7,855	7,902
Less valuation allowance	(49)	(49)
Total deferred tax assets, net of valuation allowance	7,806	7,853
Deferred Tax Liabilities, Gross [Abstract]
Unrealized gains on available for sale securities	1,546	1,679
Goodwill and other intangibles	330	319
Deferred loan costs	844	841
Mortgage servicing asset	447	400
Total deferred tax liabilities	3,167	3,239
Deferred tax assets, net	$ 4,639	$ 4,614

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RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

12 Months Ended

Dec. 31, 2012

RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS [Abstract]

Cash and Cash Equivalents Disclosure [Text Block]

RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

The Bank is required to maintain cash reserve balances against its respective transaction accounts and non-personal time deposits.  At December 31, 2012 and 2011, the Bank was required to maintain cash and liquid asset reserves of $700,000 and $858,000, respectively, and to maintain $3.0 million in the Federal Reserve Bank ("FRB") for clearing purposes to satisfy such reserve requirements at December 31, 2011. During 2012, the Federal Reserve Bank announced an initiative to simplify reserves administration. Effective July 12, 2012, the Federal Reserve Bank eliminated the contractual clearing balance program. The second phase of this initiative will become effective on June 27, 2013, creating a common two-week maintenance period for all depository institutions and replacing carryover and routine waivers with a penalty-free band around reserve balance requirements.

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Securities in Continuous Loss Position (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 8,849	$ 44,990
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	45	558
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	12,007	14,090
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	1,892	4,942
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	20,856	59,080
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	1,937	5,500
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	14
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Other	.085
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities	(123)	(148)	(492)
U.S. Government and agency obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	0	32,390
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	0	94
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,367	415
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	23	6
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	1,367	32,805
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	23	100
Mortgage-backed Securities, Agency - residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	6,923	8,241
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	37	111
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,404	1,969
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	29	67
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	8,327	10,210
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	66	178
Mortgage-backed Securities, Non-agency - residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	1,926	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	8	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,417	5,305
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	116	899
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	3,343	5,305
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	124	899
Mortgage-backed Securities, Non-agency - HELOC [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	2,477	2,538
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	78	559
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	2,477	2,538
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	78	559
Corporate debt securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	0	3,482
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	0	234
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	946	946
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	49	53
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	946	4,428
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	49	287
Collateralized debt obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	4,396	2,917
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	1,597	3,358
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	4,396	2,917
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	1,597	3,358
Equity securities - financial services [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value		169
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses		24
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses		0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value		169
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses		24
Equity securities - other [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value		708
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses		95
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses		0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value		708
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses		$ 95

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Summary of Interest Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Deposits [Abstract]
NOW and money market accounts	$ 627		$ 1,294		$ 1,618
Savings accounts	106	[1]	197	[1]	295	[1]
Certificates of deposit	5,286	[2]	5,771	[2]	7,524	[2]
Total interest expense	$ 6,019		$ 7,262		$ 9,437

[1] (1) Includes interest expense on mortgagors' and investors' escrow accounts.

[2] 2) Includes interest expense on brokered deposits.

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Components of Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Stockholders' Equity Note [Abstract]
Net unrealized gains on available for sale securities, Before Tax Amount	$ 2,876	$ 1,121
Net unrealized gains on available for sale securities, Tax Effects	(977)	(381)
Net unrealized gains on available for sale securities, Net of Tax Amount	1,899	740
Noncredit portion of OTTI losses on available for sale securities, Before Tax Amount	(266)	(1,682)
Noncredit portion of OTTI losses on available for sale securities, Tax Effects	90	572
Noncredit portion of OTTI losses on available for sale securities, Net of Tax Amount	(176)	(1,110)
Net unrealized loss on effective cash flow hedging derivative, Before Tax Amount	(470)	(462)
Net unrealized loss on effective cash flow hedge derivative, Tax Effects	160	157
Net unrealized loss on effective cash flow hedging derivative, Net of Tax Amount	(310)	(305)
Accumulated Other Comprehensive Income (Loss), Before Tax Amount	2,140	(1,023)
Accumulated Other Comprehensive Income (Loss), Tax Effects	(727)	348
Accumulated other comprehensive income (loss), Net of Tax	$ 1,413	$ (675)

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Loans Modified as TDRs (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Modifications [Line Items]
Number of Loans	17	3
Recorded Investment	$ 2,584	$ 2,130
Allowance for Loan Losses	296	12
Real estate: Residential - 1 to 4 family [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	16	0
Recorded Investment	2,507	0
Allowance for Loan Losses	296	0
Real estate: Multi-family and commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Loans	1	3
Recorded Investment	77	2,130
Allowance for Loan Losses	$ 0	$ 12

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COMMON STOCK REPURCHASE PROGRAM

12 Months Ended

Dec. 31, 2012

Common Stock Repurchase Program [Abstract]

Common Stock

COMMON STOCK REPURCHASE PROGRAM

The Company repurchases stock primarily to create economic value for its shareholders and to provide additional liquidity to the stock.

In accordance with applicable regulations, the Company could not repurchase shares of its common stock during the first year following the completion of its public offering and concurrent conversion in January 2011, except to fund equity benefit plans other than stock options, or, with prior regulatory approval, when extraordinary circumstances exist. The Company repurchased 547 shares of the Company's common stock withheld on behalf of plan participants to satisfy tax withholding obligations related to the vesting of restricted shares at a cost of $5,000 during the year ended December 31, 2011.

In May 2012, the Board of Directors approved a plan to repurchase up to 5%, or approximately 528,815 shares, of the Company’s common stock through open market purchases or privately negotiated transactions. Stock repurchases under the program are retired and reflected as a reduction in shareholders’ equity. As of December 31, 2012, the Company repurchased 465,788 shares at a cost of approximately $5.3 million under this plan.

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Parent Company Balance Sheet (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
ASSETS:
Cash and cash equivalents	$ 37,689	$ 48,412	$ 78,321	$ 24,204
Available for sale securities, at fair value	176,513	230,814
Other assets	6,552	6,378
Total assets	953,250	955,047
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities	827,491	824,530
Shareholders' equity	125,759	130,517	81,104	77,462
Total liabilities and shareholders' equity	953,250	955,047
Parent Company [Member]
ASSETS:
Cash and cash equivalents	9,591	15,112	2,315	3,583
Available for sale securities, at fair value	8,380	10,575
Investment In Savings Institute Bank and Trust Company	109,948	106,023
ESOP note receivable	5,600	6,035
Other assets	991	1,510
Total assets	134,510	139,255
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities	8,751	8,738
Shareholders' equity	125,759	130,517
Total liabilities and shareholders' equity	$ 134,510	$ 139,255

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Other Real Estate Owned - Narrative (Details)	Dec. 31, 2012	Dec. 31, 2011
Real estate: Residential - 1 to 4 family [Member]
Other Real Estate Owned [Line Items]
Number of Properties, Other Real Estate Owned	3	4
Real estate: Multi-family and commercial [Member]
Other Real Estate Owned [Line Items]
Number of Properties, Other Real Estate Owned	3	2

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DEPOSITS DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2012

Deposits [Abstract]

Schedule Of Deposits

A summary of deposit balances, by type, at December 31, 2012 and 2011 is as follows:

	December 31,
	2012		2011
	(In Thousands)
Noninterest-bearing demand deposits	$	89,834	$	85,958
Interest-bearing accounts:
Business checking	2		—
NOW and money market accounts	300,050		306,002
Savings accounts	38,026		37,329
Certificates of deposit (1)	277,236		272,637
Total interest-bearing accounts	615,314		615,968
Total deposits	$	705,148	$	701,926

^{( 1)} Includes brokered deposits of $4.2 million and $4.0 million at December 31, 2012 and 2011, respectively.

Schedule Of Time Deposits Maturities

Contractual maturities of certificates of deposit as of December 31, 2012 are summarized below (in thousands).

2013	$	135,113
2014	56,675
2015	49,568
2016	15,418
2017	14,293
Thereafter	6,169
Total certificates of deposit	$	277,236

Schedule of Deposit Interest Expense

A summary of interest expense, by account type, for the years ended December 31, 2012, 2011 and 2010 is as follows:

	Years Ended December 31,
	2012		2011		2010
	(In Thousands)
NOW and money market accounts	$	627	$	1,294	$	1,618
Savings accounts (1)	106		197		295
Certificates of deposit (2)	5,286		5,771		7,524
Total	$	6,019	$	7,262	$	9,437

⁽¹⁾ Includes interest expense on mortgagors' and investors' escrow accounts.

⁽²⁾ Includes interest expense on brokered deposits.

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OTHER COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure

OTHER COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments and contingencies that are not reflected in the accompanying consolidated financial statements.  The Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheets.  The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Loan Commitments and Letters of Credit

The contractual amounts of commitments to extend credit represent the amount of potential loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral be determined as 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 December 31, 2012 and 2011 were as follows:

	December 31,
	2012		2011
	(In Thousands)
Commitments to extend credit:
Future loan commitments	$	11,123	$	31,211
Undisbursed construction loans	3,406		5,673
Undisbursed home equity lines of credit	23,019		23,172
Undisbursed commercial lines of credit	23,842		17,995
Overdraft protection lines	1,190		1,190
Standby letters of credit	611		34
Total commitments	$	63,191	$	79,275

Future loan commitments at December 31, 2012 and 2011 included fixed rate loan commitments of $10.6 million and $16.0 million, respectively, at interest rates ranging from 2.63% to 7.00% and 3.00% to 6.25%, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The Company evaluates each customer's creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies but may include residential and commercial property, accounts receivable, inventory, property, plant and equipment, deposits and securities.

Undisbursed commitments under construction, home equity or commercial lines of credit are commitments for future extensions of credit to existing customers.  Total undisbursed amounts on lines of credit may expire without being fully drawn upon and therefore, do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Letters of credit are primarily issued to support public or private borrowing arrangements.  Essentially all letters of credit issued have expiration dates within one year.

Operating Lease Commitments

The Company leases certain of its branch offices and equipment under operating lease agreements that expire at various dates through 2028.  At December 31, 2012, future minimum rental commitments pursuant to the terms of noncancelable lease agreements, by year and in the aggregate, are as follows (in thousands):

2013	$	1,277
2014	1,275
2015	1,095
2016	929
2017	763
Thereafter	4,924
Total	$	10,263

Certain leases contain options to extend for periods of 5 to 20 years.  The cost of such extensions is not included in the above amounts.  Rental expense charged to operations for cancelable and noncancelable operating leases was $1.3 million, $1.4 million and $1.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Legal Matters

Various legal claims arise from time to time in the normal course of business.  Management believes that the resolution of these matters will not have a material effect on the Company’s financial condition or results of operations.

Investment Commitments

The Bank is a limited partner in three SBICs and committed to contribute capital of $3.0 million to the limited partnerships.  The Bank recognized write-downs totaling $72,000 and $12,000 on its investment in the SBICs during the years ended December 31, 2011 and 2010, respectively.  There were no write-downs on the Bank's investment in SBICs during the year ended December 31, 2012. The SBICs, with a combined net book value of $1.3 million and $746,000 at December 31, 2012 and 2011, respectively, net of impairment charges and distributions are included in other assets. At December 31, 2012, the Bank’s remaining off-balance sheet commitment for capital investment in the SBICs was $934,000.

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Investment Commitments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Investment Commitments [Abstract]
Number of Small Business Investment Companies in which the Bank is a limited partner	3
Other Commitment	$ 3,000
Cost-method Investments, Other than Temporary Impairment	0	72	12
Cost-method Investments, Aggregate Carrying Amount	1,300	746
Other Commitment, Remaining Minimum Amount Committed	$ 934