SI Financial Group, Inc. Reports Results for the Three and Six Months Ended June 30, 2007

Business Wire, July 25, 2007

WILLIMANTIC, Conn. -- SI Financial Group, Inc. (the "Company") (NASDAQ Global Market: SIFI), the holding company of Savings Institute Bank and Trust Company (the "Bank"), reported net income of $377,000, or $0.03 basic and diluted earnings per common share, for the quarter ended June 30, 2007 versus net income of $757,000, or $0.06 basic and diluted earnings per common share, for the quarter ended June 30, 2006. Net income for the six months ended June 30, 2007 was $826,000, or $0.07 basic and diluted earnings per common share, compared to $1.6 million, or $0.13 basic and diluted earnings per common share, for the six months ended June 30, 2006. Lower net income for 2007 represents a decline in net interest and dividend income and higher noninterest expenses, offset by an increase in noninterest income and decreases in the provisions for income taxes and loan losses.

For the three and six months ended June 30, 2007, net interest and dividend income decreased 10.7% to $5.4 million from $6.0 million and decreased 8.8% to $10.6 million from $11.7 million, respectively, compared to the same periods in 2006. Lower net interest and dividend income resulted from a higher cost of funds primarily related to interest rates paid on deposit accounts and greater volume of interest-bearing liabilities, offset by an increase in the average balance of loans.

The provision for loan losses decreased $65,000 and $185,000 for the three and six months ended June 30, 2007, respectively. The first half of 2006 included an additional provision for loan losses of $150,000 related to the purchase of the indirect automobile loan portfolio, due to the increased risk of loss associated with this type of consumer lending. The indirect automobile loan portfolio was sold during the second quarter of 2007, thereby, resulting in a lower provision for loan losses for the first half of 2007. Despite a decrease in the provision for loan losses, the ratio of the allowance for loan losses to total loans increased from 0.73% at June 30, 2006 to 0.76% at June 30, 2007. At June 30, 2007, nonperforming loans totaled $3.3 million compared to $204,000 at June 30, 2006. The increase was primarily attributable to two commercial construction loans totaling $2.4 million, of which $2.0 million was secured based on the fair values of the respective properties. Net loan charge-offs were $110,000 and $172,000 for the three and six months ended June 30, 2007, respectively, compared to net loan recoveries of $1,000 and net loan charge-offs of $1,000 for the three and six months ended June 30, 2006, respectively. Higher commercial mortgage loan charge-offs contributed to the increase in loan charge-offs for 2007.

Noninterest income was $2.3 million for the quarter ended June 30, 2007 compared to $2.0 million for the quarter ended June 30, 2006. Noninterest income was $4.7 million for the first half of 2007 compared to $4.1 million for the same period of 2006. Contributing to the increase in noninterest income for the three and six months ended June 30, 2007, were increases in net gains on the sale of available for sale securities of $112,000 and $433,000, respectively, and wealth management fees of $134,000 and $222,000, respectively. The increase of $433,000 on the sale of available for sale securities for the first half of 2007 included a gain of $321,000 from the sale of marketable equity securities during the first quarter, offset by a net loss on the sale of government-sponsored enterprise securities of $112,000 during the second quarter of 2006. Wealth management fees were higher principally due to growth in the market value of assets under administration.

Noninterest expenses increased for both the three and six months ended June 30, 2007 compared to the same periods in 2006, primarily due to increased operating costs associated with the expansion of branch offices and other noninterest expenses. New branch offices resulted in higher occupancy and equipment expense relative to additional operating lease payments, depreciation expense and other occupancy-related expenses. Compensation costs were higher in 2007 due to increased staffing levels associated with new branch offices, offset by a reduction in performance-based compensation which included lower loan origination commissions resulting from a decline in new loan volume. An increase in the provision for credit losses for off-balance sheet commitments contributed to the increase in other noninterest expenses for 2007. Outside professional services expense was higher in 2007 due to the termination of the agreement to purchase a mortgage company during the first quarter, resulting in a charge to operations for purchase-related transaction costs associated with the termination, offset by a reduction in other legal and auditing expenditures and the reimbursement of legal costs associated with the disposition of the indirect automobile loan portfolio in June 2007.

Total assets grew $3.9 million, or 0.5%, to $760.9 million at June 30, 2007 from $757.0 million at December 31, 2006. Contributing to the increase in assets were increases of $1.8 million in cash and cash equivalents, $1.2 million in available for sale securities, $953,000 in other real estate owned and $639,000 in loans held for sale, offset by decreases of $963,000 in other assets and $284,000 in accrued interest receivable. Available for sale securities increased as a result of purchases of predominately mortgage-backed securities with longer-term maturities. The disposition of the indirect automobile portfolio resulted in a decrease in net loans receivable of $5.2 million during the second quarter of 2007. Additionally, a commercial real estate property with a net realizable value of $953,000 was transferred from loans receivable to other real estate owned in the second quarter of 2007. The decrease in other assets primarily resulted from the write-off of purchase-related transaction costs associated with the termination of the mortgage company purchase and the settlement of other receivables, offset by an increase in prepaid expenses associated with bank insurance premiums. Furthermore, accrued interest receivable decreased as a result of commercial loan payments and the reversal of interest related to nonperforming loans and the indirect automobile loan portfolio.