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EARNINGS RELEASE
SI FINANCIAL GROUP, INC. REPORTS RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2018

Willimantic, Connecticut — October 24, 2018. 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 $2.7 million, or $0.23 diluted earnings per share, for the quarter ended September 30, 2018 versus $2.2 million, or $0.19 diluted earnings per share, for the quarter ended September 30, 2017. The Company reported net income of $8.1 million, or $0.68 diluted earnings per share, for the nine months ended September 30, 2018 compared to $6.8 million, or $0.57 diluted earnings per share, for the nine months ended September 30, 2017.

Net interest income increased $600,000 to $11.5 million and $1.4 million to $33.5 million for the three and nine months ended September 30, 2018, respectively, as compared to the same periods in 2017. Net interest income increased primarily as a result of increases in the average balance of loans, the average yield earned on loans and other interest-earning assets and a reduction in the average balance of FHLB advances, partially offset by a higher average balance of deposits, increases in the average rates paid on deposits and borrowings as well as a decrease in the average balance on investment securities. The increase in yields and rates paid reflects the rising interest rate environment.

The provision for loan losses increased $838,000 and $1.5 million for the three and nine months ended September 30, 2018, respectively, compared to the same periods in 2017, primarily due to increases in nonperforming loans, reserves for impaired loans and an increase in commercial real estate loans, which carry a higher degree of risk than other loans held in the loan portfolio. At September 30, 2018, nonperforming loans increased to $8.4 million compared to $3.6 million at September 30, 2017, resulting predominantly from increases in nonperforming multi-family and commercial real estate and residential real estate loans of $2.5 million and $1.9 million, respectively. Net loan charge-offs were $17,000 and $129,000 for the three and nine months ended September 30, 2018, respectively, compared to $101,000 and $104,000 for the three and nine months ended September 30, 2017, respectively.

Noninterest income increased $404,000 to $2.9 million for the three months ended September 30, 2018 and decreased $31,000 to $8.6 million for the nine months ended September 30, 2018 compared to the same periods in the prior year. The increase in noninterest income for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to $488,000 of income from interest rate swap agreements entered into during the third quarter of 2018. The decrease in noninterest income for the nine months ended September 30, 2018 as compared to the same period in 2017 was primarily due to a pre-tax gain in May 2017 of $795,000 on the sale of the Company's trust and asset management business, partially offset by income of $684,000 in June 2018 resulting from the release of funds held in escrow related to the December 2016 sale of the Company's ownership interest in Vantis Life Insurance Company. Wealth management fees decreased $15,000 and $516,000 for the three and nine months ended September 30, 2018, respectively, versus the comparable periods in the prior year as a result of the sale of the Company's trust and asset management business in 2017. Fees earned from mortgage banking activities decreased $176,000 and $239,000 for the three and nine months ended September 30, 2018, respectively, primarily due to lower volume and lower gains on residential fixed-rate loan sales versus the comparable periods in 2017 due to the rising interest rate market. The cash surrender value of bank owned life insurance increased $97,000 and $276,000 for the three and nine months ended September 30, 2018, respectively, compared to the same periods in the prior year resulting from the purchase of new policies in October 2017.




Noninterest expenses increased $294,000 and decreased $167,000 for the three and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. Salaries and benefits increased $334,000 and $413,000 for the three and nine months ended September 30, 2018, respectively, due to an increase in employee compensation, benefits and related taxes. Outside professional services decreased $111,000 and $205,000 for the three and nine months ended September 30, 2018, respectively, versus the same periods in 2017 due primarily to a decrease in legal expenses. Compared to the same periods in 2017, other real estate operations decreased $14,000 and $213,000 for the three and nine months ended September 30, 2018, respectively, due to the sale of five foreclosed properties held by the Bank during 2018. Other noninterest expenses decreased $189,000 for the nine months ended September 30, 2018 versus the comparable period in 2017 in large part due to $373,000 of fraudulent debit card transactions which occurred in early 2017. Regulatory assessments increased $14,000 and decreased $60,000 for the three and nine months ended September 30, 2018, respectively. The decrease for the nine months ended September 30, 2018 was a result of a lower FDIC assessment rate. Computer and electronic banking expenses decreased $89,000 for the nine months ended September 30, 2018 versus the comparable period in 2017 as a result of contract renegotiations with a third party provider for electronic banking services.

Total assets increased $26.2 million, or 1.7%, to $1.61 billion at September 30, 2018, principally due to increases of $39.2 million in net loans receivable, $671,000 in the cash surrender value of life insurance and $533,000 in loans held for sale, offset by decreases of $6.7 million in cash and cash equivalents, $6.5 million in available for sale securities and $618,000 in other real estate owned. The higher balance of net loans receivable reflects increases of $75.0 million, $6.0 million and $5.9 million in multi-family and commercial real estate loans, condominium association loans and construction loans, respectively, offset by decreases of $16.7 million in both residential mortgage loans and SBA and USDA guaranteed loans, $8.9 million in time share loans and $5.7 million in consumer loans. The reduction in residential mortgage loans was a result of a sale of $54.8 million of long-term fixed-rate loans in the secondary market during 2018. Multi-family and commercial real estate originations increased $84.0 million for the first nine months of 2018 compared to the same period in 2017. Originations of commercial business loans, residential real estate loans and consumer loans decreased $8.1 million, $5.5 million and $3.1 million, respectively, during the first nine months of 2018 compared to the same period in 2017.

Total liabilities increased $24.6 million, or 1.7%, to $1.44 billion at September 30, 2018, primarily due to increases in deposits of $42.0 million, or 3.5%, which included increases in certificates of deposit of $36.1 million and noninterest-bearing deposits of $22.8 million, offset by decreases in NOW and money market accounts of $9.8 million and savings accounts of $6.7 million. Although market competition has intensified, deposit growth remained strong due to competitively-priced deposit products and marketing initiatives. Borrowings decreased $17.3 million from $178.3 million at December 31, 2017 to $161.0 million at September 30, 2018, resulting from repayments of Federal Home Loan Bank advances with funds from excess deposits.
 
Total shareholders' equity increased $1.5 million from $168.5 million at December 31, 2017 to $170.0 million at September 30, 2018. The increase in shareholders' equity was attributable to net income of $8.1 million, partially offset by the repurchase of common shares totaling $3.2 million, dividends paid of $2.1 million and unrealized losses on securities included in other comprehensive loss of $1.9 million. At September 30, 2018, the Bank’s regulatory capital exceeded the amounts required for the Bank to be considered “well-capitalized” under applicable regulatory capital guidelines.

“The Bank continues to increase its focus on commercial lending, as evidenced by increases of $75.9 million in commercial loan originations and $2.4 million in interest income on loans during 2018 compared to the prior year.  Similarly, deposits increased $42.0 million during the current year, which included nearly $23.0 million in noninterest-bearing deposits," commented Rheo A. Brouillard, President and Chief Executive Officer.




SI Financial Group, Inc. is the holding company for Savings Institute Bank and Trust Company. Established in 1842, Savings Institute Bank and Trust Company is a community-oriented financial institution headquartered in Willimantic, Connecticut. Through its twenty-three branch locations, the Bank offers a full-range of financial services to individuals, businesses and municipalities within its market area.
                      

Forward-Looking Statements
This release contains “forward-looking statements” that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in market interest rates, regional and national 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 the real estate market values in the Company’s market area and changes in relevant accounting principles and guidelines. For discussion of these and other risks that may cause actual results to differ from expectations, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, including the section entitled “Risk Factors,” and subsequent Quarterly Reports on Form 10-Q filed with the SEC. These risks and uncertainties should be considered in evaluating any 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.




SELECTED FINANCIAL CONDITION DATA:
 
 
September 30,
 
December 31,
(In Thousands / Unaudited)
 
2018
 
2017
 
 
 
 
 
ASSETS
 
 
 
 
Noninterest-bearing cash and due from banks
 
$
16,915

 
$
16,872

Interest-bearing cash and cash equivalents
 
59,829

 
66,614

Securities
 
160,522

 
167,545

Loans held for sale
 
1,368

 
835

Loans receivable, net
 
1,276,373

 
1,237,174

Bank-owned life insurance
 
34,397

 
33,726

Premises and equipment, net
 
19,099

 
19,409

Intangible assets
 
16,442

 
16,893

Deferred tax asset
 
6,943

 
6,412

Other real estate owned, net
 
608

 
1,226

Other assets
 
14,639

 
14,250

          Total assets
 
$
1,607,135

 
$
1,580,956

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
Liabilities
 
 
 
 
    Deposits
 
$
1,250,093

 
$
1,208,047

    Borrowings
 
161,028

 
178,342

    Other liabilities
 
26,002

 
26,086

          Total liabilities
 
1,437,123

 
1,412,475

 
 
 
 
 
Shareholders' equity
 
170,012

 
168,481

          Total liabilities and shareholders' equity
 
$
1,607,135

 
$
1,580,956


SELECTED OPERATING DATA:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In Thousands / Unaudited)
 
2018
2017
 
2018
2017
 
 
 
 
 
 
 
Interest and dividend income
 
$
14,854

$
13,649

 
$
42,672

$
40,349

Interest expense
 
3,389

2,784

 
9,215

8,305

    Net interest income
 
11,465

10,865

 
33,457

32,044

 
 
 
 
 
 
 
Provision for loan losses
 
1,009

171

 
2,022

501

    Net interest income after provision for loan losses
 
10,456

10,694

 
31,435

31,543

 
 
 
 
 
 
 
Noninterest income
 
2,919

2,515

 
8,632

8,663

Noninterest expenses
 
9,952

9,658

 
29,856

30,023

     Income before income taxes
 
3,423

3,551

 
10,211

10,183

 
 
 
 
 
 
 
Income tax provision
 
719

1,307

 
2,147

3,378

     Net income
 
$
2,704

$
2,244

 
$
8,064

$
6,805




SELECTED OPERATING DATA - Concluded:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Unaudited)
2018
2017
 
2018
2017
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
     Basic
$
0.23

$
0.19

 
$
0.68

$
0.57

     Diluted
$
0.23

$
0.19

 
$
0.68

$
0.57

 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
     Basic
11,723,926

11,874,142

 
11,832,723

11,850,229

     Diluted
11,802,822

11,962,825

 
11,917,026

11,939,719


SELECTED FINANCIAL RATIOS:
 
At or For the
 
 
At or For the
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30,
 
 
September 30,
 
(Dollars in Thousands, Except per Share Data / Unaudited)
2018
 
2017
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
Selected Performance Ratios: (1)
 
 
 
 
 
 
 
 
 
Return on average assets
0.67
%
0.56
%
 
0.68

%
0.58

%
Return on average equity
6.30
 
5.20
 
 
6.34

 
5.39

 
Interest rate spread
2.78
 
2.69
 
 
2.77

 
2.68

 
Net interest margin
3.04
 
2.90
 
 
3.00

 
2.88

 
Efficiency ratio (2)
69.19
 
72.18
 
 
70.94

 
73.75

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
$
14,227

 
$
12,217

 
Allowance for loan losses as a percent of total loans (3)
 
 
 
 
 
1.10

%
0.99

%
Allowance for loan losses as a percent of nonperforming loans
 
 
 
 
 
169.07

 
335.08

 
Nonperforming loans
 
 
 
 
 
$
8,415

 
$
3,646

 
Nonperforming loans as a percent of total loans (3)
 
 
 
 
 
0.65

%
0.29

%
Nonperforming assets (4)

 
 
 
 
 
$
9,023

 
$
5,325

 
Nonperforming assets as a percent of total assets
 
 
 
 
 
0.56

%
0.34

%
 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Book value per share
 
 
 
 
 
$
14.13

 
$
13.98

 
Less: Intangible assets per share(5)
 
 
 
 
 
(1.37
)
 
(1.39
)
 
Tangible book value per share (5)
 
 
 
 
 
12.76

 
12.59

 
Dividends declared per share
 
 
 
 
 
$
0.18

 
$
0.15

 
 
 
(1) Ratios have been annualized.
(2) Represents noninterest expenses divided by the sum of net interest and noninterest income.
(3) Total loans exclude deferred fees and costs.
(4) Nonperforming assets consist of nonperforming loans and other real estate owned.
(5) Tangible book value per share equals book value per share less the effect of intangible assets, which consisted of goodwill and other intangibles of $16.4 million and $17.0 million at September 30, 2018 and 2017, respectively.

CONTACT:
Catherine Pomerleau, Executive Assistant/Investor Relations Administrator
Email: investorrelations@savingsinstitute.bank
(860) 456-6514

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