"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in Bancorp's public reports, including this report, and in particular in "Management's Discussion and Analysis of Financial Condition and Results of Operations," may be forward looking and subject to a variety of risks and uncertainties. These factors include, but are not limited to; (1) changes in prevailing interest rates which would affect the interest earned on Bancorp's interest earning assets and the interest paid on its interest bearing liabilities; (2) the timing of repricing of Bancorp's interest earning assets and interest bearing liabilities; (3) the effect of changes in governmental monetary policy; (4) the effect of changes in regulations applicable to Bancorp and the Bank and the conduct of its business; (5) changes in competition among financial service companies, including possible further encroachment of non-banks on services traditionally provided by banks; (6) the ability of competitors that are larger than Bancorp to provide products and services which it is impracticable for Bancorp to provide; (7) the state of the economy and real estate values in Bancorp's market areas, and the consequent effect on the quality of Bancorp's loans, customers, vendors and communities;
(8) recent governmental initiatives that are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of Bancorp; (9) other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation ("FDIC") premiums that may adversely affect Bancorp.

Although Bancorp believes that it offers the loan and deposit products and has the resources needed for continued success, future revenues and interest spreads and yields cannot be reliably predicted. These trends may cause Bancorp to adjust its operations in the future. Because of the foregoing and other factors, recent trends should not be considered reliable indicators of future financial results or stock prices.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified the accounting for the allowance for loan losses, the analysis of its investment securities and the valuation of deferred income tax assets, as Bancorp's most critical accounting policies and estimates in that they are important to the portrayal of Bancorp's financial condition and results. They require management's most subjective and complex judgment as a result of the need to make an estimate about the effect of matters that are inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described throughout this Management's Discussion and Analysis.

SUMMARY

Bancorp realized net income of $345,000 ($0.01 basic and diluted income per share) for the quarter ended June 30, 2012, compared to a net loss of $7.2 million ($0.19 basic and diluted loss per share) for the quarter ended June 30, 2011. For the six-month period ended June 30, 2012, Bancorp realized net income of $891,000 ($0.02 basic and diluted income per share) compared to a net loss of $16.2 million ($0.42 basic and diluted loss per share) for the six months ended June 30, 2011. The primary reason for the increase in the quarterly comparison is the $1.7 million benefit from the provision for loan losses and lower operating expenses of $5.2 million. Restructuring charges of $127,000 were $2.9 million lower than the same period last year; associated with the branch closings and reduction-in- force, as discussed in Note 12. Bancorp's net interest income for the quarter ended June 30, 2012 was $4.4 million compared to $5.0 million for the quarter ended June 30, 2011. Interest income and interest expense decreased by 12% and 9%, respectively, for the quarter ended June 30, 2012 compared to the quarter ended June 30, 2011. The significant decline in interest income is due primarily to the lower interest rate environment and a high level of liquidity. The decline in interest expense is primarily due to the reduction of total deposits and substantially lower interest rates paid on term deposits.

Total assets decreased $21.5 million from $665.8 million at December 31, 2011 to $644.3 million at June 30, 2012. Cash and cash equivalents increased $7.5 million from $55.4 million at December 31, 2011 to $62.9 million at June 30, 2012. Securities decreased $10.3 million from $76.2 million at December 31, 2011 to $65.9 million June 30, 2012. The net loan portfolio decreased $17.4 million from $501.2 million at December 31, 2011 to $483.9 million at June 30, 2012. This decrease is primarily a result of a $66.4 million sale of residential loans, partially offset with loan growth of $27.5 million and $21.6 million in residential and commercial real estate, respectively. As a result of weak loan demand and currently high levels of balance sheet liquidity, the Bank continued to reduce its concentration in high costs of certificates of deposit. The overall cost of deposits decreased from 1.28% at December 31, 2011 to 1.24% at June 30, 2012. Deposits decreased $22.8 million from $544.9 million at December 31, 2011 to $522.1 million at June 30, 2012.

FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents increased $7.5 million, or 13%, to $62.9 million at June 30, 2012 compared to $55.4 million at December 31, 2011. This increase is primarily the result of the proceeds from the residential loan sale on March 29, 2012, which was deposited in short-term investments, and lower outstanding loan balances.

Investments

The following table is a summary of Bancorp's available-for-sale securities
portfolio, at fair value, at the dates shown:



                                                        June 30,       December 31
                                                          2012             2011
  U.S. Government bonds                               $  5,016,920     $  5,037,085
  U.S. Government agency mortgage-backed securities     39,642,765       50,049,429
  Corporate bonds                                       11,682,945       11,383,458

  Total Available-for-Sale Securities                 $ 56,342,630     $ 66,469,972

Available-for-sale securities decreased $10.1 million, or 15%, from $66.5 million at December 31, 2011 to $56.3 million at June 30, 2012. This decrease is primarily due to the sale of $5.2 million of government agency mortgage-backed securities and principal pay downs of $4.9 million on mortgage backed securities.

Loans

The following table is a summary of Bancorp's loan portfolio at the dates shown:



                                           June 30,         December 31,
                                             2012               2011
           Real Estate
           Commercial                    $ 237,217,702      $ 215,659,837
           Residential                     149,905,067        188,108,855
           Construction                      6,217,516         12,306,922
           Construction to permanent         8,287,915         10,012,022
           Commercial                       32,379,945         31,810,735
           Consumer home equity             53,587,509         49,694,546
           Consumer installment              2,125,347          2,164,972

           Total Loans                     489,721,001        509,757,889
           Premiums on purchased loans         223,853            231,125
           Net deferred costs                  586,866            622,955
           Allowance for loan losses        (6,673,648 )       (9,384,672 )

           Loans receivable, net         $ 483,858,072      $ 501,227,297

Bancorp's net loan portfolio decreased $17.4 million, or 3%, from $501.2 million at December 31, 2011 to $483.9 million at June 30, 2012. The decrease is primarily a result of the $66.4 million residential loan sale, partially offset by new loan growth. Residential mortgages decreased by $38.2 million; and construction and construction-to-permanent loans decreased $6.1 million and $1.7 million respectively. Consumer installment loans decreased $40,000. These were partially offset by increases in commercial real estate loans of $21.6 million, consumer home equity loans of $3.9 million and commercial loans of $569,000.

At June 30, 2012, the net loan to deposit ratio was 93% and the net loan to total assets ratio was 75%. At December 31, 2011, these ratios were 92% and 76%, respectively.

Allowance for Loan Losses

The allowance for loan losses is established to provide for expected future losses based on the Bank's loss history and the application of qualitative risk adjustment factors to compensate for estimated differences between anticipated potential losses and those predicted by the bank's specific loss history. The allowance is established through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance for loan losses decreased $2.7 million from December 31, 2011 to June 30, 2012 primarily due to a reduction in loan balances, improved credit quality of the loan portfolio and a change in methodology in estimating the allowance as described more fully below. These factors resulted in a release of excess reserves of $2.6 million after net charge-offs of $152,000.

Until this quarter, the Bank had used a 12 quarter un-weighted average to calculate loss history. As of this quarter, the Bank implemented changes to the allowance methodology, resulting in a reduction of the allowance for loan losses of $1.1 million. In making this transition, the changes serve to update and enhance the methodology to reflect the direction of the current loan portfolio. The changes are threefold:

• First, the Bank adopted a two year, instead of a three year, weighted average historical loss factor as the basis for the calculation of its historical loss experience. This is used to calculate expected losses in the ASC 450-20 pools prior to the application of qualitative risk adjustment factors. Weightings were allocated 59% to the last four quarters and 41% to the previous four quarters. This change was made to be more responsive to the changing credit environment. Net charge-offs have declined, especially in 2012 when they averaged $76,000 per quarter. This shorter average historical loss period will produce results more indicative of the current and expected behavior of the portfolio.

• Second, the Bank adopted an Internal Risk Ratings Based (IRB) approach to calculating historical loss rates. This approach calibrates expected losses with actual risk assessment and equates the likelihood of loss to the level of risk in a credit facility rating. All loans are reviewed annually. Similarly, the Loan Committee can adjust a risk rating. Previously, loss history was applied to categories of loans and qualitative adjustments were apportioned by risk rating within the categories.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due for payment unless the loan is well-secured and in process of collection. Consumer installment loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. Any interest paid on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Management considers all non-accrual loans, troubled debt restructurings and loans that were previously classified as TDRs that have been upgraded, to be impaired. In most cases, loan payments that are past due less than 90 days, based on contractual terms, are considered collection delays and the related loans are not considered to be impaired. The Bank considers consumer installment loans to be pools of smaller balance homogeneous loans, which are collectively evaluated for impairment.

The changes in the allowance for loan losses for the periods shown are as follows:

                                                Three months ended                 Six months ended
                                            June 30,         June 30,         June 30,         June 30,
(Thousands of dollars)                        2012             2011             2012             2011
Balance at beginning of period              $   8,461        $  12,208        $   9,385        $  15,374
Charge-offs                                       (91 )         (3,034 )           (193 )         (7,188 )
Recoveries                                         17              743               41              764

Net Charge-offs                                   (74 )         (2,291 )           (152 )         (6,424 )

Transferred to loans held-for-sale                 -                -                -            (6,014 )
Provision charged to operations                (1,713 )          1,483           (2,559 )          8,464

Balance at end of period                    $   6,674        $  11,400        $   6,674        $  11,400

Ratio of net charge-offs during the
period to average loans outstanding
during the period                                0.02 %           0.48 %           0.03 %           1.28 %

Ratio of ALLL / Gross Loans                      1.36 %           2.46 %           1.36 %           2.46 %

Based upon the overall assessment and evaluation of the loan portfolio, management believes the allowance for loan losses of $6.7 million, at June 30, 2012, which represents 1.36% of gross loans outstanding, is adequate under prevailing economic conditions, to absorb existing losses in the loan portfolio.

Non-Accrual, Past Due and Restructured Loans

The following table presents non-accruing loans and loans past due 90 days or
more and still accruing:



                                           June 30,        December 31,
             (Thousands of dollars)          2012              2011
             Loans past due over 90 days   $   4,235      $        9,461
             still accruing
             Non accruing loans               17,452              20,683

             Total                         $  21,687      $       30,144

             % of Total Loans                   4.42 %              5.91 %
             % of Total Assets                  3.37 %              4.53 %

Loans delinquent over 90 days and still accruing aggregating $4.2 million are comprised of seven loans, all of which have matured and continue to make payments. These loans are currently in the process of being renewed or paid off. Impaired loans, which are comprised of non-accruing loans, troubled debt restructured loans, and loans previously classified as TDRs that have been upgraded, increased by $1.9 million to $34.7 million for the quarter ended June 30, 2012 and decreased $2.1 million for the six months ended June 30, 2012. Impaired loans are attributable to the lingering effects of the downturn in the economy, which has severely impacted the real estate market and placed unprecedented stress on credit markets. Residents of Fairfield County, Connecticut, many of whom are associated with the financial services industry, have been affected by the impact of the poor economy on employment and real estate values.

The $17.5 million of non-accrual loans at June 30, 2012 is comprised of 21 loans, for which a specific reserve of $349,000 has been established. In all cases, the Bank has obtained appraisal reports from independent licensed appraisal firms and discounted those values for estimated selling costs to determine estimated impairment. Of the $17.5 million of non-accrual loans at June 30, 2012 borrowers of 4 loans with aggregate balances of $6.0 million continue to make loan payments and these loans are current within one month as to payments.

Potential Problem Loans

In addition to the above, there are $47.9 million of substandard accruing loans comprised of 37 loans and $31.8 million of special mention loans comprised of 39 loans for which management has a concern as to the ability of the borrowers to comply with the present repayment terms. All but $5.0 million of the substandard accruing loans and all of the special mention loans continue to make timely payments and are within 30 days at June 30, 2012.

Other Real Estate Owned

The following table is a summary of Bancorp's other real estate owned at the
dates shown:



                                          June 30,        December 31,
                                            2012              2011
              Residential construction   $ 1,229,611     $    1,140,560
              Commercial                          -           1,622,080
              Residential                    288,144                 -

              Other real estate owned    $ 1,517,755     $    2,762,640

The balance of other real estate owned at June 30, 2012 is comprised of two properties with an aggregate carrying value of $1.5 million that were obtained through loan foreclosure proceedings. During the six months ended June 30, 2012, two OREO properties were sold with an aggregate carrying value of $1.6 million.

Deferred Taxes

The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. Management has reviewed the deferred tax position of Bancorp at June 30, 2012. The deferred tax position has been affected by several significant transactions in the past several years. These transactions include the change in ownership, in addition to, the increased provision for loan losses, the levels of non-accrual loans and other-than-temporary impairment write-offs of certain investments. As a result, the Company is in a cumulative net loss position at June 30, 2012, and under the applicable accounting guidance, has concluded that it is not more-likely-than-not that the Company will be able to realize its deferred tax assets and accordingly has established a full valuation allowance totaling $13.5 million against its deferred tax asset at June 30, 2012. The valuation allowance is analyzed quarterly for changes affecting the deferred tax asset. In the future, if the Company generates taxable income on a sustained basis, management's conclusion regarding the need for a deferred tax asset valuation allowance could change, resulting in the reversal of all or a portion of the deferred tax asset valuation allowance.

Deposits

The following table is a summary of Bancorp's deposits at the dates shown:



                                                 June 30,        December 31,
                                                   2012              2011
       Non-interest bearing                    $  71,722,494     $  65,613,374

       Interest bearing
       NOW                                        24,297,309        24,396,210
       Savings                                    66,862,473        59,396,310
       Money market                               47,227,188        52,889,642
       Time certificates, less than $100,000     179,310,667       198,207,998
       Time certificates, $100,000 or more       132,675,624       144,405,859

       Total interest bearing                    450,373,261       479,296,019

       Total Deposits                          $ 522,095,755     $ 544,909,393

Total deposits decreased $22.8 million, or 4%, from $544.9 million at December 31, 2011 to $522.1 million at June 30, 2012. Interest bearing accounts decreased $28.9 million. This was primarily due to decreases in certificates of deposit (CD's") of $30.6 million and money market accounts of $5.7 million due to the low interest rate environment. These were partially offset by a $6.1 million increase in demand deposits primarily as a result of increases in official checks of $7.7 million, partially offset by a decrease in commercial checking accounts of $1.7 million.

Borrowings

At June 30, 2012, total borrowings were $65.2 million and are unchanged compared to December 31, 2011. In addition to the outstanding borrowings disclosed in the consolidated balance sheet, the Bank has the ability to borrow approximately $76.0 million in additional advances from the Federal Home Loan Bank of Boston, including a $2.0 million overnight line of credit. The Bank has also established a line of credit at the Federal Reserve Bank.

The subordinated debentures of $8,248,000 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 debentures and the declaration of trust governing the Trust, provides a full and unconditional guarantee of amounts on the capital securities. The subordinated debentures, which bear interest at three-month LIBOR plus 3.15% (3.61160% at June 30, 2012), matures on March 26, 2033. Beginning in the second quarter of 2009, the Company began deferring interest payments on the subordinated debentures as permitted under the terms of the debentures. The deferral in the second quarter of 2012 represented the thirteenth consecutive quarter of deferral. The Company continues to accrue and charge interest to operations. The Company may defer the payment of interest until March 2014, and all accrued interest must be paid prior to or at completion of the deferral period.

Capital

Capital increased $1.2 million compared to December 31, 2011 primarily as a result of the net income earned of $891,000 for the six months ended June 30, 2012.

Off-Balance Sheet Arrangements

Bancorp's off-balance sheet arrangements, which primarily consist of commitments to lend, decreased by $32.2 million from $140.4 million at December 31, 2011 to $108.2 million at June 30, 2012, due to decreases of $55.5 million in future loan commitments and $500,000 in financial letters of credit, partially offset by increases of $21.3 million in unused lines of credit and $2.5 million in undisbursed construction loans.

RESULTS OF OPERATIONS

Interest and dividend income and expense

The following tables present average balance sheets (daily averages), interest income, interest expense and the corresponding yields earned and rates paid for major balance sheet components:

                                                                     Three months ended June 30,
                                                          2012                                         2011
                                                         Interest                                     Interest
                                          Average        Income/        Average        Average        Income/        Average
                                          Balance        Expense         Rate          Balance        Expense         Rate
                                                                        (dollars in thousands)
Interest earning assets:
Loans                                    $ 479,545      $    5,812          4.85 %    $ 472,761      $    6,539          5.53 %
Investments                                 67,849             458          2.70 %       77,569             568          2.93 %
Interest bearing deposits in banks          76,144              40          0.21 %       77,734              58          0.30 %
Federal funds sold                              -               -           0.00 %        9,890               2          0.08 %

Total interest earning assets              623,538           6,310          4.05 %      637,954           7,167          4.49 %

Cash and due from banks                      5,005                                       19,977
Premises and equipment, net                  4,762                                        4,681
Allowance for loan losses                   (8,449 )                                    (11,746 )
Other assets                                26,890                                       27,842
. . .