A MESSAGE FROM THE PRESIDENT

Flexible, Connected & Strong :

I am pleased to present to the shareholders of SI Financial Group, Inc. (the “Company”) our 2009 Annual Report.

Despite an unfavorable business climate, the Company strengthened its financial position in 2009, while also securing a modest profit. The Company reported net income for the year ended December 31, 2009 of $435,000, or $0.04 basic and diluted earnings per common share, compared to a net loss of $2.9 million, or $0.25 basic and diluted loss per common share, for the year ended December 31, 2008.

Net interest income increased 2.9% to $24.7 million for 2009 from $24.0 million in 2008. This growth was primarily due to a lower cost of funds and an increase in the average balance of loans.

Flexible
While the commercial loan portfolio continued to reflect the impact of adverse economic and real estate market conditions, sound underwriting and a knowledge of our customers, translated into a lower level of nonperforming loans in 2009.

At December 31, 2008, nonperforming loans totaled $9.3 million. For the year ended December 31, 2009, this picture brightened considerably with nonperforming loans totaling $3.0 million at year end. Other nonperforming assets, such as other real estate owned, ended 2009 at $3.7 million.

Early in 2009, Savings Institute Bank & Trust (the “Bank”) recognized that its commercial loan originations would be greatly diminished for the year. In order to mitigate the impact this would have on our financial performance, our residential mortgage team seized the opportunity by responding to the rise in customer demand resulting from lower market interest rates, with an increase in residential mortgage originations by a record $55.7 million over the prior year. The net result in this case was an overall increase of 3.3% in new loan originations during a year when many banks experienced declines. Our ability to respond quickly and demonstrate flexibility is afforded not only by the size of the Bank, but also by the Bank’s culture of open, direct and clear communication.

Connected
To many, “service” is an overused word. But at Savings Institute Bank & Trust, it represents both a core value and a work ethic. We define service as enthusiastically taking the time to fully understand, if not anticipate, a customer’s need, and then doing our utmost to meet that need. While productivity and volume are valuable ingredients in producing strong numbers, they cannot and should not overwhelm the importance of a financial institution fundamentally connecting with the needs of its customers.
 
In 2009, this tenet of outstanding service played a valuable role in minimizing both deposit and loan attrition, resulting in a year when we continued to build our business and our brand. It contributed to the performance of SI Financial Advisors, our wealth management division, which again grew its assets undermanagement in 2009.

For the year ended December 31, 2009, the Bank increased deposits $38.1 million, or 6.1%. This gain was due to our expanded network of branches, promotional initiatives and competitively priced deposit products. But at a more fundamental level, it was also due to our ability to connect and stay connected with both our customers and our communities.

Such connection took place not only at the teller line throughout our 21 retail branches, but also via the Internet. In 2009, our web site saw nearly 82,000 visits per month, a 5% increase over the year prior. The number of people opting for the convenience of our online bill pay service grew at an even greater rate, climbing more than 21% over the year prior. We continue to see media consumption patterns skewing toward digital media, and we are following these trends by weighting our advertising resources accordingly.

Connections were also strengthened with the communities we serve. The SI Financial Group Foundation, Inc. (the “Foundation”) awarded more than $53,000 to local charitable organizations that provide essential community programs and services to their respective areas. The Foundation made grants to: New London Homeless Hospitality Center, Pawcatuck Neighborhood Center, Windham Area Interfaith Ministry and The Windham Region No Freeze Hospitality Center. Also receiving grants in 2009 were: Quinebaug Valley Community College Foundation, Three Rivers Community College Foundation, Natchaug Hospital, Lebanon Elementary School PTO/Bailey’s Garden and several local
and community organizations.

In addition to grants from the Foundation, the Bank’s employees pledged and awarded more than $17,000 to assist organizations that address such issues as families in need, hunger and homelessness, helping the elderly and assisting individuals with disabilities or special needs. Perhaps most impressive is the ethic of volunteering embraced by so man  at Savings Institute Bank & Trust. The vast majority of Bank employees give back to their communities by serving on boards and committees of area hospitals, educational organizations, art organizations and social service agencies.

Strong
Today, the perception of a financial institution’s strength lies largely with its capitalization. While the Bank continues to remain well capitalized, we can also take pride in less obvious manifestations of strength.

As well connected as our branch personnel and lenders are to meeting a customer’s needs, without strong behind-the-scene support from Operations, Underwriting and our Call Center teams, the Bank’s success would be severely compromised. The Bank’s Operations Group continues to perform at the very highest level, embracing wholeheartedly a system that breeds a rich culture of both performance and extraordinary service throughout our organization.

As previously mentioned, the Bank saw a record number of residential mortgage originations in 2009. This was made possible not only through the hard work of our mortgage originators, but also by the tireless efforts of our Residential Underwriting Group. It was this same ethic of prudence and attention to detail that the Commercial Lending Underwriting Group spared the Bank a prolonged exposure to the loan charge-offs many of our competitors endured, and may continue to endure, in their commercial loan portfolios.

Our Call Center is staffed by a group of highly qualified and experienced banking professionals. On average, members of the team have been in banking for 10 years and as such, are eminently qualified to answer questions and solve problems that span a vast spectrum of complexity. In 2009, they cheerfully responded to an average of 6,000 requests for assistance or information each and every month.

A discussion of the Company’s strengths would be woefully incomplete without the mention of the Board of Directors. Their dedication, intelligence and cohesive wisdom continue to serve the interests of shareholders, depositors and employees alike. I thank them for their continued support and salute their invaluable insights and commitment.

Most of all, however, let me thank you, our customers and shareholders. You continue to honor us with your trust and faith, and we embrace that responsibility with the utmost seriousness. Despite the continued economic challenges, we are confident that our efforts this past year have positioned us well to achieve new levels of performance in 2010, for both customers and investors alike.

Rheo A. Brouillard

President and Chief Executive Officer