SI Financial Group, Inc. Reports Results for the Quarter and the Year Ended December 31, 2005

Business Wire, March 1, 2006

WILLIMANTIC, Conn. -- SI Financial Group, Inc. (the "Company") (NASDAQ National Market: SIFI), the holding company of Savings Institute Bank and Trust Company (the "Bank"), reported net income of $838,000, or $0.07 basic and diluted earnings per common share, for the quarter ended December 31, 2005 versus net income of $1.1 million, or $0.09 basic and diluted earnings per common share, for the quarter ended December 31, 2004. Net income for the year ended December 31, 2005 was $3.4 million, or $0.28 basic and diluted earnings per common share, compared to $1.3 million for the year ended December 31, 2004. Per share data is not presented for the year ended December 31, 2004, as the Company had no shares outstanding prior to the Company's initial public offering on September 30, 2004.

Net income decreased for the quarter ended December 31, 2005, compared to the same quarter in 2004, due to higher noninterest expenses primarily related to branch expansion. For the year ended December 31, 2005, net income was affected by increases in net interest and dividend income and noninterest income and a decrease in the provision for loan losses, offset by an increase in noninterest expenses. Lower net income for 2004 was mainly attributable to the establishment and funding of SI Financial Group Foundation with 251,275 shares of the Company's common stock, which resulted in a charitable contribution expense of $2.5 million, or $1.7 million, net of tax.

Net interest and dividend income increased 5.7% to $5.6 million for the quarter ended December 31, 2005 from $5.3 million for the quarter ended December 31, 2004 and increased 13.4% to $21.8 million for the year ended December 31, 2005 from $19.2 million for the year ended December 31, 2004. Net interest and dividend income for both the quarter and the year ended December 31, 2005 rose mainly due to an increase in the average balance of interest-earning assets, offset by an increase in the cost of funds.

The provision for loan losses totaled $100,000 for the fourth quarter of 2005, representing a decrease of $50,000 over the same period in 2004. The provision for loan losses decreased $140,000 for 2005 compared to 2004. The lower provision reflects a higher quality loan portfolio, as evidenced by a $704,000 reduction in nonperforming loans and by net loan recoveries of $61,000 for the year ended December 31, 2005 compared to net charge-offs of $38,000 for the year ended December 31, 2004.

Noninterest income was $1.9 million for the quarter ended December 31, 2005 compared to $1.1 million for the quarter ended December 31, 2004. Noninterest income increased $2.1 million to $6.3 million for the year ended December 31, 2005 compared to $4.2 million for the same period in 2004. For the quarter and the year ended December 31, 2005, service fees increased $413,000 and $1.3 million, respectively, as a result of the expansion of the Bank's deposit-related products. Also contributing to the rise in noninterest income were increases in wealth management fees of $341,000 and $359,000, respectively, for the three months and the twelve months ended December 31, 2005 due primarily to the acquisition of a third-party trust services organization in November 2005. The net gain on the sale of loans of $190,000 for 2005 resulted from the sale of $35.5 million of predominately fixed-rate residential mortgage loans. Higher loan sales in 2005 reflect the Bank's initiative to mitigate interest rate risk and to manage liquidity in a rising interest rate environment.

Noninterest expenses were $6.1 million for the quarter ended December 31, 2005 compared to $4.6 million for the quarter ended December 31, 2004. Noninterest expenses increased by $1.6 million for 2005 compared to 2004. For the quarter and the year ended December 31, 2005, the increase in noninterest expenses reflected higher compensation costs, relating to additional salaries, benefits and taxes for increased staffing levels in response to the expansion of branch facilities as well as the amortization of share-based compensation awards. Share-based compensation expense totaled $190,000 and $476,000, respectively, for the quarter and the year ended December 31, 2005. Occupancy and equipment expense increased primarily due to an increase in operating lease payments, depreciation expense and other occupancy-related expenses associated with branch expansion. Professional services expenses were greater in 2005 versus 2004 from higher legal and auditing costs associated with the Company's public reporting requirements and consulting costs for assistance with Sarbanes Oxley compliance. Additionally, marketing costs rose in response to aggressive marketing campaigns. During 2004, noninterest expenses included the charitable contribution to SI Financial Group Foundation of $2.5 million and a $337,000 impairment charge to reduce the carrying value on a former branch facility to its estimated fair value.

Total assets grew $67.2 million, or 10.8%, to $691.9 million at December 31, 2005 from $624.6 million at December 31, 2004. Contributing to the increase in assets were increases of $65.8 million in net loans receivable, $2.3 million in premises and equipment and $1.3 million in Federal Home Loan Bank stock, offset by decreases of $4.8 million in cash and cash equivalents and $538,000 in available for sale securities. The increase in net loans receivable reflects strong loan originations, offset by higher loan sales. Additional capital expenditures associated with branch expansion contributed to the increase in premises and equipment during 2005. Federal Home Loan Bank stock rose in response to an increase in Federal Home Loan Bank borrowings. Available for sale securities decreased as a result of a reduction in mortgage-backed securities and higher unrealized holding losses.