UNITED STATESSECURITIES
 AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended
September 30, 2008.

OR

[    ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
____________ to __________.

Commission File Number: 001-32007

|NEWALLIANCE BANCSHARES, INC.                          
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)

|DELAWARE                                                        |  | 52-2407114                           
|--------------------------------------------------------------- |  | -------------------------------------
|(State or
 other jurisdiction of incorporation or organization) |  | (I.R.S.
 Employer Identification No.)
|                                                                |  |                                      
|195 Church Street, New Haven, Connecticut                       |  | 06510                                
|(Address
 of principal executive offices)                       |  | (Zip Code)                           

(203) 789-2767





(Registrants telephone number, including area code)





(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
                  
                       
   [ X ]   Yes     [    ]   No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.


|Large accelerated filer X |  | Accelerated filer ___        
|------------------------- |  | -----------------------------
|                         
|Non-accelerated filer ___ |  | Smaller reporting company ___

|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | [    ]   Yes | [ X ]   No
|---------------------------------------------------------------------------------------------------------------- | ------------ | ----------

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

| | Common Stock (par value $.01) |  |  | 107,058,509                     | 
| | ----------------------------- |  |  | ------------------------------- | 
| | Class                         |  |  | Outstanding at November 6, 2008 | 




|                                |  |         
|------------------------------- |  | --------
|TABLE OF
 CONTENTS              |  |         
|                                |  |         
|Part I
  FINANCIAL INFORMATION |  |         
|                                |  | Page No.

|                            | Item 1.  |  | Financial
 Statements (Unaudited)                                                                        |  |   
|--------------------------- | -------- |  | -------------------------------------------------------------------------------------------------------- |  | --
|                            |          |  |                                                                                                          |  |   
|                            |          |  | Consolidated Balance Sheets at September 30, 2008 and December 31, 2007                                  |  | 3 
|                            |          |  |                                                                                                          |  |   
|                            |          |  | Consolidated
 Statements of Income for the three and nine months ended September 30, 2008 and
 2007      |  | 4 
|                            |          |  |                                                                                                          |  |   
|                            |          |  | Consolidated
 Statement of Changes in Stockholders Equity for the nine months ended September
 30, 2008 |  | 5 
|                            |          |  |                                                                                                          |  |   
|                            |          |  | Consolidated
 Statements of Cash Flows for the nine months ended September 30, 2008 and 2007             |  | 6 
|                            |          |  |                                                                                                          |  |   
|                            |          |  | Notes to Unaudited
 Consolidated Financial Statements                                                    |  | 7 
|                            |          |  |                                                                                                          |  |   
|                            | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                    |  | 22
|                            |          |  |                                                                                                          |  |   
|                            | Item 3.  |  | Quantitative
 and Qualitative Disclosures about Market Risk                                              |  | 43
|                            |          |  |                                                                                                          |  |   
|                            | Item 4.  |  | Controls and
 Procedures                                                                                 |  | 43
|                            |          |  |                                                                                                          |  |   
|                            | Item 4T. |  | Controls and
 Procedures                                                                                 |  | 43
|                            |          |  |                                                                                                          |  |   
|                            |          |  |                                                                                                          |  |   
|Part II  OTHER INFORMATION |          | 
|                            |          |  |                                                                                                          |  |   
|                            |          |  |                                                                                                          |  |   
|                            | Item 1.  |  | Legal Proceedings                                                                                        |  | 43
|                            |          |  |                                                                                                          |  |   
|                            | Item 1A. |  | Risk Factors                                                                                             |  | 44
|                            |          |  |                                                                                                          |  |   
|                            | Item 2.  |  | Unregistered
 Sales of Equity Securities and Use of Proceeds                                             |  | 47
|                            |          |  |                                                                                                          |  |   
|                            | Item 3.  |  | Defaults Upon
 Senior Securities                                                                         |  | 47
|                            |          |  |                                                                                                          |  |   
|                            | Item 4.  |  | Submission
 of Matters to a Vote of Security Holders                                                     |  | 47
|                            |          |  |                                                                                                          |  |   
|                            | Item 5.  |  | Other Information                                                                                        |  | 48
|                            |          |  |                                                                                                          |  |   
|                            | Item 6.  |  | Exhibits                                                                                                 |  | 48
|                            |          |  |                                                                                                          |  |   
|                            |          |  |                                                                                                          |  |   
|                            |          |  |                                                                                                          |  |   
|SIGNATURES                  |          | 

2




NewAlliance Bancshares, Inc.


Consolidated Balance Sheets


|                                                                                                                              |  | September 30, |           | December 31,
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ------------
|(In thousands,
 except per share data) (Unaudited)                                                                            |  | 2008          |           | 2007        
|                                                                                                                             
|Assets                                                                                                                        |  |               |           |             
|Cash
 and due from banks, noninterest bearing                                                                                 |  | $             | 112,121   |             
|Federal
 funds sold                                                                                                           |  |               | 50,000    |             
|Short
 term investments                                                                                                       |  |               | 25,000    |             
|                                                                                                                             
|Cash
 and cash equivalents                                                                                                    |  |               | 187,121   |             
|Investment
 securities available for sale (note 5)                                                                            |  |               | 2,006,822 |             
|Investment
 securities held to maturity (note 5)                                                                              |  |               | 299,622   |             
|Loans
 held for sale                                                                                                          |  |               | 4,687     |             
|Loans,
 net (note 6)                                                                                                          |  |               | 4,904,301 |             
|Premises
 and equipment, net                                                                                                  |  |               | 59,832    |             
|Cash
 surrender value of bank owned life insurance                                                                            |  |               | 135,975   |             
|Goodwill
 (note 7)                                                                                                            |  |               | 527,167   |             
|Identifiable
 intangible assets (note 7)                                                                                      |  |               | 46,224    |             
|Other
 assets (note 8)                                                                                                        |  |               | 93,510    |             
|                                                                                                                             
|Total
 assets                                                                                                                 |  | $             | 8,265,261 |             
|                                                                                                                             
|                                                                                                                              |  |               |           |             
|Liabilities                                                                                                                   |  |               |           |             
|Deposits
 (note 9)                                                                                                            |  |               |           |             
|Non-interest
 bearing                                                                                                         |  | $             | 497,749   |             
|Savings,
 interest-bearing checking and money market                                                                          |  |               | 2,103,717 |             
|Time                                                                                                                          |  |               | 1,805,488 |             
|                                                                                                                             
|Total
 deposits                                                                                                               |  |               | 4,406,954 |             
|Borrowings
 (note 10)                                                                                                         |  |               | 2,386,788 |             
|Other
 liabilities                                                                                                            |  |               | 71,113    |             
|                                                                                                                             
|Total
 liabilities                                                                                                            |  |               | 6,864,855 |             
|                                                                                                                              |  |               |           |             
|Commitments
 and contingencies (note 14)                                                                                      |  |               |           |             
|                                                                                                                              |  |               |           |             
|Stockholders Equity                                                                                                          |  |               |           |             
|Preferred
 stock, $0.01 par value; authorized 38,000 shares; none issued                                                      |  |               |          |             
|Common
 stock, $0.01 par value; authorized 190,000 shares; issued
 121,486 shares at September 30, 2008 and December 31, 2007 |  |               | 1,215     |             
|Additional
 paid-in capital                                                                                                   |  |               | 1,244,691 |             
|Unallocated
 common stock held by ESOP                                                                                        |  |               | (93,295   | )           
|Unearned
 restricted stock compensation                                                                                       |  |               | (20,130   | )           
|Treasury
 stock, at cost (14,427 shares at September 30, 2008 and 12,634
 shares at December 31, 2007)                        |  |               | (200,428  | )           
|Retained
 earnings                                                                                                            |  |               | 465,496   |             
|Accumulated
 other comprehensive income (note 16)                                                                             |  |               | 2,857     |             
|                                                                                                                             
|Total
 stockholders equity                                                                                                   |  |               | 1,400,406 |             
|                                                                                                                             
|Total
 liabilities and stockholders equity                                                                                   |  | $             | 8,265,261 |             
|                                                                                                                             
|                                                                                                                              |  |               |           |             

See accompanying notes to consolidated financial statements.

3




NewAlliance Bancshares, Inc.


Consolidated Statements of Income


|                                                      | Three Months Ended |            | Nine Months Ended
|----------------------------------------------------- | ------------------ | ---------- | -----------------
|                                                      | September 30,      |            | September 30,    
|                                                      |                    |            |                  
|(In thousands,
 except share data) (Unaudited)        | 2008               |            | 2007             
|                                                     
|Interest
 and dividend income                         |                    |            |                  
|Residential
 real estate loans                        | $                  | 35,202     |                  
|Commercial
 real estate loans                         |                    | 18,273     |                  
|Commercial
 business loans                            |                    | 7,021      |                  
|Consumer
 loans                                       |                    | 9,718      |                  
|Investment
 securities                                |                    | 28,334     |                  
|Federal
 funds sold and other short-term investments  |                    | 494        |                  
|                                                     
|Total
 interest and dividend income                   |                    | 99,042     |                  
|                                                     
|                                                     
|Interest
 expense                                     |                    |            |                  
|Deposits                                              |                    | 24,610     |                  
|Borrowings                                            |                    | 26,373     |                  
|                                                     
|Total
 interest expense                               |                    | 50,983     |                  
|                                                     
|                                                      |                    |            |                  
|Net
 interest income before provision for loan losses |                    | 48,059     |                  
|                                                      |                    |            |                  
|Provision
 for loan losses                            |                    | 4,200      |                  
|                                                     
|Net
 interest income after provision for loan losses  |                    | 43,859     |                  
|                                                     
|                                                      |                    |            |                  
|Non-interest
 income                                  |                    |            |                  
|Depositor
 service charges                            |                    | 7,052      |                  
|Loan
 and servicing income                            |                    | 325        |                  
|Trust
 fees                                           |                    | 1,635      |                  
|Investment
 management, brokerage & insurance fees    |                    | 1,872      |                  
|Bank
 owned life insurance                            |                    | 1,164      |                  
|Net
 (loss) gain on securities                        |                    | (215       | )                
|Net
 gain on sale of loans                            |                    | 428        |                  
|Other                                                 |                    | 1,144      |                  
|                                                     
|Total
 non-interest income                            |                    | 13,405     |                  
|                                                     
|                                                      |                    |            |                  
|Non-interest
 expense                                 |                    |            |                  
|Salaries
 and employee benefits (notes 11 & 12)       |                    | 22,354     |                  
|Occupancy                                             |                    | 4,415      |                  
|Furniture
 and fixtures                               |                    | 1,624      |                  
|Outside
 services                                     |                    | 5,047      |                  
|Advertising,
 public relations, and sponsorships      |                    | 1,667      |                  
|Amortization
 of identifiable intangible assets       |                    | 2,364      |                  
|Merger
 related charges                               |                    | 99         |                  
|Other                                                 |                    | 3,801      |                  
|                                                     
|Total
 non-interest expense                           |                    | 41,371     |                  
|                                                     
|                                                      |                    |            |                  
|Income
 before income taxes                           |                    | 15,893     |                  
|                                                      |                    |            |                  
|Income tax
 provision (note 13)                       |                    | 4,957      |                  
|                                                     
|Net income                                            | $                  | 10,936     |                  
|                                                     
|                                                      |                    |            |                  
|                                                      |                    |            |                  
|Basic earnings
 per share (note 17)                   | $                  | 0.11       |                  
|Diluted earnings
 per share (note 17)                 |                    | 0.11       |                  
|Weighted-average
 shares outstanding (note 17)        |                    |            |                  
|Basic                                                 |                    | 98,988,777 |                  
|Diluted                                               |                    | 99,145,940 |                  
|Dividends
 per share                                  | $                  | 0.07       |                  

See accompanying notes to consolidated financial statements.

4




NewAlliance Bancshares, Inc.


Consolidated Statement of Changes in Stockholders Equity


|                                                           |             |         |           |  |            |       |            |  |              |           |          |  | Unallocated |         | Unearned      |  |               |         |       |  |       |          |   |  | Accumulated |         |   |  |  
|---------------------------------------------------------- | ----------- | ------- | --------- |  | ---------- | ----- | ---------- |  | ------------ | --------- | -------- |  | ----------- | ------- | ------------- |  | ------------- | ------- | ----- |  | ----- | -------- | - |  | ----------- | ------- | - |  | -
|                                                           | Common      |         | Par Value |  | Additional |       | Common     |  | Restricted   |           |          |  |             |         |               |  |               |         | Other |  | Total
|For
 the Nine Months Ended September 30, 2008              | Shares      |         | Common    |  | Paid-in    |       | Stock Held |  | Stock        |           | Treasury |  | Retained    |         | Comprehensive |  | Stockholders
|(In
 thousands, except per share data) (Unaudited)         | Outstanding |         | Stock     |  | Capital    |       | by ESOP    |  | Compensation |           | Stock    |  | Earnings    |         | Income        |  | Equity       
|                                                          
|Balance
 December 31, 2007                                 |             | 108,852 |           |  | $          | 1,215 |            |  | $            | 1,242,100 |          |  | $           | (96,039 | )             |  | $             | (25,466 | )     |  | $     | (178,401 | ) |  | $           | 451,729 |   |  | $
|                                                           |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Dividends
 declared ($0.205 per share)                     |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             | (20,823 | ) |  |  
|Allocation
 of ESOP shares, net of tax                     |             |         |           |  |            |       |            |  |              | (209      | )        |  |             | 2,744   |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Treasury
 shares acquired (note 15)                        |             | (1,793  | )         |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       | (22,027  | ) |  |             |         |   |  |  
|Restricted
 stock expense                                  |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               | 5,336   |       |  |       |          |   |  |             |         |   |  |  
|Book (over)/under
 tax benefit of stock-based compensation |             |         |           |  |            |       |            |  |              | (408      | )        |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Stock
 option expense                                      |             |         |           |  |            |       |            |  |              | 3,208     |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Adoption
 of EITF 06-4 and EITF 06-10, net of tax (Note 2) |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             | (1,062  | ) |  |  
|                                                           |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Comprehensive
 income:                                     |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|Net
 income                                                |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             | 35,652  |   |  |  
|Other
 comprehensive loss, net of tax (note 16)            |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|                                                          
|Total
 comprehensive income                                |             |         |           |  |            |       |            |  |              |           |          |  |             |         |               |  |               |         |       |  |       |          |   |  |             |         |   |  |  
|                                                          
|Balance September
 30, 2008                                |             | 107,059 |           |  | $          | 1,215 |            |  | $            | 1,244,691 |          |  | $           | (93,295 | )             |  | $             | (20,130 | )     |  | $     | (200,428 | ) |  | $           | 465,496 |   |  | $
|                                                          

See accompanying notes to consolidated financial statements.

5




NewAlliance Bancshares, Inc.


Consolidated Statements of Cash Flows


|                                                                                                 | Nine Months Ended
|------------------------------------------------------------------------------------------------ | -----------------
|                                                                                                 | September 30,    
|                                                                                                 |                  
|(In thousands)
 (Unaudited)                                                                      | 2008             
|                                                                                                
|Cash flows
 from operating activities                                                            |                  
|Net income                                                                                       | $                
|Adjustments
 to reconcile net income to net cash provided by operating activities                |                  
|Provision
 for loan losses                                                                       |                  
|Gain
 on sale of OREO                                                                            |                  
|Restricted
 stock compensation expense                                                           |                  
|Stock
 option compensation expense                                                               |                  
|ESOP
 expense                                                                                    |                  
|Amortization
 of identifiable intangible assets                                                  |                  
|Net
 amortization/accretion of fair market adjustments from net assets acquired                  |                  
|Net
 amortization/accretion of investment securities                                             |                  
|Change
 in deferred income taxes                                                                 |                  
|Depreciation
 and amortization                                                                   |                  
|Net
 (gain) loss on securities                                                                   |                  
|Impairment
 of investment portfolio                                                              |                  
|Net
 gain on sales of performing loans                                                           |                  
|Proceeds
 from sales of loans held for sale                                                      |                  
|Loans
 originated for sale                                                                       |                  
|Net
 loss (gain) on sale of fixed assets                                                         |                  
|Gain
 on limited partnerships                                                                    |                  
|Increase
 in cash surrender value of bank owned life insurance                                   |                  
|Decrease
 in other assets                                                                        |                  
|Decrease
 in other liabilities                                                                   |                  
|                                                                                                
|Net
 cash provided by operating activities                                                       |                  
|                                                                                                
|Cash flows
 from investing activities                                                            |                  
|Purchase
 of securities available for sale                                                       |                  
|Purchase
 of securities held to maturity                                                         |                  
|Proceeds
 from maturity, sales, calls and principal reductions of securities
 available for sale |                  
|Proceeds
 from maturity, calls and principal reductions of securities
 held to maturity          |                  
|Proceeds
 from sales of fixed assets                                                             |                  
|Net
 increase in loans held for investment                                                       |                  
|Net
 cash acquired in acquisitions                                                               |                  
|Proceeds
 from sales of other real estate owned                                                  |                  
|Proceeds
 from bank owned life insurance                                                         |                  
|Purchase
 of premises and equipment                                                              |                  
|                                                                                                
|Net
 cash used by investing activities                                                           |                  
|                                                                                                
|Cash flows
 from financing activities                                                            |                  
|Net
 increase (decrease) in customer deposit balances                                            |                  
|Net
 decrease in short-term borrowings                                                           |                  
|Proceeds
 from long-term borrowings                                                              |                  
|Repayments
 of long-term borrowings                                                              |                  
|Shares
 issued for stock option exercise                                                         |                  
|Book
 (over)/under tax benefit of stock-based compensation                                       |                  
|Acquisition
 of treasury shares                                                                  |                  
|Dividends
 paid                                                                                  |                  
|                                                                                                
|Net
 cash provided by financing activities                                                       |                  
|                                                                                                
|Net
 increase in cash and cash equivalents                                                       |                  
|                                                                                                
|Cash
 and equivalents, beginning of period                                                       |                  
|                                                                                                
|Cash
 and equivalents, end of period                                                             | $                
|                                                                                                
|Supplemental
 information                                                                        |                  
|Cash
 paid for                                                                                   |                  
|Interest
 on deposits and borrowings                                                             | $                
|Income
 taxes paid, net                                                                          |                  
|Noncash transactions                                                                             |                  
|Net
 non-cash liabilities acquired                                                               |                  
|Value
 of shares issued for acquisitions                                                         |                  

See accompanying notes to consolidated financial statements.

6




NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements





|1. |  | Summary
 of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | Financial
 Statement Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | The consolidated
 financial statements of NewAlliance Bancshares, Inc. (the Company) have
 been prepared in conformity with accounting principles generally accepted in the
 United States of America. In the opinion of management, all adjustments (consisting
 of normal recurring accruals) considered necessary for a fair presentation have
 been included. All significant intercompany transactions and balances have been
 eliminated in consolidation. Amounts in prior period financial statements are reclassified
 whenever necessary to conform to the current year presentation. These Consolidated
 Financial Statements should be read in conjunction with the audited Consolidated
 Financial Statements and Notes thereto included in the Companys Annual Report
 on Form 10-K as of and for the year ended December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | The preparation
 of the consolidated financial statements requires management to make estimates and
 assumptions that affect the reported amounts of assets, liabilities, revenues and
 expenses and the disclosure of contingent assets and liabilities. Actual results
 could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | Material estimates
 that are particularly susceptible to significant near-term change relate to the
 determination of the allowance for loan losses, the obligation and expense for pension
 and other postretirement benefits, stock-based compensation and estimates used to
 evaluate asset impairment including income tax contingencies and deferred tax assets
 and liabilities and recoverability of goodwill and other intangible assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2. |  | Recent
 Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In October
 2008, the Financial Accounting Standards Board (FASB) issued Staff Position
 No. FAS 157-3, Determining the Fair Value of a Financial Asset When the
 Market for That Asset Is Not Active (FSP No. 157-3). FSP No.
 157-3 amends SFAS No. 157, Fair Value Measurements (SFAS
 No. 157) and clarifies its application in an inactive market. In reaction
 to the recent financial crisis, this FSP provides financial institutions, and other
 companies, clarification as to whether to use direct market information or internally
 generated estimates of the fair value of financial assets that have stopped trading
 in an open market. Application issues addressed by FSP No. 157-3 include: i) how
 managements internal assumptions should be considered when measuring fair
 value when relevant observable data do not exist, ii) how observable market information
 in a market that is not active should be considered when measuring fair value, and
 iii) how the use of market quotes should be considered when assessing the relevance
 of observable and unobservable data available to measure fair value. FSP No. 157-3
 was effective upon its October 10, 2008 issuance, including prior periods for which
 financial statements have not been issued. This FSP did not have a material impact
 on the Companys consolidated financial statements.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In May 2008,
 the FASB issued Statement of Financial Accounting Standards (SFAS) No.
 162, The Hierarchy of Generally Accepted Accounting Principles
 (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles
 and the framework for selecting the principles used in the preparation of financial
 statements of nongovernmental entities that are presented in conformity with generally
 accepted accounting principles (GAAP) in the United States (the GAAP
 hierarchy). This Statement is effective on November 15, 2008, which is 60
 days following the Securities and Exchange Commissions September 16, 2008
 approval of the Public Company Accounting Oversight Board (PCAOB) amendments to
 AU Section 411, The Meaning of Present Fairly in Conformity With General
 Accepted Accounting Principles. Management believes that the adoption
 of SFAS No. 162 will not have a material impact upon the preparation of the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In April 2008,
 the FASB issued FASB Staff Position No. 142-3, Determination of the Useful
 Life of Intangible Assets (FSP No. 142-3). FSP No. 142-3 amends the
 factors that should be considered in developing renewal or extension assumptions
 used to determine the useful life of a recognized intangible asset under SFAS No.
 142, Goodwill and Other Intangible Assets (SFAS No. 142). The
 intent of FSP No. 142-3 is to improve the consistency between the useful life of
 a recognized intangible asset under SFAS No. 142 and the period of expected cash
 flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007),
 Business Combinations and other applicable accounting literature.
 FSP No. 142-3 is effective for financial statements issued for fiscal years beginning
 after December 15, 2008. The Company does not anticipate that the adoption of FSP
 No. 142-3 will have a material impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In March 2008,
 the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and
 Hedging Activities (SFAS No. 161). SFAS No. 161 changes the
 disclosure requirements regarding derivative instruments and hedging activities
 and specifically requires (i) qualitative disclosures about objectives and strategies
 for using derivatives, (ii) quantitative disclosures about fair value amounts of,
 and gains and losses on, derivative instruments, and (iii) disclosures about credit
 risk-related contingent features in derivative agreements. The new standard is effective
 for financial statements issued for fiscal years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

7

---



NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements





| |  | beginning
 after November 15, 2008, with early application encouraged. Management believes
 that the adoption of SFAS No. 161 will not have a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In December
 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations which replaces SFAS No. 141, Business Combinations
 (SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental requirements
 in SFAS No. 141 that the acquisition method of accounting be used for all business
 combinations and for an acquirer to be identified for each business combination.
 SFAS No. 141(R) requires among other things, that acquisition-related transaction
 and restructuring costs be expensed rather than capitalized as part of the cost
 of the acquisition; that the acquiring entity in a business combination recognizes
 all the assets acquired and liabilities assumed in the transaction; that the acquisition-date
 fair value be used as the measurement objective for all assets acquired and liabilities
 assumed; and that the acquirer provide certain disclosures that will allow users
 of the financial statements to understand the nature and financial effect of the
 business combination. SFAS No. 141(R) is effective for fiscal years beginning after
 December 15, 2008 and would apply prospectively to any future business combinations.
 The adoption of SFAS No. 141(R) on January 1, 2009 is expected to have a significant
 impact on the Companys accounting for business combinations closed on or after
 this date.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In February
 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
 Assets and Financial Liabilities, to permit all entities to choose to
 elect to measure eligible financial instruments at fair value. A business entity
 shall report in earnings, unrealized gains and losses on items for which the fair
 value option has been elected. Eligible items include any recognized financial assets
 and liabilities with certain exceptions including but not limited to, deposit liabilities,
 investments in subsidiaries, and certain deferred compensation arrangements. The
 decision about whether to elect the fair value option is generally applied on an
 instrument-by-instrument basis, is generally irrevocable, and is applied only to
 an entire instrument and not to only specified risks, specific cash flows, or portions
 of that instrument. The adoption of this Statement as of January 1, 2008 did not
 have a material impact on the Companys consolidated financial statements.
 Management did not elect the fair value option for any of the Companys eligible
 financial assets or liabilities on January 1, 2008.                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In September
 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
 Benefit Pension and Other Postretirement Plans  an amendment of
 SFAS Nos. 87, 88, 106, and 132(R), that requires employers to recognize the overfunded
 or underfunded positions of defined benefit postretirement plans, including pension
 plans, in their balance sheets for fiscal years ending after December 15, 2006.
 The Standard also requires that employers measure plan assets and obligations as
 of the date of their financial statements. This Statement requires a public entity
 that currently measures plan assets and benefit obligations as of a date other than
 the date of its statement of financial position to implement the change in measurement
 date for fiscal years ending after December 15, 2008. Amounts recognized pursuant
 to SFAS No. 158 will not affect the Banks regulatory capital. The impact of
 adopting SFAS No. 158 on December 31, 2006, was a reduction to stockholders
 equity of $5.8 million, net of tax, with no impact to the consolidated statements
 of income and cash flows. The adoption of the measurement date provision on December
 31, 2008 will not have a material impact on the Companys consolidated financial
 statements.                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In September
 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which addresses how companies should measure fair value
 when they are required to use a fair value measure for recognition or disclosure
 purposes under generally accepted accounting principles (GAAP). As a
 result of SFAS No. 157, there is now a common definition of fair value to be used
 throughout GAAP as it establishes a fair value hierarchy. SFAS No. 157 requires
 companies to make expanded disclosures about fair value measurements. The Company
 adopted SFAS No. 157 effective January 1, 2008. The adoption of SFAS No. 157 did
 not have a material impact on the Companys consolidated financial statements.
 See Note 3 in Notes to Unaudited Consolidated Financial Statements for additional
 information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In February
 2008, the FASB issued FASB Staff Position FAS No. 157-2, Effective Date
 of FASB Statement No. 157 (FSP No. 157-2), which delays the
 January 1, 2008 effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
 liabilities, to fiscal years beginning after November 15, 2008, and interim periods
 within those fiscal years. Management has not yet determined the impact of the adoption
 of FSP No. 157-2 upon the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In September
 2006, the FASB reached a consensus on Emerging Issues Task Force (EITF)
 Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit
 Aspects of Endorsement Split-Dollar Life Insurance Arrangements, (EITF
 Issue 06-4). In March 2007, the FASB reached a consensus on EITF Issue 06-10,
Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements, (EITF Issue 06-10). Both of these standards require a company
 to recognize an obligation over an employees service period based upon the
 substantive agreement with an employee such as the promise to maintain a life insurance
 policy or provide a death benefit. The Company adopted the provisions of these standards
 effective January 1, 2008 which resulted in the recording of a liability of $1.6
 million with a corresponding reduction to retained earnings, (net of tax).                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

8

---



NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements





|3. |  | Fair Value
 Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  | SFAS No. 157,
 Fair Value Measurements, defines fair value, establishes a framework
 for measuring fair value under GAAP, and expands disclosures about fair value measurements.
 As a result of SFAS No. 157 there is a common definition of fair value to be used
 throughout GAAP, a fair value hierarchy was established and companies are required
 to make expanded disclosures about fair value measurements. The three levels of
 the fair value hierarchy under SFAS No. 157 are described below:

| |  | Level 1 
 Quoted prices in active markets for identical assets or liabilities.                                                                                                                                                                                                                                                                                                                                                                                 
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Level 2 
 Observable inputs other than Level 1 prices such as quoted prices for similar assets
 or liabilities; quoted prices in markets that are not active; or other inputs that
 are observable or can be corroborated by observable market data for substantially
 the full term of the assets or liabilities. This category generally includes U.S.
 Government and agency mortgage-backed securities and corporate debt securities.                      
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Level 3 
 Unobservable inputs that are supported by little or no market activity and that
 are significant to the fair value of the assets or liabilities. Level 3 assets and
 liabilities include financial instruments whose value is determined using pricing
 models, discounted cash flow methodologies, or similar techniques, as well as instruments
 for which the determination of fair value requires significant management judgment
 or estimation.

| |  | A description
 of the valuation methodologies used for instruments measured at fair value, as well
 as the general classification of such instruments pursuant to the valuation hierarchy,
 is set forth below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Securities
 Available for Sale: Where quoted prices are available in an active market, securities
 are classified within Level 1 of the valuation hierarchy. Level 1 securities include
 highly liquid government bonds, certain mortgage products and exchange-traded equities.
 If quoted prices are not available, then fair values are estimated by using pricing
 models (i.e. matrix pricing) or quoted prices of securities with similar characteristics
 and are classified within Level 2 of the valuation hierarchy. Examples of such instruments
 would include mortgage-backed securities and municipal obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The Company
 utilizes a third party, nationally recognized pricing service (pricing service) to estimate fair value measurements for 98.6% of its investment securities
 portfolio. The pricing service evaluates each asset class based on relevant market
 information considering observable data that may include dealer quotes, reported
 trades, market spreads, cash flows, the U.S. Treasury yield curve, the LIBOR swap
 yield curve, trade execution data, market prepayment speeds, credit information
 and the bonds terms and conditions, among other things. The fair value prices
 on all investment securities are reviewed for reasonableness by management through
 an extensive process. This review process includes an analysis of changes in the
 LIBOR / swap curve, the treasury curve, mortgage rates and credit spreads as well
 as a review of the securities inventory list which details issuer name, coupon and
 maturity date for unusual market price fluctuations. Also, management assessed the
 valuation techniques used by the pricing service based on a review of their pricing
 methodology to ensure proper hierarchy classifications.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The Company
 does not use the nationally recognized pricing service for its auction rate certificates.
 The Company owns auction rate certificates which are pools of government guaranteed
 student loans that are issued by state student loan departments. At September 30,
 2008, these securities comprised 1.4%, or $25.7 million, of the Companys total
 investment portfolio. Due to the lack of liquidity in the auction rate market, the
 Company obtained a market price from the market maker that factored in credit risk
 and liquidity premiums that determined a current fair value market price of 92.0%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Loan Servicing
 Rights: A Loan Servicing Right asset represents the amount by which the present
 value of the estimated future net cash flows to be received from servicing loans
 are expected to more than adequately compensate the Company for performing the servicing.
 The fair value of servicing rights is estimated using a present value cash flow
 model. The most important assumptions used in the valuation model are the anticipated
 rate of the loan prepayments and discount rates. Adjustments are only recorded when
 the discounted cash flows derived from the valuation model are less than the carrying
 value of the asset. As such, measurement at fair value is on a nonrecurring basis.
 Although some assumptions in determining fair value are based on standards used
 by market participants, some are based on unobservable inputs and therefore are
 classified in Level 3 of the valuation hierarchy.                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Impaired
 Loans: Impaired loans for which the Bank expects to receive less than the contracted
 balance are written down to fair value. Consequently, measurement at fair value
 is on a nonrecurring basis. These loans are written down through a specific reserve
 within the Banks total loan loss reserve allowance. The fair value of these
 assets are classified within Level 3 of the valuation hierarchy and are estimated
 based on either collateral values supported by appraisals, or observed market prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

9

---



NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements





| |  | The following
 table details the financial instruments carried at fair value on a recurring basis
 as of September 30, 2008 and indicates the fair value hierarchy of the valuation
 techniques utilized by the Company to determine the fair value:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                                        |  | September 30, 2008
| |  | ---------------------------------------------------------------------- |  | ------------------
| |  |                                                                        |  |                   
| |  |                                                                        |  | Quoted Prices in  
| |  |                                                                        |  | Active Markets for
| |  |                                                                        |  | Identical Assets  
| |  | (In thousands)                                                         |  | (Level 1)         
| |  |                                                                       
| |  | Securities
 Available for Sale, excluding Federal Home Loan Bank stock |  | $                 
| |  |                                                                       

| |  | The following
 table presents additional information about assets measured at fair value for which
 the Company has utilized Level 3 inputs for the nine months ended September 30,
 2008.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                |  | Securities         |       
| |  | ---------------------------------------------- |  | ------------------ | ------
| |  | (In thousands)                                 |  | Available for Sale |       
| |  |                                               
| |  | Beginning
 balance, January 1, 2008            |  | $                  | -     
| |  | Transfer
 into Level 3                         |  |                    | 28,000
| |  | Total
 (losses) gains - (realized/unrealized): |  |                    |       
| |  | Included
 in earnings                          |  |                    | -     
| |  | Included
 in other comprehensive income        |  |                    | (2,323
| |  | Purchases,
 issuances, and settlements         |  |                    | -     
| |  |                                               
| |  | Balance as
 September 30, 2008                 |  | $                  | 25,677
| |  |                                               

| |  | Certain assets
 and liabilities are measured at fair value on a nonrecurring basis in accordance
 with generally accepted accounting principles. These include assets that are measured
 at the lower of cost or market that were recognized at fair value below cost at
 the end of the period as well as assets that are not measured at fair value on an
 ongoing basis but are subject to fair value adjustments in certain circumstances,
 such as when there is evidence of impairment.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The following
 table details the financial instruments carried at fair value on a nonrecurring
 basis as of September 30, 2008 and indicates the fair value hierarchy of the valuation
 techniques utilized by the Company to determine the fair value:                                                                                                                                                                                                                                      

| |  |                        |  | September 30, 2008
| |  | ---------------------- |  | ------------------
| |  |                        |  |                   
| |  |                        |  | Quoted Prices in  
| |  |                        |  | Active Markets for
| |  |                        |  | Identical Assets  
| |  | (In thousands)         |  | (Level 1)         
| |  |                       
| |  | Loan Servicing
 Rights |  | $                 
| |  | Impaired Loans         |  |                   
| |  |                       

|4. |  | Business
 Combinations                                                                                                                                                     |  |             |  |                  |         |                           |   |          |  |             |        |      |              |        |      |       |        |  |          |       |  |       |        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ---------------- | ------- | ------------------------- | - | -------- |  | ----------- | ------ | ---- | ------------ | ------ | ---- | ----- | ------ |  | -------- | ----- |  | ----- | -------
|  
|   |  | There were no business combinations completed for the nine months ended September
 30, 2008. The following table summarizes acquisitions completed since January 1,
 2007.
|  
|   |  |                                                                                                                                                                            |  |             |  | Balance at       |         |                           |   |          |  |             |        |      |              |        |      |       |        |  |         
|   |  |                                                                                                                                                                            |  |             |  | Acquisition Date |         | Transaction Related Items
|   |  |                                                                                                                                                                            |  |             |  |                  |         |                          
|   |  |                                                                                                                                                                            |  |             |  |                  |         |                           |   |          |  |             |        |      |              |        |      |       |        |  |          |       |  | Total
|   |  |                                                                                                                                                                            |  | Acquisition |  |                  |         |                           |   |          |  |             |        |      | Identifiable |        | Cash |       | Shares |  | Purchase
|   |  | (In thousands)                                                                                                                                                             |  | Date        |  | Assets           |         | Equity                    |   | Goodwill |  | Intangibles |        | Paid |              | Issued |      | Price
|   |  |                                                                                                                                                                           
|   |  | Connecticut
 Investment Management, Inc.                                                                                                                                   |  | 3/5/2007    |  | $                | 951     |                           | $ | 652      |  | $           | 753    |      | $            | 1,363  |      | $     | 2,000  |  | $        | -     |  | $     | 2,000  
|   |  | Westbank Corporation,
 Inc.                                                                                                                                                |  | 1/2/2007    |  |                  | 716,834 |                           |   | 42,967   |  |             | 78,990 |      |              | 14,232 |      |       | 58,447 |  |          | 4,009 |  |       | 117,386
|   |  |                                                                                                                                                                           

10

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|   |  | The transactions
 were accounted for using the purchase method of accounting in accordance with SFAS
 No. 141, Business Combinations. Accordingly, the purchase price
 was allocated based on the estimated fair market values of the assets and liabilities
 acquired.                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                       
|   |  | Connecticut
 Investment Management, Inc.                                                                                                                                                                                                                                                                                                              
|   |  | On March 5,
 2007, the Company completed its acquisition of Connecticut Investment Management,
 Inc. (CIMI) a registered investment advisory firm for $2.0 million in
 cash. At acquisition date, CIMI had approximately $175.2 million in assets under
 management.                                                                                
|   |  |                                                                                                                                                                                                                                                                                                                                                       
|   |  | Westbank
 Corporation                                                                                                                                                                                                                                                                                                                                 
|   |  | On January
 2, 2007 the Company completed the acquisition of Westbank Corporation, Inc. (Westbank), the parent company of Westbank. The aggregate merger consideration was valued
 at approximately $117.4 million. Westbank had assets of approximately $716.8 million
 and stockholders equity of approximately $43.0 million on January 2, 2007.
|   |  |                                                                                                                                                                                                                                                                                                                                                       
|5. |  | Investment
 Securities                                                                                                                                                                                                                                                                                                                                
|   |  |                                                                                                                                                                                                                                                                                                                                                       
|   |  | The following
 table presents the amortized cost, gross unrealized gains, gross unrealized losses
 and estimated fair values of investment securities at September 30, 2008 and December
 31, 2007.                                                                                                                                                   

| |                                                    |  | September 30, 2008 |           | December 31, 2007
| | -------------------------------------------------- |  | ------------------ | --------- | -----------------
| |                                                    |  |                    |           |                  
| |                                                    |  |                    |           |                  
| |                                                    |  |                    | Amortized |                  
| | (In thousands)                                     |  |                    | cost      |                  
| |                                                   
| | Available
 for sale                                |  |                    |           |                  
| | U.S.
 Treasury obligations                         |  | $                  | 592       |                  
| | U.S.
 Government sponsored enterprise
 obligations |  |                    | 195,679   |                  
| | Corporate
 obligations                             |  |                    | 7,153     |                  
| | Other
 bonds and obligations                       |  |                    | 47,518    |                  
| | Marketable
 and trust preferred equity
 securities |  |                    | 69,855    |                  
| | Federal
 Home Loan Bank stock                      |  |                    | 120,821   |                  
| | Mortgage-backed
 securities                        |  |                    | 1,562,691 |                  
| |                                                   
| | Total
 available for sale                          |  |                    | 2,004,309 |                  
| |                                                   
| | Held to
 maturity                                  |  |                    |           |                  
| | Mortgage-backed
 securities                        |  |                    | 292,512   |                  
| | Other
 bonds                                       |  |                    | 7,110     |                  
| |                                                   
| | Total
 held to maturity                            |  |                    | 299,622   |                  
| |                                                   
| | Total
 securities                                  |  | $                  | 2,303,931 |                  
| |                                                   

| |  | During the third quarter, management determined that the following three investments
 had other-than-temporary impairment for which charges were recorded:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                          
| |  |                                                                                                                                                          
| |  |                                                                                                                                                          

11

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




| | The following
 table presents the fair value of investments with continuous unrealized losses for
 less than one year and those that have been in a continuous loss position for more
 than one year as of September 30, 2008.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                    |  | Less Than One Year |         | More Than One Year |   | Total     
| | -------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ----------
| |                                                    |  |                    |         |                    |   |           
| |                                                    |  |                    | Fair    |                    |   | Unrealized
| | (In thousands)                                     |  |                    | value   |                    |   | losses    
| |                                                   
| | U. S. Treasury
 obligations                        |  | $                  | -       |                    | $ | -         
| | U. S. Government
 sponsored enterprise obligations |  |                    | 155,364 |                    |   | 960       
| | Corporate
 obligations                             |  |                    | 6,612   |                    |   | 541       
| | Other bonds
 and obligations                       |  |                    | 34,325  |                    |   | 3,916     
| | Marketable
 and trust preferred equity obligations |  |                    | 36,347  |                    |   | 8,433     
| | Mortgage-backed
 securities                        |  |                    | 331,009 |                    |   | 4,001     
| |                                                   
| | Total
 securities with unrealized losses           |  | $                  | 563,657 |                    | $ | 17,851    
| |                                                   

| | Of the securities
 summarized above, 108 issues have unrealized losses for less than twelve months
 and one has an unrealized loss for twelve months or more. Management believes that
 no individual unrealized loss as of September 30, 2008 represents an other-than-temporary
 impairment, based on its detailed monthly review of the securities portfolio. Among
 other things, the other-than-temporary impairment review of the investment securities
 portfolio focuses on the combined factors of percentage and length of time by which
 an issue is below book value as well as consideration of company specific (cash
 flow interruptions), broad market details and the Companys intent and ability
 to retain its investment for a period of time sufficient to allow for the anticipated
 recovery in market value. The Company also considers whether the depreciation is
 due to interest rates or credit risk. The following paragraphs outline the Companys position related to unrealized losses in its investment securities portfolio
 at September 30, 2008.                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The unrealized
 losses reported for U.S. Government sponsored obligations and corporate obligations
 are related to changes in market interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The unrealized
 losses reported on mortgage-backed securities relate to securities issued by Federal
 National Mortgage Association (FNMA), FHLMC and AAA rated securities
 issued by private institutions. The unrealized losses on the securities issued by
 FNMA and FHLMC are due to changes in market interest rates while widening in non-agency
 mortgage spreads is the primary factor for the unrealized losses reported on AAA
 rated securities issued by private institutions. The Companys privately issued
 AAA rated mortgage-backed securities are substantially paid down, well seasoned
 and of an earlier vintage that are not affected by high delinquency levels or vulnerable
 to lower collateral coverage as seen in later issued pools. None of the securities
 are backed by sub-prime mortgage loans. All securities are performing in accordance
 with contractual terms.                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The unrealized
 losses reported for other bonds and obligations are primarily related to federally
 guaranteed student loan auction rate certificates that are currently experiencing
 failing auctions. Unrealized losses in this category also relate to a position in
 a short-term adjustable rate mortgage mutual fund that holds positions in non-agency
 mortgage-backed securities that are facing negative mark to market pressures due
 to widening spreads in non-agency mortgage products. All securities are performing
 in accordance with contractual terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Bank owns
 trust preferred securities with amortized cost of $48.6 million. $6.8 million are
 pooled trust preferred, with $4.8 million rated AAA and $2.0 million rated AA. The
 remaining $41.8 million are individual names with ratings of A- to AA-.
 The unrealized losses reported for trust preferred equity securities relate to changes
 in market interest rates and to the current market stress partially resulting from
 efforts by banks to raise capital. This has in turn inflated coupon rates on new
 issues of trust preferred equity securities versus lower rates on the Companys
 portfolio of A- to AAA rated, non-perpetual seasoned issues of trust preferred equity
 securities. In accordance with the Companys internal policies for review of
 other-than-temporary impairment, a detailed review of certain trust preferred equity
 securities was completed. This analysis determined that there was no other-than-temporary
 impairment at quarter end. All trust preferred equity securities carried below market
 value are current and no impairment of cash flows is anticipated.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Company
 has the ability and intent to hold the securities contained in the table for a period
 of time necessary to recover the unrealized losses, which may be until maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

12

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|6. |  | Loans                                                         
|-- |  | --------------------------------------------------------------
|   |  |                                                               
|   |  | The composition of the Companys loan portfolio is as follows:
|   |  |                                                               
|   |  | (In thousands)                                                
|   |  |                                                               
|   |  | Residential
 real estate                                      
|   |  | Commercial
 real estate                                       
|   |  | Construction                                                  
|   |  | Residential                                                   
|   |  | Commercial                                                    
|   |  | Commercial
 business                                          
|   |  | Consumer                                                      
|   |  | Home
 equity and equity lines of credit                       
|   |  | Other                                                         
|   |  |                                                               
|   |  | Total
 consumer                                               
|   |  |                                                               
|   |  | Total
 loans                                                  
|   |  | Allowance
 for loan losses                                    
|   |  |                                                               
|   |  | Total
 loans, net                                             
|   |  |                                                               

| | At September
 30, 2008 and December 31, 2007, the Companys residential real estate loan,
 residential construction loan, home equity loan and equity lines of credit portfolios
 are entirely collateralized by one to four family homes and condominiums, of which
 approximately 81.7% are located in Connecticut and Massachusetts. The commercial
 real estate loan and commercial construction portfolios are collateralized primarily
 by multi-family, commercial and industrial properties located predominately in Connecticut
 and Massachusetts. A variety of different assets, including accounts receivable,
 inventory and property, and plant and equipment, collateralize the majority of the
 commercial business loan portfolio. The Company does not originate or directly invest
 in sub prime loans.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table provides a summary of activity in the allowance for loan losses.
| | ------------------------------------------------------------------------------------
| |                                                                                     
| |                                                                                     
| |                                                                                     
| |                                                                                     
| | (In thousands)                                                                      
| |                                                                                     
| | Balance at
 beginning of period                                                     
| | Net allowances
 gained through acquisition                                          
| | Provision
 for loan losses                                                          
| | Charge-offs                                                                         
| | Residential
 and commercial real estate loans                                       
| | Commercial
 construction                                                            
| | Commercial
 business loans                                                          
| | Consumer
 loans                                                                     
| |                                                                                     
| | Total
 charge-offs                                                                  
| |                                                                                     
| | Recoveries                                                                          
| | Residential
 and commercial real estate loans                                       
| | Commercial
 construction                                                            
| | Commercial
 business loans                                                          
| | Consumer
 loans                                                                     
| |                                                                                     
| | Total
 recoveries                                                                   
| |                                                                                     
| | Net charge-offs                                                                     
| |                                                                                     
| | Balance at
 end of period                                                           
| |                                                                                     

13

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|7. |  | Goodwill
 and Identifiable Intangible Assets                                                                                                                                                                           |  |          |         |               |  |               |        |              |  |       |        |  
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | ------------- |  | ------------- | ------ | ------------ |  | ----- | ------ | -
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  | The changes in the carrying amount of goodwill and identifiable intangible assets
 for the nine months ended September 30, 2008 are summarized as follows:                                                            
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  | Total
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  | Core Deposit  |        | Identifiable
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  | and Customer  |        | Intangible  
|   |  | (In thousands)                                                                                                                                                                                                         |  | Goodwill |         | Relationships |  | Assets       
|   |  |                                                                                                                                                                                                                       
|   |  | Balance, December
 31, 2007                                                                                                                                                                                            |  | $        | 531,191 |               |  | $             | 53,316 |              |  | $     | 53,316 |  
|   |  | Other                                                                                                                                                                                                                  |  |          | (4,024  | )             |  |               | -      |              |  |       | -      |  
|   |  | Amortization
 expense                                                                                                                                                                                                  |  |          | -       |               |  |               | (7,092 | )            |  |       | (7,092 | )
|   |  |                                                                                                                                                                                                                       
|   |  | Balance, September
 30, 2008                                                                                                                                                                                           |  | $        | 527,167 |               |  | $             | 46,224 |              |  | $     | 46,224 |  
|   |  |                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  | Estimated
 amortization expense for the year ending:                                                                                                                                                                   |  |          |         |               |  |               |        |              |  |       |        |  
|   |  | Remaining
 2008                                                                                                                                                                                                        |  |          |         |               |  | $             | 2,364  |              |  | $     | 2,364  |  
|   |  | 2009                                                                                                                                                                                                                   |  |          |         |               |  |               | 8,501  |              |  |       | 8,501  |  
|   |  | 2010                                                                                                                                                                                                                   |  |          |         |               |  |               | 7,811  |              |  |       | 7,811  |  
|   |  | 2011                                                                                                                                                                                                                   |  |          |         |               |  |               | 7,556  |              |  |       | 7,556  |  
|   |  | 2012                                                                                                                                                                                                                   |  |          |         |               |  |               | 7,556  |              |  |       | 7,556  |  
|   |  | Thereafter                                                                                                                                                                                                             |  |          |         |               |  |               | 12,436 |              |  |       | 12,436 |  
|   |  |                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  | The reduction of $4.0 million in goodwill, shown above as other, was primarily due
 to a reduction of unrecognized tax benefits for tax positions taken in prior years
 based on the settlement of an IRS examination.
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  | The components of identifiable intangible assets are core deposit and customer relationships
 and had the following balances at September 30, 2008:                                                                   
|   |  |                                                                                                                                                                                                                        |  |          |         |               |  |               |        |              |  |       |        |  
|   |  |                                                                                                                                                                                                                        |  | Original |         |               |  |               |        | Balance     
|   |  |                                                                                                                                                                                                                        |  | Recorded |         | Cumulative    |  | September 30,
|   |  | (In thousands)                                                                                                                                                                                                         |  | Amount   |         | Amortization  |  | 2008         
|   |  |                                                                                                                                                                                                                       
|   |  | Core
 deposit and customer relationships                                                                                                                                                                               |  | $        | 86,908  |               |  | $             | 40,684 |              |  | $     | 46,224 |  
|   |  |                                                                                                                                                                                                                       

|8. |  | Other Assets                                               |  |               |           |              |   |          
|-- |  | ---------------------------------------------------------- |  | ------------- | --------- | ------------ | - | ---------
|   |  |                                                            |  |               |           |              |   |          
|   |  | Selected components of other assets are as follows:       
|   |  |                                                            |  |               |           |              |   |          
|   |  |                                                            |  | September 30, |           | December 31,
|   |  | (In thousands)                                             |  | 2008          |           | 2007        
|   |  |                                                           
|   |  | Deferred tax
 asset, net                                   |  | $             | 15,897    |              | $ | 10,033   
|   |  | Accrued interest
 receivable                               |  |               | 31,406    |              |   | 35,071   
|   |  | Prepaid pension                                            |  |               | 13,084    |              |   | 14,180   
|   |  | Investments
 in limited partnerships and other investments |  |               | 9,361     |              |   | 9,069    
|   |  | All other                                                  |  |               | 23,762    |              |   | 24,929   
|   |  |                                                           
|   |  | Total
 other assets                                        |  | $             | 93,510    |              | $ | 93,282   
|   |  |                                                           
|   |  |                                                            |  |               |           |              |   |          
|9. |  | Deposits                                                   |  |               |           |              |   |          
|   |  |                                                            |  |               |           |              |   |          
|   |  | A summary of deposits by account type is as follows:      
|   |  |                                                            |  |               |           |              |   |          
|   |  |                                                            |  | September 30, |           | December 31,
|   |  | (In thousands)                                             |  | 2008          |           | 2007        
|   |  |                                                           
|   |  | Savings                                                    |  | $             | 1,402,874 |              | $ | 941,051  
|   |  | Money market                                               |  |               | 344,681   |              |   | 492,042  
|   |  | NOW                                                        |  |               | 356,162   |              |   | 401,097  
|   |  | Demand                                                     |  |               | 497,749   |              |   | 477,408  
|   |  | Time                                                       |  |               | 1,805,488 |              |   | 2,062,067
|   |  |                                                           
|   |  | Total
 deposits                                            |  | $             | 4,406,954 |              | $ | 4,373,665
|   |  |                                                           

14

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|10. |  | Borrowings                                                      |  |               |           |              |   |          
|--- |  | --------------------------------------------------------------- |  | ------------- | --------- | ------------ | - | ---------
|    |  |                                                                 |  |               |           |              |   |          
|    |  | The following is a summary of the Companys borrowed funds:    
|    |  |                                                                 |  |               |           |              |   |          
|    |  |                                                                 |  | September 30, |           | December 31,
|    |  | (In thousands)                                                  |  | 2008          |           | 2007        
|    |  |                                                                
|    |  | FHLB advances (1)                                               |  | $             | 2,175,184 |              | $ | 2,136,965
|    |  | Repurchase
 agreements                                          |  |               | 185,465   |              |   | 192,145  
|    |  | Mortgage loans
 payable                                         |  |               | 1,354     |              |   | 1,459    
|    |  | Junior subordinated
 debentures issued to affiliated trusts (2) |  |               | 24,785    |              |   | 24,935   
|    |  |                                                                
|    |  | Total
 borrowings                                               |  | $             | 2,386,788 |              | $ | 2,355,504
|    |  |                                                                

|    |  | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Includes fair
 value adjustments on acquired borrowings, in accordance with SFAS No. 141, Business Combinations, of $6.7 million and $9.6 million at September 30, 2008 and
 December 31, 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Includes fair
 value adjustments on acquired borrowings, in accordance with SFAS No. 141, BusinessCombinations, of $150,000 and $300,000 at September 30, 2008 and December
 31, 2007, respectively. The trusts were organized to facilitate the issuance of
 trust preferred securities. The Company acquired these subsidiaries
 when it acquired Alliance Bancorp of New England, Inc. and Westbank Corporation,
 Inc. The affiliated trusts are wholly-owned subsidiaries of the Company and the
 payments of these securities are irrevocably and unconditionally guaranteed by the
 Company.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | The acquisition fair value adjustments (premiums) are being amortized as an adjustment
 to interest expense on borrowings over their remaining term using the level yield
 method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | Federal Home Loan Bank (FHLB) advances are secured by the Companys
 investment in FHLB stock, a blanket security agreement and other eligible investment
 securities. This agreement requires the Bank to maintain as collateral certain qualifying
 assets, principally mortgage loans. Investment securities currently maintained as
 collateral are all U.S. Agency hybrid adjustable rate mortgage-backed securities.
 At September 30, 2008 and December 31, 2007, the Bank was in compliance with the
 FHLB collateral requirements. At September 30, 2008, the Company could borrow an
 additional $317.9 million from the FHLB, inclusive of a line of credit of approximately $20.0
 million. Additional borrowing capacity of approximately $674.7 million would be available
 by pledging additional eligible securities as collateral. The Company also has borrowing
 capacity at the Federal Reserve Bank of Bostons discount window, which was
 approximately $113.0 million as of September 30, 2008, all of which was available
 on that date. Repurchase agreement lines of credit totaled $125.0 million at September
 30, 2008, with availability of $100.0 million. At September 30, 2008, all of the
 Companys $2.17 billion outstanding FHLB advances were at fixed rates ranging
 from 2.25% to 8.17%. The weighted average rate for all FHLB advances at September
 30, 2008 was 4.60%.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|11. |  | Pension and Other Postretirement Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | The Company provides various defined benefit and other postretirement benefit plans
 (postretirement health and life insurance benefits) to substantially all employees
 hired prior to January 1, 2008. The Company also has supplemental retirement plans
 (the Supplemental Plans) that provide benefits for certain key executive
 officers. Benefits under the supplemental plans are based on a predetermined formula
 and are reduced by other benefits. The liability arising from these plans is being
 accrued over the participants remaining periods of service so that at the
 expected retirement dates, the present value of the annual payments will have been
 expensed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




| | The following table presents the amount of net periodic pension cost for the three
 months ended September 30, 2008 and 2007.
| | -----------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| | (In thousands)                                                                                                               
| |                                                                                                                              
| | Service cost
 - benefits earned during the period                                                                            
| | Interest cost
 on projected benefit obligation                                                                               
| | Expected return
 on plan assets                                                                                              
| | Amortization:                                                                                                                
| | Transition                                                                                                                   
| | Prior
 service cost                                                                                                          
| | Loss
 (gain)                                                                                                                 
| |                                                                                                                              
| | Net
 periodic benefit cost                                                                                                   
| |                                                                                                                              
| |                                                                                                                              
| | The following table presents the amount of net periodic pension cost for the nine
 months ended September 30, 2008 and 2007: 
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| |                                                                                                                              
| | (In thousands)                                                                                                               
| |                                                                                                                              
| | Service cost
 - benefits earned during the period                                                                            
| | Interest cost
 on projected benefit obligation                                                                               
| | Expected return
 on plan assets                                                                                              
| | Amortization:                                                                                                                
| | Transition                                                                                                                   
| | Prior
 service cost                                                                                                          
| | Gain
 (loss)                                                                                                                 
| |                                                                                                                              
| | Net
 periodic benefit cost                                                                                                   
| |                                                                                                                              

| | In connection
 with its conversion to a state-chartered stock bank, the Company established an
 employee stock ownership plan (ESOP) to provide substantially all employees
 of the Company the opportunity to become stockholders. The ESOP borrowed $109.7
 million of a $112.0 million line of credit from the Company and used the funds to
 purchase 7,454,562 shares of common stock in the open market subsequent to the subscription
 offering. The loan will be repaid principally from the Banks discretionary
 contributions to the ESOP over a remaining period of 26 years. The unallocated ESOP
 shares are pledged as collateral on the loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | At September
 30, 2008, the loan had an outstanding balance of $100.5 million and an interest rate
 of 4.0%. The Company accounts for its ESOP in accordance with Statement of Position
 (SOP) 93-6, Employers Accounting for Employee Stock Ownership
 Plans. Under SOP 93-6, unearned ESOP shares are not considered outstanding
 and are shown as a reduction of stockholders equity as unearned compensation.
 The Company will recognize compensation cost equal to the fair value of the ESOP
 shares during the periods in which they are committed to be released. To the extent
 that the fair value of the Companys ESOP shares differs from the cost of such
 shares, this difference will be credited to equity. The Company will receive a tax
 deduction equal to the cost of the shares released to the extent of the principal
 paydown on the loan by the ESOP. As the loan is internally leveraged, the loan receivable
 from the ESOP to the Company is not reported as an asset nor is the debt of the
 ESOP shown as a liability in the Companys financial statements. Dividends
 on unallocated shares are used to pay the ESOP debt. The ESOP compensation expense
 for the three and nine months ended September 30, 2008 was approximately $848,000
 and $2.4 million, respectively. For the three and nine months ended September 30,
 2007, the ESOP compensation expense was approximately $950,000 and $2.9 million, respectively.
 The amount of loan repayments made by the ESOP is used to reduce the unallocated
 common stock held by the ESOP.

| | The ESOP shares as of September 30, 2008 were as follows:              
| | -----------------------------------------------------------------------
| |                                                                        
| |                                                                        
| | Shares released
 for allocation                                        
| | Unreleased
 shares                                                     
| |                                                                        
| | Total
 ESOP shares                                                     
| |                                                                        
| | Market value
 of unreleased shares at September 30, 2008 (in thousands)

16

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|12. |  | Stock-Based
 Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | The Company
 provides compensation benefits to employees and non-employee directors under its
 2005 Long-Term Compensation Plan (the LTCP) which was approved by shareholders.
 The Company accounts for stock-based compensation using the fair value recognition
 provisions of revised SFAS No. 123 (SFAS No. 123R), Share Based
 Payment, which was adopted using the modified prospective transition method
 effective January 1, 2006. Under SFAS No. 123R, the fair value of stock option and
 restricted stock awards, measured at grant date, is amortized to compensation expense
 on a straight-line basis over the vesting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | The LTCP allows
 for the issuance of up to 11.4 million Options or Stock Appreciation Rights and
 up to 4.6 million Stock Awards or Performance Awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | Option
 Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  | Options awarded
 to date are for a term of ten years and total approximately 9.0 million shares.
 Substantially all of these options were awarded on the original award date of June
 17, 2005 and these 2005 option awards have the following vesting schedule: 40% vested
 at year-end 2005, 20% vested at year-end 2006 and 2007, respectively and 20% will
 vest at year-end of 2008. Subsequent awards have vesting periods of either three
 or four years. The Company has assumed a 0.4% forfeiture rate as the majority of
 the options have been awarded to senior level management. Compensation expense recorded
 on options for the three months ended September 30, 2008 and 2007 was $1.0 million
 and $1.1 million, respectively, or after tax expense of approximately $671,000 and $719,000,
 respectively. For the nine month periods ended September 30, 2008 and 2007, compensation
 expense of $3.2 million and $3.3 million, respectively, or after tax of $2.1 million
 and $2.2 million, respectively was recorded. It is anticipated that the Company will
 recognize expense on options of approximately $4.2 million, $206,000, $181,000, $94,000
 and $23,000 in calendar years 2008 through 2012. Under the terms of the LTCP, additional
 awards are likely to be granted, which will increase the amount of expense recognized
 in future periods.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | Options to
 purchase 87,462 shares were granted to employees during the nine months ended September
 30, 2008 and options to purchase 80,000 shares were granted during the nine months
 ended September 30, 2007. Using the Black-Scholes option pricing model, the weighted-average
 grant date fair value was $2.05 and $2.72 for the options which were granted in 2008
 and 2007, respectively. The weighted-average related assumptions for the nine months
 ended September 30, 2008 and 2007 are presented in the following table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                          |  | 2008       |   |  | 2007       |  
| | ------------------------ |  | ---------- | - |  | ---------- | -
| |                         
| | Risk-free
 interest rate |  | 2.91       | % |  | 4.50       | %
| | Expected dividend
 yield |  | 2.13       | % |  | 1.50       | %
| | Expected volatility      |  | 16.29      | % |  | 16.17      | %
| | Expected life            |  | 6.23 years |   |  | 3.84 years |  
| |                         

| | A summary of option activity as of September 30, 2008 and changes during the period
 ended is presented below.
| | --------------------------------------------------------------------------------------------------------------
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| | Options outstanding
 at beginning of year                                                                     
| | Granted                                                                                                       
| | Exercised                                                                                                     
| | Forfeited/cancelled                                                                                           
| | Expired                                                                                                       
| |                                                                                                               
| | Options outstanding
 at September 30, 2008                                                                    
| |                                                                                                               
| | Options exercisable
 at September 30, 2008                                                                    
| |                                                                                                               

17

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




| | The following table summarizes the nonvested options during the nine months ended
 September 30, 2008.
| | ------------------------------------------------------------------------------------------------------
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| | Nonvested
 at January 1, 2008                                                                         
| | Granted                                                                                               
| | Vested                                                                                                
| | Forfeited
 / Cancelled                                                                                
| |                                                                                                       
| | Nonvested
 at September 30, 2008                                                                      
| |                                                                                                       

| | Restricted
 Stock Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To date, approximately
 3.5 million shares of restricted stock have been awarded under the LTCP. The majority
 of these shares were awarded in 2005 and these 2005 awards have a vesting schedule
 of 15% per year for six years and 10% in the seventh year. Subsequent awards have
 vesting schedules of either three or four years. The associated expense is recorded
 based on the vesting schedules. Compensation expense recorded on restricted stock
 for the three months ended September 30, 2008 and 2007 was approximately $1.7 million
 and $1.9 million or after tax expense of approximately $1.1 million and $1.2 million,
 respectively. For the nine months ended September 30, 2008 and 2007, compensation
 expense was $5.3 million and $5.6 million, respectively, or after-tax expense of approximately $3.5
 million and $3.6 million, respectively. The Company anticipates that it will record
 expense of approximately $7.0 million, $6.4 million, $6.3 million, $4.2 million and $29,000
 in calendar years 2008 through 2012, respectively. Under the terms of the LTCP,
 additional awards are likely to be granted, which will increase the amount of expense
 recognized in future periods.

| | The following table summarizes the nonvested restricted stock awards during the nine
 months ended September 30, 2008.
| | ----------------------------------------------------------------------------------------------------------------------
| |                                                                                                                       
| |                                                                                                                       
| |                                                                                                                       
| |                                                                                                                       
| | Nonvested
 at January 1, 2008                                                                                         
| | Granted                                                                                                               
| | Vested                                                                                                                
| | Forfeited
 / Cancelled                                                                                                
| |                                                                                                                       
| | Nonvested
 at September 30, 2008                                                                                      
| |                                                                                                                       

|13. |  | Income
 Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  | The Company
 had transactions in which the related tax effect was recorded directly to stockholders equity or goodwill instead of operations. Transactions in which the tax effect
 was recorded directly to stockholders equity included the tax effects of unrealized
 gains and losses on available for sale securities and excess tax benefits related
 to the vesting of restricted stock. Deferred taxes charged to goodwill were in connection
 with prior acquisitions. The Company had a net deferred tax asset of $15.9 million
 and $10.0 million at September 30, 2008 and December 31, 2007, respectively.

| | The allocation of deferred tax expense involving items charged to income, items charged
 directly to shareholders equity and items charged to goodwill is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                       
| |                                                                                                                                                                       
| |                                                                                                                                                                       
| |                                                                                                                                                                       
| | (In thousands)                                                                                                                                                        
| |                                                                                                                                                                       
| | Deferred tax
 (benefit) expense allocated to:                                                                                                                         
| | Stockholders equity, tax effect of net unrealized (loss) gain on                                                                                                     
| | investment
 securities available for sale, net of valuation allowance                                                                                                 
| | Stockholders equity, tax impact of adoption of EITF 06-04                                                                                                            
| | Goodwill                                                                                                                                                              
| | Income                                                                                                                                                                
| |                                                                                                                                                                       
| | Total
 deferred tax (benefit) expense                                                                                                                                 
| |                                                                                                                                                                       

18

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




| | The Company adopted the provisions of FIN 48, Accounting for Uncertainty
 in Income Taxes, on January 1, 2007. A reconciliation of the beginning
 and ending amount of unrecognized tax benefits is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                  
| | (In thousands)                                                                                                                                                                                                   
| |                                                                                                                                                                                                                  
| | Balance at
 December 31, 2007                                                                                                                                                                                    
| | Additions
 for tax positions of current year                                                                                                                                                                     
| | Additions
 for tax positions of prior year                                                                                                                                                                       
| | Reductions
 for tax positions of prior year                                                                                                                                                                      
| |                                                                                                                                                                                                                  
| | Balance
 at September 30, 2008                                                                                                                                                                                   
| |                                                                                                                                                                                                                  

|    |  | Included in
 the balance at September 30, 2008 are $415,000 of tax positions for which the ultimate
 deductibility is highly uncertain and for which the disallowance of the tax position
 would affect the annual effective tax rate. The Company anticipates that none of
 the unrecognized tax benefits will reverse in the next twelve months due to statute
 expirations. The Company recognizes interest and penalties accrued related to unrecognized
 tax benefits as a component of income tax expense. As of September 30, 2008, the
 Company has accrued approximately $53,000 in interest and penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  | The Company
 is generally no longer subject to federal, state or local income tax examinations
 by tax authorities for the years before 2002. In the first quarter of 2006, the
 Internal Revenue Service (IRS) commenced an examination of the 2003 and 2004 tax
 years for the Company and various acquired entities. As of March 31, 2008, the IRS
 has completed their audit and they have communicated $64,000 of adjustments before
 interest, to the audited tax years which the Company has paid. As a result of the
 completed audit with the IRS, the Company released $991,000 of interest and penalties
 on unrecognized tax benefits through continuing operations and $2.9 million of unrecognized
 tax benefits through goodwill. In the third quarter of 2008, the IRS commenced an
 examination of the 2006 and 2007 tax years for Westbank. As of September 30, 2008,
 the IRS has not proposed any significant adjustments to Westbanks tax returns.                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|14. |  | Commitments
 and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  | The Company
 is party to financial instruments with off-balance sheet risk in the normal course
 of business to meet the financing needs of its customers. These financial instruments
 consist primarily of commitments to extend credit and standby letters of credit.
 Commitments to extend credit are agreements to lend to customers as long as there
 is no violation of any terms or covenants established in the contract. Commitments
 generally have fixed expiration dates or other termination clauses that may require
 payment of a fee. Since many of the commitments could expire without being drawn
 upon, the total commitment amounts do not necessarily represent future cash requirements.
 These commitments consist principally of unused commercial and consumer lines of
 credit. Standby letters of credit generally are contingent upon the failure of the
 customer to perform according to the terms of an underlying contract with a third
 party. The credit risks associated with commitments to extend credit and standby
 letters of credit are essentially the same as those involved with extending loans
 to customers and are subject to normal credit policies. Collateral may be obtained
 based on managements assessment of the customers creditworthiness.

| | The table below summarizes the Companys commitments and contingencies discussed
 above.
| | ----------------------------------------------------------------------------------------
| |                                                                                         
| |                                                                                         
| | (In thousands)                                                                          
| |                                                                                         
| | Loan commitments                                                                        
| | Unadvanced portion of construction loans                                                
| | Standby letters
 of credit                                                              
| | Unadvanced portion of lines of credit                                                   
| |                                                                                         
| | Total
 commitments                                                                      
| |                                                                                         

19

---



NewAlliance
 Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements




|    |  | Other Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | As of September
 30, 2008 and December 31, 2007, the Company was contractually committed under limited
 partnership agreements to make additional partnership investments of approximately $2.3
 million and $2.8 million, respectively which constitutes our maximum potential obligation
 to these partnerships. The Company is obligated to make additional investments in
 response to formal written requests, rather than a funding schedule. Funding requests
 are submitted when the partnerships plan to make additional investments.                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  | We are not
 involved in any pending legal proceedings other than routine legal proceedings occurring
 in the ordinary course of business. We believe that those routine proceedings involve,
 in the aggregate, amounts which are immaterial to the financial condition and results
 of operations of NewAlliance Bancshares, Inc.                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|15. |  | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | At September
 30, 2008 and December 31, 2007, stockholders equity amounted to $1.40 billion
 and $1.41 billion, respectively, representing 16.9% and 17.1% of total assets, respectively.
 The Company paid cash dividends totaling $0.205 per share on common stock during
 the nine months ended September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |  | The Company
 and the Bank are subject to dividend restrictions imposed by various regulators.
 Connecticut banking laws limit the amount of annual dividends that the Bank may
 pay to the Company to an amount that approximates the Banks net income retained
 for the current year plus net income retained for the two previous years. In addition,
 the Bank may not declare or pay dividends on, and the Company may not repurchase
 any of its shares of its common stock if the effect thereof would cause stockholders equity to be reduced below applicable regulatory capital maintenance requirements
 or if such declaration, payment or repurchase would otherwise violate regulatory
 requirements.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Treasury
 Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |  | Share Repurchase
 Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | On January
 31, 2006, the Companys Board of Directors authorized a repurchase plan of
 up to an additional 10.0 million shares or approximately 10% of the then outstanding
 Company common stock. Under this plan the Company has repurchased 6,800,000 shares
 of common stock at a weighted average price of $13.23 per share as of September 30,
 2008. There is no set expiration date for this repurchase plan.                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | Upon vesting
 of shares of restricted stock, plan participants may choose to have the Company
 withhold a number of shares necessary to satisfy tax withholding requirements. The
 withheld shares are classified as treasury shares by the Company. For the nine months
 ended September 30, 2008, 136,610 shares were returned to the Company for this purpose.                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Regulatory
 Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  | Capital guidelines
 of the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) require the Company and its banking subsidiary to maintain certain minimum
 ratios, as set forth below. At September 30, 2008, the Company and the Bank were
 deemed to be well capitalized under the regulations of the Federal Reserve
 Board and the FDIC, respectively, and in compliance with the applicable capital
 requirements.                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The following
 table provides information on the capital ratios.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

20

---



|NewAlliance Bancshares, Inc.                        
|----------------------------------------------------
|Notes to Unaudited Consolidated Financial Statements
|                                                    
|                                                    

| |                                           |  |  | Actual |         | Purposes |      | Action Provisions
| | ----------------------------------------- |  |  | ------ | ------- | -------- | ---- | -----------------
| |                                           |  |  |        |         |          |      |                  
| | (Dollars in
 thousands)                   |  |  | Amount |         | Ratio    |      | Amount           
| |                                          
| | NewAlliance
 Bank                         |  |  |        |         |          |      |                  
| | September
 30, 2008                       |  |  |        |         |          |      |                  
| | Tier
 1 Capital (to Average Assets)       |  |  | $      | 721,469 |          | 9.4  | %                
| | Tier
 1 Capital (to Risk Weighted Assets) |  |  |        | 721,469 |          | 16.1 |                  
| | Total
 Capital (to Risk Weighted Assets)  |  |  |        | 770,644 |          | 17.2 |                  
| |                                           |  |  |        |         |          |      |                  
| | December 31,
 2007                        |  |  |        |         |          |      |                  
| | Tier
 1 Capital (to Average Assets)       |  |  | $      | 692,735 |          | 9.1  | %                
| | Tier
 1 Capital (to Risk Weighted Assets) |  |  |        | 692,735 |          | 15.6 |                  
| | Total
 Capital (to Risk Weighted Assets)  |  |  |        | 736,548 |          | 16.5 |                  
| |                                           |  |  |        |         |          |      |                  
| | NewAlliance
 Bancshares, Inc.             |  |  |        |         |          |      |                  
| | September
 30, 2008                       |  |  |        |         |          |      |                  
| | Tier
 1 Capital (to Average Assets)       |  |  | $      | 846,409 |          | 11.0 | %                
| | Tier
 1 Capital (to Risk Weighted Assets) |  |  |        | 846,409 |          | 18.8 |                  
| | Total
 Capital (to Risk Weighted Assets)  |  |  |        | 895,385 |          | 19.9 |                  
| |                                           |  |  |        |         |          |      |                  
| | December 31,
 2007                        |  |  |        |         |          |      |                  
| | Tier
 1 Capital (to Average Assets)       |  |  | $      | 833,596 |          | 10.9 | %                
| | Tier
 1 Capital (to Risk Weighted Assets) |  |  |        | 833,596 |          | 18.6 |                  
| | Total
 Capital (to Risk Weighted Assets)  |  |  |        | 877,409 |          | 19.6 |                  
| |                                          

|16. | Other Comprehensive Income                                                                                                                                              |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|    |                                                                                                                                                                         |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|    | The following table presents the components of other comprehensive income and the
 related tax effects for the three and nine months ended September 30, 2008 and 2007.
|    |                                                                                                                                                                         |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|    |                                                                                                                                                                         |  | Three Months Ended |        | Nine Months Ended
|    |                                                                                                                                                                         |  | September 30,      |        | September 30,    
|    |                                                                                                                                                                         |  |                    |        |                  
|    | (In thousands)                                                                                                                                                          |  | 2008               |        | 2007              |  | 2008 |        | 2007
|    |                                                                                                                                                                        
|    | Net income                                                                                                                                                              |  | $                  | 10,936 |                   |  | $    | 7,421  |      |  | $ | 35,652  |   |  | $ | 12,858  |  
|    | Other comprehensive
 income, before tax                                                                                                                                 |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|    | Unrealized
 losses on securities                                                                                                                                        |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|    | Unrealized
 holding (losses) gains arising during the period                                                                                                            |  |                    | (4,054 | )                 |  |      | 6,456  |      |  |   | (12,345 | ) |  |   | 5,673   |  
|    | Reclassification
 adjustment for losses (gains) included in                                                                                                             |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|    | net
 income                                                                                                                                                             |  |                    | 215    |                   |  |      | 5,641  |      |  |   | (1,010  | ) |  |   | 27,828  |  
|    |                                                                                                                                                                        
|    | Other comprehensive
 (loss) income, before tax                                                                                                                          |  |                    | (3,839 | )                 |  |      | 12,097 |      |  |   | (13,355 | ) |  |   | 33,501  |  
|    | Income tax
 benefit (expense), net of valuation allowance                                                                                                               |  |                    | 1,136  |                   |  |      | (4,293 | )    |  |   | 4,243   |   |  |   | (11,882 | )
|    |                                                                                                                                                                        
|    | Other comprehensive
 (loss) income, net of tax                                                                                                                          |  |                    | (2,703 | )                 |  |      | 7,804  |      |  |   | (9,112  | ) |  |   | 21,619  |  
|    |                                                                                                                                                                        
|    | Comprehensive
 income                                                                                                                                                   |  | $                  | 8,233  |                   |  | $    | 15,225 |      |  | $ | 26,540  |   |  | $ | 34,477  |  
|    |                                                                                                                                                                        

|17. | Earnings
 Per Share                                                                                                                          |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         | 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------- | ---- |  | - | ------ |  |  | - | ------- | 
|    |                                                                                                                                              |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         | 
|    | The calculation of basic and diluted earnings per share for the three and nine months
 ended September 30, 2008 and 2007 is presented below.
|    |                                                                                                                                              |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         | 
|    |                                                                                                                                              |  | Three Months Ended |        | Nine Months Ended
|    |                                                                                                                                              |  | September 30,      |        | September 30,    
|    |                                                                                                                                              |  |                    |        |                  
|    | (In thousands,
 except per share data)                                                                                                       |  | 2008               |        | 2007              |  | 2008 |         | 2007
|    |                                                                                                                                             
|    | Net income                                                                                                                                   |  | $                  | 10,936 |                   |  | $    | 7,421   |      |  | $ | 35,652 |  |  | $ | 12,858  | 
|    | Average common
 shares outstanding for basic EPS                                                                                             |  |                    | 98,989 |                   |  |      | 103,173 |      |  |   | 99,803 |  |  |   | 103,792 | 
|    | Effect of
 dilutive stock options and unvested stock awards                                                                                  |  |                    | 157    |                   |  |      | 438     |      |  |   | 53     |  |  |   | 571     | 
|    |                                                                                                                                             
|    | Average common
 and common-equivalent shares for dilutive EPS                                                                                |  |                    | 99,146 |                   |  |      | 103,611 |      |  |   | 99,856 |  |  |   | 104,363 | 
|    | Net income
 per common share:                                                                                                                |  |                    |        |                   |  |      |         |      |  |   |        |  |  |   |         | 
|    | Basic                                                                                                                                        |  | $                  | 0.11   |                   |  | $    | 0.07    |      |  | $ | 0.36   |  |  | $ | 0.12    | 
|    | Diluted                                                                                                                                      |  |                    | 0.11   |                   |  |      | 0.07    |      |  |   | 0.36   |  |  |   | 0.12    | 
|    |                                                                                                                                             

21

---



Forward-Looking StatementsThis
 report may contain certain forward-looking statements as that term is defined in
 the U.S. federal securities laws.Forward-looking statements are based on certain
 assumptions and describe future plans, strategies, and expectations of Management
 and are generally identified by use of the word plan, believe, expect, intend, anticipate, estimate, project, or similar expressions. Managements ability to
 predict results or the actual effects of its plans or strategies is inherently uncertain.
 Accordingly, actual results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of NewAlliance
 Bancshares, Inc. (NewAlliance or the Company) and its subsidiaries
 include, but are not limited to:

| |  | General economic
 or business conditions, either nationally or regionally, may be less favorable than
 expected, resulting in, among other things, a deterioration in credit quality and/or
 a reduced demand for credit or other services;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adverse changes
 may occur in the securities markets impacting the value of NewAlliances investments;                                                                                                                                     
| |  | Changes in
 the interest rate environment may reduce net interest margin and/or the volumes
 and values of loans made or held as well as the value of other financial assets
 held;                                                        
| |  | Competitive
 pressures among depository and other financial institutions may increase significantly
 and may decrease the profit margin associated with its business;                                                                      
| |  | The recently
 enacted Emergency Economic Stabilization Act of 2008 (EESA) is expected
 to have a profound effect on the financial services industry and could dramatically
 change the competitive environment of the Company;           
| |  | Other legislative
 or regulatory changes, including those related to residential mortgages and changes
 in accounting standards, may adversely affect the businesses in which NewAlliance
 is engaged;                                     
| |  | Local, state
 or federal taxing authorities may take tax positions that are adverse to NewAlliance;                                                                                                                                        
| |  | Costs or difficulties
 related to the integration of acquired businesses may be greater than expected;                                                                                                                                     
| |  | Expected cost
 savings associated with completed mergers may not fully be realized or realized
 within expected time frames;                                                                                                               
| |  | Deposit attrition,
 customer loss or revenue loss following completed mergers may be greater than expected;
 and                                                                                                                           
| |  | Competitors
 of NewAlliance may have greater financial resources and develop products that enable
 them to compete more successfully than NewAlliance.                                                                                     

Readers are cautioned not to place undue
 reliance on these forward-looking statements, which speak only as of the date of
 this report. Except as required by applicable law or regulation, management undertakes
 no obligation to update these forward-looking statements to reflect events or circumstances
 that occur after the date on which such statements were made.

Item 2. Managements Discussion
 and Analysis of Financial Condition and Results of OperationsThe following
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations (MD&A) is intended to help the reader understand NewAlliance
 Bancshares, Inc., our operations and our present business environment. We believe
 transparency and clarity are the primary goals of successful financial reporting.
 We remain committed to increasing the transparency of our financial reporting, providing
 our stockholders with informative financial disclosures and presenting an accurate
 view of our financial disclosures, financial position and operating results.
MD&A is provided as a supplement toand should be read in conjunction withour Consolidated Financial Statements (unaudited) and the accompanying notes
 thereto contained in Part I, Item 1, of this report as well as our Annual Report
 on Form 10-K for the year ended December 31, 2007. The following sections are included
 in MD&A:

| | Our
 Business  a general description of our business, our objectives and regulatory
 considerations.                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                          
| | Critical
 Accounting Estimates  a discussion of accounting estimates that require
 critical judgments and estimates.                                    
|  |                                                                                                                                                          
| | Recent
 Accounting Changes  a discussion of recently adopted accounting pronouncements
 or changes.                                                     
|  |                                                                                                                                                          
| | Operating
 Results  an analysis of our Companys consolidated results of operations
 for the periods presented in our Consolidated Financial Statements.
|  |                                                                                                                                                          
| | Financial
 Condition and Management of Market and Interest Rate Risk  an overview
 of financial condition and market and interest rate risk.            

22

---



Our BusinessGeneralNewAlliance is the third largest banking institution headquartered in Connecticut
 and the fourth largest based in New England with consolidated assets of $8.27 billion
 and stockholders equity of $1.40 billion at September 30, 2008. Its business
 philosophy is to operate as a community bank with local decision-making authority.
The Companys results of operations depend primarily on net interest income,
 which is the difference between the income earned on its loan and securities portfolios
 and its cost of funds, consisting of the interest paid on deposits and borrowings.
 Results of operations are also affected by the Companys provision for loan
 losses, income and expenses pertaining to other real estate owned, gains and losses
 from sales of loans and securities and non-interest income and expenses. Non-interest
 income primarily consists of fee income from depositors and wealth management services
 and bank owned life insurance (BOLI). Non-interest expenses consist
 principally of compensation and employee benefits, occupancy, data processing, amortization
 of acquisition related intangible assets, marketing, professional services and other
 operating expenses.Results of operations are also significantly affected by
 general economic and competitive conditions and changes in interest rates as well
 as government policies and actions of regulatory authorities. Future changes in
 applicable laws, regulations or government policies may materially affect the Company.
Our ObjectivesNewAlliance seeks to continually deliver superior
 value to its customers, stockholders, employees and communities through achievement
 of its core operating objectives which are to:

| |  | Build high
 quality, profitable loan portfolios using organic, purchase and acquisition strategies;                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase core
 deposit relationships with a focus on checking and savings accounts;                                                                       
| |  | Increase the
 non-interest income component of total revenues through development of banking-related
 fee income and growth in wealth management services;
| |  | Maintain a
 rigorous risk identification and management process;                                                                                          
| |  | Grow through
 a disciplined acquisition strategy, supplemented by de-novo branching;                                                                      
| |  | Improve operating
 efficiencies; and                                                                                                                      
| |  | Utilize technology
 to enhance superior customer service and products.                                                                                    

Significant factors management reviews to
 evaluate achievement of the Companys operating objectives and its operating
 results and financial condition include, but are not limited to: net income and
 earnings per share, performance of acquisitions and integration activities, return
 on equity and assets, net interest margin, non-interest income, operating expenses
 related to total assets and efficiency ratio, asset quality, loan and deposit growth,
 capital management, liquidity and interest rate sensitivity levels, customer service
 standards, market share and peer comparisons.Regulatory ConsiderationsNewAlliance and its subsidiaries are subject to numerous examinations
 by federal and state banking regulators, as well as the Securities and Exchange
 Commission. Please refer to NewAlliances Annual Report on Form 10-K for the
 year ended December 31, 2007 for additional disclosures with respect to laws and
 regulations affecting the Companys businesses.Critical Accounting EstimatesOur Consolidated Financial Statements are prepared in accordance with GAAP.
 In connection with the preparation of our financial statements, we are required
 to make assumptions and estimates about future events, and apply judgments that
 affect the reported amounts of assets, liabilities, revenue, expenses and the related
 disclosures. We base our assumptions, estimates and judgments on historical experience,
 current trends and other factors that management believes to be relevant at the
 time our Consolidated Financial Statements are prepared. On a regular basis, management
 reviews the accounting policies, assumptions, estimates and judgments to ensure
 that our financial statements are presented fairly and in accordance with GAAP.
 However, because future events and their effects cannot be determined with certainty,
 actual results could differ from our assumptions and estimates, and such differences
 could be material.

23

---



We believe that our most critical accounting
 policies, and those which involve the most complex subjective decisions or assessments
 relate to income taxes, pension and other postretirement benefits, goodwill and
 intangible assets, the allowance for loan losses and stock-based compensation. None
 of the Companys critical accounting estimates have changed during the quarter.
 A brief description of our current policies involving significant management valuation
 judgments follows:Income TaxesManagement uses the asset and
 liability method of accounting for income taxes in which defined tax assets and
 liabilities are established for the temporary differences between the financial
 reporting basis and the tax basis of the Companys assets and liabilities.
Significant management judgment is required in determining income tax expense and
 deferred tax assets and liabilities. Some judgments are subjective and involve estimates
 and assumptions about matters that are inherently uncertain. In determining the
 valuation allowance, we use historical and forecasted future operating results,
 based upon approved business plans, including a review of the eligible carryforward
 periods, tax planning opportunities and other relevant considerations. Management
 believes that the accounting estimate related to the valuation allowance is a critical
 accounting estimate because the underlying assumptions can change from period to
 period. For example, tax law changes or variances in future projected operating
 performance could result in a change in the valuation allowance.The reserve
 for tax contingencies contains uncertainties because management is required to make
 assumptions and to apply judgment to estimate the exposures associated with our
 various filing positions. The effective income tax rate is also affected by changes
 in tax law, entry into new tax jurisdictions, the level of earnings and the results
 of tax audits.Pension and Other Postretirement BenefitsManagement
 uses key assumptions that include discount rates, expected return on plan assets,
 benefits earned, interest costs, mortality rates, increases in compensation, and
 other factors. The two most critical assumptionsestimated return on plan assets
 and the discount rateare important elements of plan expense and asset/liability
 measurements. These critical assumptions are evaluated at least annually on a plan
 basis. Other assumptions are evaluated periodically and are updated to reflect actual
 experience and expectations for the future.Goodwill and Identifiable Intangible
 AssetsWe evaluate goodwill and identifiable intangible assets for impairment
 annually or whenever events or changes in circumstances indicate the carrying value
 of the goodwill or identifiable intangible assets may not be recoverable. We complete
 our impairment evaluation by performing internal valuation analyses based on discounted
 cash flow modeling techniques, considering publicly available market information
 and using an independent valuation firm, as appropriate. These types of analyses
 contain uncertainties because they require management to make assumptions and to
 apply judgment to estimate industry economic factors and the profitability of future
 business strategies.Allowance for Loan LossesThe allowance
 for loan losses reflects managements best estimate of probable losses inherent
 in the loan portfolio. The adequacy of the allowance is determined based upon a
 detailed evaluation of the portfolio and sub-portfolios through a process which
 considers numerous factors, including levels and direction of delinquencies, non-performing
 loans and assets, risk ratings, estimated credit losses using both internal and
 external portfolio reviews, current economic and market conditions, concentrations,
 portfolio volume and mix, changes in underwriting, experience of staff, historical
 loss rates over the business cycle and current economic trends. All of these factors
 may be susceptible to significant change.Stock-Based Compensation

We have a
 stock-based compensation plan, which includes non-qualified stock options and non-vested
 share awards. Fair value at the grant date of non-qualified stock options is determined
 using the Black-Scholes option-pricing model and associated assumptions include
 future volatility of our stock price, expected dividend yield and future employee
 turnover rates. Changes in these assumptions can materially affect the fair value
 estimate.A complete discussion of critical accounting estimates can be found
 in the Companys most recent Annual Report on Form 10-K (fiscal year ended
 December 31, 2007).

24

---



Recent Accounting ChangesWe adopted
 the following new accounting pronouncements on January 1, 2008:

| |  | Statement
 of Financial Accounting Standards (SFAS) No. 157, Fair Value
 Measurements;                                                                                              
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SFAS No. 159,
 The Fair Value Option for Financial Assets and Financial Liabilities;                                                                                                  
| |  | Emerging Issues
 Task Force (EITF) Issue 06-4, Accounting for Deferred Compensation
 and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements; and
| |  | EITF Issue
 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance
 Arrangements.                                                                                    

SFAS No. 157
 had no impact on retained earnings and is not expected to have a material impact
 on our statements of income and condition. We have not made material changes to
 our valuation methodologies as previously disclosed in our Annual Report on Form
 10-K for the year ended December 31, 2007. For further information, see Note 3 in
 the Notes to the Unaudited Consolidated Financial Statements.

SFAS No. 159 had no impact on retained earnings
 as management did not elect the fair value option for any of the Companys
 eligible financial assets or liabilities as of January 1, 2008.EITF Issue 06-4
 and EITF Issue 06-10 had the effect of recording a liability in the amount of $1.6
 million with a corresponding reduction to retained earnings. For further information,
 see Note 2 in the Notes to the Unaudited Consolidated Financial Statements.Operating ResultsExecutive Overview2008 has been plagued
 with a continuing decline in the housing market and extreme volatility in the financial
 markets. The third quarter of 2008 was no exception as uncertainty and the effect
 of the sub prime lending debacle on the credit markets escalated to a financial
 crisis with the collapse or takeover of seven major financial institutions in September
 alone. Increasing unemployment numbers, mortgage delinquencies and foreclosures
 and financial fears have pushed consumer confidence to an all time low as the economy
 has moved to a recessionary environment and tighter credit conditions. One of the
 many moves the U.S. Government has initiated to restore liquidity and stability
 to the financial system was EESA which includes the Troubled Asset Relief Program
 (TARP), also known as the $700 billion bail-out plan signed into law
 on October 3, 2008. One of the objectives of EESA is to infuse capital into select
 institutions thereby helping to restore confidence in the banking system.In
 our market area, deposit competition has been intense as certain troubled institutions
 drove up deposit rates. Even with the collapse or takeover of some of these extreme
 pricing institutions, we believe deposit pricing competition will still remain strong as a key focus for the
 banking industry is to generate deposits for liquidity and asset growth in a credit market that remains tight.
 Therefore, we expect deposit competition to remain strong and hence, unfavorable
 to pricing in general. NewAlliances deposit pricing strategy is to retain
 maturing time deposits, within reason, and to grow core deposits. We believe that
 the increased deposit insurance limit of $250,000 by the FDIC, coupled with our
 financial stability and product offerings, will be positive factors in supporting
 this strategy.On the lending side, we believe that residential real estate lending
 continues to be strong due to a reduced number of competitors who have the ability
 and liquidity to retain mortgage loans. This has in turn widened spreads on residential
 mortgage loans. The Company continues to be well positioned to take advantage of
 lending opportunities in our market area, however, our loan growth will be constrained
 by the relatively high cost of deposit growth as a funding source. Additionally,
 as select institutions are the beneficiaries of infusions of capital with the passage
 of EESA, we expect to see increased competition on the lending side. Through prudent
 risk management practices, sound credit policies, no direct exposure to sub prime
 mortgage lending and sufficient capital and liquidity, we are confident that we
 are positioned well in these turbulent times.

25

---



NewAlliance has completed six acquisitions
 since its conversion from a mutual bank to a stock bank in 2004, the most recent
 being in March of 2007. The volatility in the markets over the past twelve months
 has not been conducive to widespread acquisition activity, however, we continue
 to be interested in opportunities to expand the franchise if and when they arise.
 Opportunities may be in the form of whole institutions, individual or branch networks
 or de novo branches, all of which are in our acquisition growth strategy.Net
 income for the third quarter of 2008 was $10.9 million or $0.11 per diluted share,
 compared to $7.4 million or $0.07 per diluted share for the third quarter of 2007.
 For the nine months ended September 30, 2008, net income was $35.7 million or $0.36
 per diluted share, compared to $12.9 million or $0.12 per diluted share.The
 increases in net income for the quarter-over-quarter period and especially the
 year-over-year period were significantly impacted by the investment securities portfolio
 restructuring in June 2007. The restructuring resulted in the Company recording
 an-other-than-temporary impairment charge of $22.6 million ($14.7 million after-tax)
 in June 2007 and an additional pre-tax loss of $5.7 million ($3.7 million after-tax)
 upon completion of the sale in July 2007. The restructuring primarily affected fixed
 rate mortgage-backed securities and CMOs and was completed to reduce the Companys exposure to fixed rate assets as well as to increase the yield on the portfolio,
 thereby providing a prospective improvement in the net interest margin. The market
 value of the securities sold was $759.0 million and the cash proceeds were reinvested
 in agency hybrid adjustable rate mortgage-backed securities.Excluding the restructuring,
 net income for the quarter ended September 30, 2008 was basically flat with the
 prior year quarter resulting from multiple factors including: i) a $4.4 million
 increase in net interest income before provision primarily attributable to a reduction
 in deposit costs, and ii) a $2.6 million decline in income tax expense due to the
 September 2007 increase in the deferred tax asset valuation allowance related to
 the charitable contribution carryforward, offset by iii) an increase of $3.2 million
 in the provision for loan losses reflecting current economic and asset quality trends
 and iv) an increase in non-interest expense of $2.8 million largely due to increased
 accruals for incentive payouts.Net income, excluding the effect of the restructuring,
 increased by $4.4 million for the nine months ended September 30, 2008 as compared
 to the same period in 2007. The same factors affecting the quarter also had a significant
 impact on the year-to-date comparison. A reduction in deposits costs coupled with
 strong growth in the residential loan portfolio and the elevated 2007 income tax
 expense to increase the charitable contribution valuation allowance more than offset
 increases in the provision for loan losses and non-interest expense.For the
 three and nine months ended September 30, 2008 compared to 2007, return on average
 assets increased 16 basis points and 36 basis points, respectively, and our return
 on average equity increased 104 basis points and 215 basis points, respectively.
The net interest margin experienced improvements over 2007 for both the three
 and nine months ended September 30, 2008 due to the reduction in deposit costs and
 strong loan growth, partially offset by an increase in FHLB borrowings expense.
 The current year-to-date period was also positively effected by the restructuring
 of the investment securities portfolio during the second quarter of 2007. For the
 three months ended September 30, 2008 the net interest margin was 2.63% as compared
 to 2.49% for the same period in 2007, an increase of 14 basis points. For the nine
 months ended September 30, 2008 the net interest margin was 2.62%, an increase of
 14 basis points from 2.48% for the nine months ended September 30, 2007.At NewAlliance
 we consider asset quality and prudent lending practices to be major strengths of
 our institution, however consumers and businesses are under considerable economic
 pressure which has translated into increasing trends in delinquencies, net charge-offs
 and nonperforming loans. In response to risks in its loan portfolio, the Company
 recorded a loan loss provision of $4.2 million and $9.6 million for the three and
 nine months ended September 30, 2008, respectively.The three loan portfolio
 segments that we consider to have the highest risk are construction loans to commercial
 developers for residential development, and a segment of our residential real estate
 and home equity loans. The Company has a balance of $52.7 million of commercial
 construction loans for residential development. This segment has total delinquencies
 of $11.8 million, most of which are in the over 90 day category. All
 of these loans are collateralized, and carry a specific
 reserve of $3.2 million. Within the residential and home equity portfolios, we have
 a watch list of approximately $80.0 million that is being closely monitored due
 to a drop in credit score of 20 points or more and a score that falls below 660.
 As of September 30, 2008, total delinquencies for residential real estate and home
 equity loans are $18.7 million, which includes $8.7 million in the over 90 day category.
 Of the $8.7 million over 90 days delinquent, approximately $4.3 million is from
 the watch list.As a percentage of total loans, the allowance for loan losses
 increased six basis points to 0.99% at September 30, 2008 from 0.93% at December
 31, 2007. The ratio of nonperforming loans to total loans was 0.71% at September
 30, 2008 compared to 0.35% at December 31, 2007 and 0.42% at September 30, 2007.
 Net charge-offs were $2.8 million and $4.2 million for the three

26

---



and nine months ended September 30, 2008,
 respectively compared to $423,000 and $902,000 for the three and nine months ended
 September 30, 2007, respectively.Stockholders equity has decreased by
 $6.7 million since December 31, 2007 due primarily to the repurchase of approximately
 1.7 million shares for $20.4 million, the payment of cash dividends in the amount
 of $20.8 million, or 20.5 cents per common share and a decline in the fair market
 value of available for sale securities of $9.3 million, net of tax. These decreases
 were partially offset by net income for the nine months ended September 30, 2008
 of $35.7 million and stock option and restricted stock expense of $8.5 million.
 Dividend payments and stock buybacks are in accordance with our continued strategy
 of judicious capital deployment. The Tier I capital ratio was 11.03% at September
 30, 2008. Per common share data also improved as of September 30, 2008 from December
 31, 2007 and September 30, 2007. Book value per share increased to $13.08 from $12.93
 at December 31, 2007 and $12.71 at September 30, 2007, and tangible book value per
 share increased to $7.72 from $7.56 and $7.45 for the same time periods, respectively.
 Diluted weighted average shares decreased by 4.5 million shares from September 30,
 2007, which was a factor in the increase in earnings per share.

|Selected financial data, ratios and per share data are provided in Table 1.
|---------------------------------------------------------------------------
|                                                                           
|Table 1:
 Selected Data                                                    
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|(Dollars in
 thousands, except per share data)                             
|                                                                           
|Condensed
 Income Statement                                                
|Interest and
 dividend income                                              
|Interest expense                                                           
|                                                                           
|Net interest
 income before provision for loan losses                      
|Provision
 for loan losses                                                 
|                                                                           
|Net interest
 income after provision for loan losses                       
|Non-interest
 income                                                       
|Operating
 expenses                                                        
|Merger related
 charges                                                    
|                                                                           
|Income before
 income taxes                                                
|Income tax
 provision                                                      
|                                                                           
|Net income                                                                 
|                                                                           
|                                                                           
|Weighted average
 shares outstanding                                       
|Basic                                                                      
|Diluted                                                                    
|Earnings per
 share                                                        
|Basic                                                                      
|Diluted                                                                    
|                                                                           
|                                                                           
|Financial
 Ratios                                                          
|Return on
 average assets (1)                                              
|Return on
 average equity (1)                                              
|Net interest
 margin (1)                                                   
|                                                                           
|Non-GAAP
 Ratios                                                           
|Efficiency
 ratio (2)                                                      
|                                                                           
|Per
 share data                                                            
|Book value
 per share                                                      
|Tangible book
 value per share                                             
|                                                                           
|                                                                           

|(1) | Annualized.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The efficiency ratio represents
the ratio of non-interest expenses, net of OREO expenses, to the sum of net interest income
and non-interest income, excluding security and limited partnership net gains or losses. The efficiency ratio is not a
financial measurement required by accounting principles generally accepted in the United States of America. However,
management believes such information is useful to investors in evaluating Company performance.

27

---



Average Balances, Interest, Average
 Yields/Cost and Rate/Volume AnalysisTables 2 and 3 below set forth certain
 information concerning average interest-earning assets and interest-bearing liabilities
 and their associated yields or rates for the periods indicated. The average yields
 and costs are derived by dividing income or expenses by the average balances of
 interest-earning assets or interest-bearing liabilities, respectively, for the periods
 shown and reflect annualized yields and costs. Average balances are computed using
 daily balances. Yields and amounts earned include loan fees and fair value adjustments
 related to acquired loans, deposits and borrowings. Loans held for sale and nonaccrual
 loans have been included in interest-earning assets for purposes of these computations.
Table 4 below presents the extent to which changes in interest rates and changes
 in volume of interest-earning assets and interest-bearing liabilities have affected
 the Companys interest income and interest expense during the periods indicated.
 Information is provided in each category with respect to: (i) change attributable
 to change in volume (change in volume multiplied by prior rate), (ii) change attributable
 to change in rate (change in rate multiplied by prior volume); and (iii) the change
 attributable to rate and volume (change in rate multiplied by change in volume),
 which is prorated between the changes in rate and volume.

|Table 2:
 Average Balance Sheets for the Three Months Ended September 30, 2008 and 2007 |  |                    |           |                    |      |   |         | 
|--------------------------------------------------------------------------------------- |  | ------------------ | --------- | ------------------ | ---- | - | ------- | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  | Three Months Ended
|                                                                                        |  |                   
|                                                                                        |  | September 30, 2008 |           | September 30, 2007
|                                                                                        |  |                    |           |                   
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  | Average            |           |                    |      |   | Yield/  | 
|(Dollars in
 thousands)                                                                 |  | Balance            |           | Interest           | Rate |   | Balance | 
|                                                                                       
|Interest-earning
 assets                                                                |  |                    |           |                    |      |   |         | 
|Loans                                                                                   |  |                    |           |                    |      |   |         | 
|Residential
 real estate                                                                |  | $                  | 2,562,448 |                    |      | $ | 35,202  | 
|Commercial
 real estate                                                                 |  |                    | 1,194,106 |                    |      |   | 18,273  | 
|Commercial
 business                                                                    |  |                    | 471,555   |                    |      |   | 7,021   | 
|Consumer                                                                                |  |                    | 719,016   |                    |      |   | 9,718   | 
|                                                                                       
|Total
 Loans                                                                            |  |                    | 4,947,125 |                    |      |   | 70,214  | 
|Fed
 funds sold and other short-term investments                                        |  |                    | 79,171    |                    |      |   | 494     | 
|Investment
 Securities                                                                  |  |                    | 2,296,893 |                    |      |   | 28,334  | 
|                                                                                       
|Total
 Interest-earning assets                                                          |  |                    | 7,323,189 |                    |      | $ | 99,042  | 
|Non-interest
 earning assets                                                            |  |                    | 921,916   |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Total
 Assets                                                                           |  | $                  | 8,245,105 |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Interest-bearing
 liabilities                                                           |  |                    |           |                    |      |   |         | 
|Deposits                                                                                |  |                    |           |                    |      |   |         | 
|Money
 Markets                                                                          |  | $                  | 383,234   |                    |      | $ | 1,913   | 
|NOW                                                                                     |  |                    | 359,033   |                    |      |   | 288     | 
|Savings                                                                                 |  |                    | 1,348,578 |                    |      |   | 7,742   | 
|Certificates                                                                            |  |                    | 1,769,126 |                    |      |   | 14,667  | 
|                                                                                       
|Total
 Interest-bearing deposits                                                        |  |                    | 3,859,971 |                    |      |   | 24,610  | 
|Repurchase
 Agreements                                                                  |  |                    | 179,350   |                    |      |   | 1,045   | 
|FHLB
 advances and other borrowings                                                     |  |                    | 2,243,820 |                    |      |   | 25,328  | 
|                                                                                       
|Total
 Interest-bearing liabilities                                                     |  |                    | 6,283,141 |                    |      |   | 50,983  | 
|Non-interest-bearing
 demand deposits                                                   |  |                    | 494,104   |                    |      |   |         | 
|Other
 non-interest-bearing liabilities                                                 |  |                    | 69,233    |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Total
 Liabilities                                                                      |  |                    | 6,846,478 |                    |      |   |         | 
|Equity                                                                                  |  |                    | 1,398,627 |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Total
 Liabilities and equity                                                           |  | $                  | 8,245,105 |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Net
 interest-earning assets                                                            |  | $                  | 1,040,048 |                    |      |   |         | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Net
 interest income                                                                    |  |                    |           |                    |      | $ | 48,059  | 
|                                                                                        |  |                    |           |                    |      |   |         | 
|Interest
 rate spread                                                                   |  |                    |           |                    |      |   |         | 
|Net
 interest margin (net interest income                                               |  |                    |           |                    |      |   |         | 
|as
 a percentage of total interest-earning assets                                       |  |                    |           |                    |      |   |         | 
|Ratio
 of total interest-earning assets                                                 |  |                    |           |                    |      |   |         | 
|to
 total interest-bearing liabilitites                                                 |  |                    |           |                    |      |   |         | 
|                                                                                       

28

---



|Table 3: Average Balance Sheets for the Nine Months Ended September 30, 2008 and 2007
|-------------------------------------------------------------------------------------
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|(Dollars in
 thousands)                                                              
|                                                                                     
|Interest-earning
 assets                                                             
|Loans                                                                                
|Residential
 real estate                                                             
|Commercial
 real estate                                                              
|Commercial
 business                                                                 
|Consumer                                                                             
|                                                                                     
|Total
 Loans                                                                         
|Fed
 funds sold and other short-term investments                                     
|Investment
 Securities                                                               
|                                                                                     
|Total
 Interest-earning assets                                                       
|Non-interest
 earning assets                                                         
|                                                                                     
|Total
 Assets                                                                        
|                                                                                     
|                                                                                     
|                                                                                     
|Interest-bearing
 liabilities                                                        
|Deposits                                                                             
|Money
 Markets                                                                       
|NOW                                                                                  
|Savings                                                                              
|Certificates                                                                         
|                                                                                     
|Total
 Interest-bearing deposits                                                     
|Repurchase
 Agreements                                                               
|FHLB
 advances and other borrowings                                                  
|                                                                                     
|Total
 Interest-bearing liabilities                                                  
|Non-interest-bearing
 demand deposits                                                
|Other
 non-interest-bearing liabilities                                              
|                                                                                     
|Total
 Liabilities                                                                   
|Equity                                                                               
|                                                                                     
|Total
 Liabilities and equity                                                        
|                                                                                     
|Net
 interest-earning assets                                                         
|                                                                                     
|Net
 interest income                                                                 
|                                                                                     
|Interest
 rate spread                                                                
|Net
 interest margin (net interest income                                            
|as
 a percentage of total interest-earning assets                                    
|Ratio
 of total interest-earning assets                                              
|to
 total interest-bearing liabilitites                                              
|                                                                                     

29

---



|Table 4: Rate/Volume Analysis                   
|------------------------------------------------
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|                                                
|(In thousands)                                  
|                                                
|Interest-earning
 assets                        
|Loans                                           
|Residential
 real estate                        
|Commercial
 real estate                         
|Commercial
 business                            
|Consumer                                        
|                                                
|Total
 loans                                    
|Fed
 funds sold and other short-term investments
|Investment
 securities                          
|                                                
|Total
 interest-earning assets                  
|                                                
|Interest-bearing
 liabilities                   
|Deposits                                        
|Money
 market                                   
|NOW                                             
|Savings                                         
|Time                                            
|                                                
|Total
 interest bearing deposits                
|Repurchase
 agreements                          
|FHLB
 advances and other borrowings             
|                                                
|Total
 interest-bearing liabilities             
|                                                
|Increase in
 net interest income                
|                                                
|                                                

Net Interest Income AnalysisNet interest income is the amount that interest and fees on earning assets (loans
 and investments) exceeds the cost of funds, primarily interest paid to the Companys depositors and interest on external borrowings. Net interest margin is the
 difference between the income on earning assets and the cost of interest-bearing
 funds as a percentage of average earning assets.During the first half of 2008,
 the yield curve began to return to a more normal, upward-sloping shape. Since the
 beginning of the fourth quarter of 2007, the Federal Reserve Board (FRB)
 lowered the target federal funds rate seven times, for a total decrease of 275 basis
 points (from 4.75% to 2.00%). Decreases of 200 basis points and 25 basis points
 occurred during the first and second quarters of 2008, respectively. The FRB left
 the overnight federal funds target rate unchanged at 2.00% for the quarter ending
 September 30, 2008. In October 2008 the FRB reduced the target federal funds rate
 by 100 basis points. As a result, the Company reduced its prime based lending rate,
 which may have a negative impact on net interest income or the net interest margin
 in the fourth quarter.Comparison of Quarter-to-Date September 2008 and September
 2007As shown in Table 2, net interest income for the quarter ended September
 30, 2008 was $48.1 million, an increase of $4.4 million compared to the quarter
 ended September 30, 2007. The increase is due to a 14 basis point increase in the
 net interest margin to 2.63% at September 30, 2008 from 2.49% for the same period
 in the prior year, primarily due to the significant reduction in costs associated
 with higher priced certificate of deposit accounts and growth in the loan portfolio
 which mostly offset the effect of the decline in yields on prime based commercial
 and consumer loans.Interest income declined $2.8 million to $99.0 million for
 the quarter ended September 30, 2008 compared to $101.9 million for the quarter
 ended September 30, 2007. Loan income declined for the quarter due to the decrease
 in the average yield earned in response to the FRB rate cuts, which occurred primarily
 in the first quarter, as new loans were originated and as adjustable rate loans
 reset, the yields were at lower rates. The decline in the average yield of 45 basis
 points accounted for $5.4 million of the decrease in interest income and was partially
 offset by an increase of $4.5 million which was due to an increase in the average
 loan portfolio balance of $307.9 million. All loan categories experienced a decline
 in the average yield due primarily to the interest rate cuts by the FRB. The decline
 in the loan yields have also been impacted by the increase in non-performing loans
 which increased to $35.0 million at September 30, 2008 compared to $19.4 million
 a year ago and $16.4 million at December 31, 2007. While all loan categories experienced
 increases in average balances, the residential real estate loan portfolio was the
 main driver of the growth. The increase in average balances was due to increased
 loan originations as the Company continued

30

---



to take advantage of the pricing opportunities
 in our lending area due to the sustained dislocations in the credit market, which
 has in the short term diminished competition. We expect this trend to continue in
 the near term, however, as banks regain strength after receiving infusions of capital
 from the EESA, competition will likely increase. The investment portfolio experienced
 a decrease in the average yield primarily due to the decline in short-term interest
 rates and resulting decline in dividend yields on equity securities, mainly Federal
 Home Loan Bank stock.The cost of funds for the quarter ended September 30,
 2008 decreased $7.2 million to $51.0 million, compared to $58.2 million for the
 same period a year ago. The Companys continuing strategy has been to bring
 down deposit costs while being mindful of competitor pricing and focusing on growth
 of core deposits. This strategy has resulted in an $8.2 million decrease in deposit
 interest expense due mainly to a 90 basis point decrease in the average rate paid
 and was primarily in higher costing time deposits. Interest expense in the time
 deposit category decreased $7.7 million as the average balance and average rate
 paid decreased $222.9 million and 116 basis points, respectively. The average rate
 paid on money market deposit accounts also experienced a significant decline, coinciding
 with the FRB rate cuts, of 152 basis points. These decreases in interest expense
 were partially offset by an increase of $3.0 million resulting from growth in savings
 accounts as the average balance for the period rose $444.8 million and a modest
 increase of 18 basis points in the average yield paid. Savings accounts increased
 due to targeted marketing campaigns offering higher pricing for select products
 and migration from maturing time deposits as they repriced at reduced rates. Average
 interest-bearing core deposits rose $280.2 million from the same quarter a year
 ago while the average cost of interest-bearing core deposits declined 41 basis points.
 In addition to deposits, the Company also uses FHLB advances and other borrowings
 to fund loan growth. As a result, the average balance of these borrowings increased
 $254.2 million which equates to a $2.9 million increase in interest expense, but
 was partially offset by a decline in the average rate paid of 20 basis points, or
 $1.0 million. All of the FHLB borrowings are fixed rate, long-term advances with
 a weighted average cost of 4.60%.Comparison of Year-to-Date September
 2008 and September 2007As shown in Table 3, net interest income for the
 nine months ended September 30, 2008 was $142.3 million compared to $129.7 million
 for the same period a year ago. The reasons for the year-to-date increase in net
 interest income are consistent with the quarterly discussion above, with the added
 factor of the June 2007 investment securities portfolio restructuring. The net interest
 margin was 2.62% and 2.48% for the nine months ended September 30, 2008 and 2007,
 respectively.The increase in interest income of $3.7 million was comprised
 of $2.7 million from the investment securities portfolio and $1.0 million from the
 loan portfolio. The average yield earned on the investment securities portfolio
 increased 28 basis points in the current year-to-date period as a result of the
 2007 restructuring, partially offset by declining yields due to the tremendous market
 volatility and the FRB rate cuts in 2008, particularly in short term investments
 and stock dividends. Similar to the quarter, strong loan growth made the difference
 in the loan portfolio as $325.4 million in average balances were added, mitigating
 the effect of the FRB rate cuts which propelled the average yield down by 39 basis
 points.For the nine months ended September 30, 2008 as compared to 2007,
 the Company experienced a significant reduction in its cost of funds in the amount
 of $8.9 million as the shift in the mix of interest-bearing liabilities reduced
 the average rate paid by 38 basis points and helped to improve the net interest
 spread by 24 basis points. Resembling the quarter, the shift was away from higher
 costing time deposits as well as from money market and NOW deposits and into savings
 deposits. Although the average rate paid on savings deposits increased by 48 basis
 points, the average rate paid on all interest-bearing deposits declined 58 basis
 points. For the nine months ended September 30, 2008, total average interest-bearing
 deposits declined $55.0 million, however, average interest-bearing core deposits
 increased $213.1 million at a much lower rate. Partially offsetting the $18.0 million
 decline in deposit interest expense was an increase in expense on borrowings of
 $9.1 million, principally due to an increase of $377.7 million in the average balance
 of FHLB advances and other borrowings. FHLB advances were used to fund loan growth
 and to counter deposit outflows that occurred primarily in the first quarter of
 2008.Provision for Loan LossesThe provision for loan losses
 (provision) is based on managements periodic assessment of the
 adequacy of the loan loss allowance which, in turn, is based on such interrelated
 factors as the composition of the loan portfolio and its inherent risk characteristics,
 the level of nonperforming loans and charge-offs, both current and historic, local
 economic conditions, the direction of real estate values, and regulatory guidelines.
Management performs a monthly review of the loan portfolio, and based on
 this review determines the level of the provision necessary to maintain an adequate
 allowance for loan losses (allowance). Management recorded a provision
 for loan losses of $4.2 million for the three months ended September 30, 2008. The
 primary factors that influenced managements decision to record this provision
 were increasing trends in delinquencies, net charge-offs of $2.8 million for the
 quarter and an increase in nonperforming loans. The third quarter increase in non-performing
 loans of $8.8 million was primarily related to a commercial construction loan for
 a residential condominium project and two commercial real estate loans for retail/office
 and warehouse

31




space. A provision for loan losses of $1.0
 million was recorded for the three months ended September 30, 2007, based on growth
 in the portfolio, the level of net charge-offs, and nonperforming loans at that
 time.For the nine months ended September 30, 2008, the provision for loan
 losses was $9.6 million compared to $2.6 million for the same period a year ago.
 The increase in the provision relates to a rise in nonperforming loans since September
 30, 2007 of $15.6 million, primarily in the residential portfolio and construction
 loans to commercial developers of residential condominiums due to economic and housing
 market pressures. Future provisions for loan losses may be deemed necessary if economic
 conditions do not improve or continue to deteriorate.At September 30, 2008,
 the allowance for loan losses was $49.2 million, which represented 0.99% of total
 loans and 140.52% of nonperforming loans. This compared to the allowance for loan
 losses of $43.8 million at December 31, 2007 which represented 0.93% of total loans
 and 267.38% of nonperforming loans. See the Asset Quality and Allowance
 for Loan Losses sections located on pages 38-39 for further information regarding
 the Companys credit quality.

Table 5:   Non-Interest Income


|                                  |  | Three Months Ended |        |        |      |               |        |        |  |   |         | Nine Months Ended |  |      |        |    |      |   |        |       
|--------------------------------- |  | ------------------ | ------ | ------ | ---- | ------------- | ------ | ------ |  | - | ------- | ----------------- |  | ---- | ------ | -- | ---- | - | ------ | ------
|                                  |  | September 30,      |        | Change |      | September 30, |        | Change
|                                  |  |                    |        |        |      |               |        |       
|(Dollars in thousands)            |  | 2008               |        |        | 2007 |               |        | Amount |  |   | Percent |                   |  | 2008 |        |    | 2007 |   |        | Amount
|                                 
|Depositor service charges         |  | $                  | 7,052  |        |      | $             | 7,419  |        |  | $ | (367    | )                 |  |      | (4.95  | )% |      | $ | 20,393 |       
|Loan
 and servicing income        |  |                    | 325    |        |      |               | 522    |        |  |   | (197    | )                 |  |      | (37.74 | )  |      |   | 971    |       
|Trust
 fees                       |  |                    | 1,635  |        |      |               | 1,724  |        |  |   | (89     | )                 |  |      | (5.16  | )  |      |   | 4,984  |       
|Investment
 management, brokerage |  |                    |        |        |      |               |        |        |  |   |         |                   |  |      |        |    |      |   |        |       
|&
 insurance fees                 |  |                    | 1,872  |        |      |               | 1,976  |        |  |   | (104    | )                 |  |      | (5.26  | )  |      |   | 6,248  |       
|Bank
 owned life insurance        |  |                    | 1,164  |        |      |               | 1,639  |        |  |   | (475    | )                 |  |      | (28.98 | )  |      |   | 3,984  |       
|Net
 (loss) gain on securities    |  |                    | (215   | )      |      |               | (5,641 | )      |  |   | 5,426   |                   |  |      | 96.19  |    |      |   | 1,010  |       
|Net
 gain on sale of loans        |  |                    | 428    |        |      |               | 328    |        |  |   | 100     |                   |  |      | 30.49  |    |      |   | 1,341  |       
|Other                             |  |                    | 1,144  |        |      |               | 2,490  |        |  |   | (1,346  | )                 |  |      | (54.06 | )  |      |   | 4,660  |       
|                                 
|Total
 non-interest income        |  | $                  | 13,405 |        |      | $             | 10,457 |        |  | $ | 2,948   |                   |  |      | 28.19  | %  |      | $ | 43,591 |       
|                                 

Non-Interest IncomeComparison of Quarter-to-Date September 2008 and September 2007As
 displayed in Table 5, non-interest income increased $2.9 million to $13.4 million
 for the three months ended September 30, 2008 from the prior year period. The increase
 was primarily due to an increase in net loss/gain on securities resulting from the
 prior period loss of $5.7 million that was recorded on the sale of available for
 sale securities arising from the restructuring of the investment portfolio that
 was completed in July 2007. Excluding this $5.7 million loss on the sale of investment
 securities, non-interest income decreased $2.7 million primarily due to decreases
 in depositor service charges, bank-owned life insurance, net loss/gain on securities
 and other income.

| |  | Depositor
 service charges decreased due to a decline in overdraft fees, point of sale fees
 and inactive and dormant account fees. The Company eliminated debit card point-of-sale,
 inactive and dormant account service charges during the first quarter of 2008 due
 to promotional and competitive reasons, while overdraft fees declined due to volume.
 These decreases were partially offset by increased check card revenue resulting
 from expanded card usage due in part to a rewards program which offers
 cash rewards to customers who use their check card.                                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Net loss/gain
 on securities increased $5.4 million, primarily due to the prior year investment
 portfolio restructuring which resulted in a $5.7 million loss recorded at the completion
 of the sale in July 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |  | Excluding
 the restructuring, the net loss/gain on securities experienced a decrease of $252,000
 primarily due to other-than-temporary impairment charges of $2.6 million. The impairment
 charges relate to an investment in a trust preferred equity security issued by a
 regional bank in the amount of $1.6 million and for preferred equity securities issued
 by Freddie Mac and Lehman Brothers in the amounts of $790,000 and $193,000, respectively,
 due primarily to their sudden loss in market value. These impairment charges were
 partially offset by gains recorded on the sale of mortgage-backed securities which
 were sold at a premium in order to reduce prepayment risk.
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |  | The Company
 does not expect the financial position of the regional bank or the current price
 of its security to improve meaningfully over the near term and also considered its
 market price to reflect enhanced risk in the timely realization of cashflows and
 it was, therefore, written down to market value through the income statement.                                                                                                                                                                                                                                                                                                                                                
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |  | The Lehman
 Brothers preferred equity security was deemed impaired as a result of Lehman Brothers
 declaration of Chapter 11 bankruptcy in September 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

32




|  |  | The Freddie
 Mac preferred equity security was deemed impaired as a result of Freddie Mac being
 placed in conservatorship by the U.S. Treasury, FRB and the Federal Housing Finance
 Agency. Additionally, dividends were halted on existing common and preferred securities
 and the U.S. Treasury invested $1.0 billion in the form of senior preferred equity,
 which has priority over the Companys preferred equity securities.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Bank-owned
 life insurance decreased due to a decline in the average yield earned as a result
 of current market interest rates and conditions.                                                                                                                                                                                                                                                                                       
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Other income
 decreased mainly as a result of a prior year net gain on limited partnerships which
 resulted from the sale of an underlying investment compared to a net loss on limited
 partnerships in the current year period and a decrease in amounts earned on the
 outstanding balances of bank checks processed by a third-party vendor due to the
 decline in market interest rates.                                         

Comparison of Year-to-Date September 2008 and September 2007For the nine
 months ended September 30, 2008 non-interest income increased $26.7 million to $43.6
 million compared to $16.9 million for the same period a year ago. The increase in
 non-interest income was primarily attributable to the 2007 investment portfolio
 restructuring that resulted in a total charge of $28.3 million, comprised of an
 impairment write-down of $22.6 million in the second quarter of 2007 and an additional
 net loss of $5.7 million recorded at the completion of the sale in July 2007. Excluding
 the investment restructuring, non-interest income declined $1.6 million primarily
 due to decreases in depositor service charges, loan and servicing income, bank owned
 life insurance and other income, partially offset by increases in net gain/loss
 on securities, investment management, brokerage and insurance fees and net gain
 on sale of loans.

| |  | The decreases
 in depositor service charges, bank owned life insurance and other income were due
 primarily to the same reasons as discussed in the quarterly comparison.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Loan and servicing
 income declined largely due to a decrease in commercial real estate prepayment fees
 and letter of credit fees, and to an increase in the valuation allowance of the
 Small Business Administration (SBA) loan servicing asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Net gain on
 securities increased $28.8 million primarily due to the restructuring in 2007 which
 resulted in a total charge of $28.3 million. Excluding the restructuring, net gain
 on securities increased $586,000 due to gains recorded on the sale of mortgage-backed
 securities. These securities were sold at a premium and were sold in order to reduce
 prepayment risk and offset deposit outflows. Partially offsetting gains on the mortgage-backed
 securities were the other-than-temporary impairment losses on preferred equity securities
 as outlined in the quarterly discussion and the loss on the sale of bank stocks
 in the second quarter of 2008 due to a decline in market price.
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Investment
 management, brokerage and insurance fees increased mainly due to the sales of fixed
 annuity products resulting from a favorable rate environment for these products,
 primarily earlier in the year. An increase in the number of sales personnel and
 increased marketing efforts have contributed to the increased trading activity and
 the sales of investment products.                                                                                                                                                                                                                                                                                                                     
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Net gain on
 sale of loans increased due to an upsurge in mortgage loans originated for sale
 due to pricing opportunities in our lending area resulting from the continued dislocations
 in the credit market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Table 6:  Non-Interest Expense


|                                |  | Three Months Ended |        |        |      |               |        |        |  |   |         | Nine Months Ended |  |      |        |   |      |   |         |       
|------------------------------- |  | ------------------ | ------ | ------ | ---- | ------------- | ------ | ------ |  | - | ------- | ----------------- |  | ---- | ------ | - | ---- | - | ------- | ------
|                                |  | September 30,      |        | Change |      | September 30, |        | Change
|                                |  |                    |        |        |      |               |        |       
|(Dollars in thousands)          |  | 2008               |        |        | 2007 |               |        | Amount |  |   | Percent |                   |  | 2008 |        |   | 2007 |   |         | Amount
|                               
|Salaries and employee benefits  |  | $                  | 22,354 |        |      | $             | 19,714 |        |  | $ | 2,640   |                   |  |      | 13.39  | % |      | $ | 68,978  |       
|Occupancy                       |  |                    | 4,415  |        |      |               | 4,456  |        |  |   | (41     | )                 |  |      | (0.92  | ) |      |   | 13,629  |       
|Furniture
 and fixtures         |  |                    | 1,624  |        |      |               | 1,647  |        |  |   | (23     | )                 |  |      | (1.40  | ) |      |   | 4,964   |       
|Outside services                |  |                    | 5,047  |        |      |               | 4,195  |        |  |   | 852     |                   |  |      | 20.31  |   |      |   | 13,791  |       
|Advertising,
 public relations, |  |                    |        |        |      |               |        |        |  |   |         |                   |  |      |        |   |      |   |         |       
|and
 sponsorships               |  |                    | 1,667  |        |      |               | 1,862  |        |  |   | (195    | )                 |  |      | (10.47 | ) |      |   | 5,412   |       
|Amortization
 of identifiable   |  |                    |        |        |      |               |        |        |  |   |         |                   |  |      |        |   |      |   |         |       
|intangible
 assets              |  |                    | 2,364  |        |      |               | 2,957  |        |  |   | (593    | )                 |  |      | (20.05 | ) |      |   | 7,092   |       
|Merger related
 charges         |  |                    | 99     |        |      |               | 70     |        |  |   | 29      |                   |  |      | 41.43  |   |      |   | 177     |       
|Other                           |  |                    | 3,801  |        |      |               | 3,680  |        |  |   | 121     |                   |  |      | 3.29   |   |      |   | 10,883  |       
|                               
|Total
 non-interest expense     |  | $                  | 41,371 |        |      | $             | 38,581 |        |  | $ | 2,790   |                   |  |      | 7.23   | % |      | $ | 124,926 |       
|                               

33




Non-Interest Expense
Comparison of Quarter-to-Date September 2008 and September 2007As displayed
 in Table 6, non-interest expense increased $2.8 million to $41.4 million for the
 three months ended September 30, 2008 from $38.6 million for the same period a year
 ago. The main drivers of the increase were salaries and employee benefits and outside
 services. These increases were partially offset by decreases in amortization of
 identifiable intangible assets.

| |  | Salaries and
 employee benefits increased as a result of increased employee incentive accruals,
 general merit increases and a decrease in capitalized salaries primarily due to
 the decline in commercial loan originations, partially offset by a decrease in charges
 associated with the 2005 Long-Term Compensation Plan (LTCP) for executives
 that are no longer with the Company.                                                                                                                                        
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Outside services
 increased due to consulting costs associated with the implementation of a performance
 optimization project in an effort to enhance the overall effectiveness and revenue
 performance of the Company. As of September 30, 2008, consulting costs for this
 project stand at approximately $500,000 and are expected to continue to be incurred
 totaling approximately $1.4 million by the end of the 2008. Outside services also
 increased due to charges incurred for outsourcing general internal audit work.
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Amortization
 of identifiable intangible assets decreased due to using an accelerated method of
 amortization for core deposit intangibles which results in a higher level of expense
 in earlier periods. Amortization of non-compete agreements decreased due to the
 expiration of all agreements in the third quarter of 2007.                                                                                                                                                                                                  

Comparison of Year-to-Date September
 2008 and September 2007For the nine months ended September 30, 2008, non-interest
 expense increased $2.6 to $124.9 million from $122.3 million for the same period
 a year ago. The main drivers of the increase were salaries and employee benefits
 and outside services, partially offset by decreases in merger related charges and
 amortization of identifiable intangible assets. The quarterly explanations for salaries
 and employee benefits, outside services and amortization of identifiable intangible
 assets also hold true for the change in the year-to-date balances. Additional explanations
 are as follows:

| |  | Salaries and
 employee benefits also increased as a result of: i) severance recorded in the first
 quarter of 2008 for an executive who is no longer with the Company and ii) incentive
 payouts due to the increased sales of investment products. These increases were
 partially offset by a decrease in ESOP expense due to the decline in the average
 year-to-date stock price.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In addition
 to the performance optimization project and audit fees, o utside services increased
 due to legal and consulting costs related to human resources, partially offset by
 a decline in data processing expenses.                                                                                                                                                          
|  |  |                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Conversion
 and merger related charges decreased mainly due to charges for legal, consulting,
 advertising and data processing expense associated with the Westbank acquisition
 that occurred in 2007.                                                                                                                                                                              

As part of the EESA signed into law
 on October 3, 2008, FDIC deposit insurance temporarily increased from $100,000 to
 $250,000 per depositor through December 31, 2009. Beginning in January 2009, premiums
 due to the FDIC for deposit insurance will be increasing by an average of seven
 basis points as a result of recent failed institutions which have resulted in losses
 to the FDIC deposit insurance fund and in anticipation of future failed institutions.
 We have not been notified of our increase, nor has the associated cost been determined
 yet. The Company will also have a significant increase in FDIC insurance premium
 expense in 2009 resulting from the exhaustion of its one-time credit established
 by the Federal Deposit Insurance Reform Act of 2005. This credit covered all of
 the Companys 2007 FDIC assessment expense and 90% of its expense for the nine
 months ended September 30, 2008. It is anticipated that the assessment credit will
 be largely exhausted by year-end 2008.Income Tax ProvisionThe income tax expense of $5.0 million for the three months ended September
 30, 2008 resulted in an effective tax rate of 31.2%, compared to income tax of $7.1
 million for the three months ended September 30, 2007, resulting in an effective
 tax rate of 49.1%. The income tax expense for the nine months ended September 30,
 2008 and 2007 was $15.7 million and $8.9 million, respectively. The effective tax
 rate for these periods was 30.6% and 40.9%, respectively.Two transactions
 specific to 2007 were the main drivers of the elevated effective tax rate for the
 three and nine month periods ending September 30, 2007. These transactions related
 to a $2.6 million increase in the deferred tax asset valuation allowance

34




related to the utilization of the charitable
 contribution deduction carry-forward, partially offset by the restructuring of a
 part of the investment securities portfolio which reduced pre-tax income by $5.7
 million and $28.3 million for the three and nine months ended September 30, 2007,
 respectively. Absent the effect of these two transactions, the effective tax rate
 for the three and nine months ended September 30, 2007 would have been 33.5% and
 32.8%, respectively.The decrease in the effective tax rate for the three
 months ended September 30, 2008 (excluding the above transactions) was due to a
 change in the deferred inventory rate resulting from new Massachusetts legislation
 enacted in the third quarter of 2008. The decrease in the effective tax rate for
 the nine months ended September 30, 2008 was primarily due to the change in the
 deferred inventory rate resulting from new Massachusetts legislation enacted in
 the third quarter of 2008 and the reduction of $924,000 of unrecognized tax benefits
 for tax positions of prior years resulting from the settlement of the IRS audit
 in the first quarter of 2008.The projected effective rate for the year ended
 December 31, 2008 is 31.2%.

Financial ConditionFinancial Condition SummaryFrom December 31, 2007 to September
 30, 2008, total assets increased $54.3 million and total liabilities increased $61.0
 million, due mainly to increases in loans, deposits and borrowings, partially offset
 by a decrease in investments. Stockholders equity decreased $6.7 million,
 primarily due to treasury shares acquired and a decline in unrealized gain on available
 for sale securities, partially offset by an increase in retained earnings.Investment SecuritiesThe following table presents the amortized
 cost and fair value of investment securities at September 30, 2008 and December
 31, 2007.

Table 7:  Investment Securities


|                                                  |  | September 30, 2008 |           | December 31, 2007
|------------------------------------------------- |  | ------------------ | --------- | -----------------
|                                                  |  |                    |           |                  
|                                                  |  | Amortized          |           |                  
|(In thousands)                                    |  | cost               |           |                  
|                                                 
|Available for sale                                |  |                    |           |                  
|U.S. Treasury obligations                         |  | $                  | 592       |                  
|U.S.
 Government sponsored enterprise obligations |  |                    | 195,679   |                  
|Corporate
 obligations                            |  |                    | 7,153     |                  
|Other
 bonds and obligations                      |  |                    | 47,518    |                  
|Marketable
 and trust preferred equity securities |  |                    | 69,855    |                  
|Federal
 Home Loan Bank stock                     |  |                    | 120,821   |                  
|Mortgage-backed
 securities                       |  |                    | 1,562,691 |                  
|                                                 
|Total
 available for sale                         |  |                    | 2,004,309 |                  
|                                                 
|Held to
 maturity                                 |  |                    |           |                  
|Mortgage-backed
 securities                       |  |                    | 292,512   |                  
|Other
 bonds                                      |  |                    | 7,110     |                  
|                                                 
|Total
 held to maturity                           |  |                    | 299,622   |                  
|                                                 
|Total
 securities                                 |  | $                  | 2,303,931 |                  
|                                                 

At September 30, 2008, the Company had
 total investments of $2.31 billion, or 27.9%, of total assets. The decrease of $185.0
 million, from $2.49 billion at December 31, 2007 was mainly the result of using
 cash flows from available-for-sale and held-to-maturity mortgage-backed securities
 primarily to fund loan growth, partially offset by purchases of mortgage-backed
 securities using funds borrowed from the Federal Home Loan Bank.The Companys underlying investment strategy has been to purchase FNMA and FHLMC hybrid
 adjustable rate mortgage-backed securities, and seasoned 15 year Government sponsored
 enterprise (GSE) fixed rate mortgage-backed securities. The Company
 has focused on the purchases of these securities due to their attractive spreads
 versus funding costs and for their monthly cash flows that provide the Company with
 liquidity. This strategy is also supplemented with select purchases of bullet and
 callable agency securities. The average life for mortgage-backed securities, when
 purchased, would range between 2.0 and 4.0 years and the maturity dates for Agency
 obligations would range between one and five years.

35




SFAS No. 115 requires the Company to designate
 its securities as held to maturity, available for sale or trading depending on the
 Companys intent regarding its investments at the time of purchase. The Company
 does not currently maintain a portfolio of trading securities. As of September 30,
 2008, $2.01 billion, or 87%, of the portfolio, was classified as available for sale
 and $299.7 million, or 13% of the portfolio was classified as held to maturity.
 The net unrealized gain on securities classified as available for sale as of September
 30, 2008 and December 31, 2007 was $2.5 million and $15.9 million, respectively.
 The decline in the market value of securities available for sale was primarily due
 to credit spreads, liquidity and fluctuations in market interest rates during the
 period.In addition to market interest rates, the unrealized losses reported
 for trust preferred equity securities are also attributable to the current market
 stress partially resulting from efforts by banks to raise capital. This has in turn
 inflated coupon rates on new issues of trust preferred equity securities versus
 lower rates on the Companys portfolio of A to AAA rated, non-perpetual seasoned
 issues of trust preferred equity securities. All trust preferred equity securities
 carried below market value are current and no impairment of cash flows is anticipated.

The unrealized loss on other bonds primarily
 relates to auction rate certificates. These certificates were issued by a Wall Street
 underwriting firm and are pools of government guaranteed student loans that are
 issued by state student loan departments. In the first half of 2008, the auction
 process for auction rate certificates began to freeze resulting from the problems
 in the credit markets. The underwriter has entered into a settlement agreement
 with several state regulatory agencies whereby they have agreed to repurchase these certificates from both their retail
 and institutional customers at par within an 18 month time frame beginning in 2009,
 however, there is no assurance that the settlement will ultimately be honored.
 These securities are currently rated AAA and are still paying and are expected to continue to pay their contractual
 cash flows.

Management has performed a review of all
 investments with unrealized losses and at September 30, 2008, determined that none
 of these investments had other-than-temporary impairment. The Company has the ability
 and intent to hold all of these securities for the time necessary to recover the
 unrealized losses, which may be until maturity. The investment portfolio does not
 have direct exposure to sub-prime lending, does not include collateralized debt
 obligations or structured investment vehicles. The Company does not own or plan
 on investing in securities backed by sub-prime mortgage collateral.During
 the third quarter, management determined that the following three investments had
 other-than-temporary impairment for which charges were recorded:


| |  | A security
 in a regional bank - $1.6 million. This trust preferred equity security was deemed
 to be other-than-temporarily impaired as a result of the combined factors of percentage
 and length of time that the security had been below book value and because the Company
 does not expect the financial position of the bank or the current price of the security
 to improve meaningfully over the near term and the price of the issue implies market
 participants view enhanced risk in the timely receipt of all cash flows. The Companys remaining cost position in this security at September 30, 2008 was $3.1 million.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Freddie Mac - $790,000. As of result of actions taken on September 7, 2008 by the United States
 Treasury Department and the Federal Housing Finance Agency with respect to placing
 the Freddie Mac into conservatorship, the Companys 25,000 shares of Freddie
 Mac Series F perpetual preferred stock were deemed to be other-than-temporarily
 impaired.                                                                                                                                                                                                                                                                          
| |  | Lehman Brothers
 - $193,000. Upon Lehman Brothers September 15, 2008 announcement declaring Chapter
 11 bankruptcy, the Company took an impairment charge on its holding of 5,000 shares
 of Series C perpetual preferred stock.                                                                                                                                                                                                                                                                                                                                                                                                       

The Company holds a position in an American
 International Group, Inc. (AIG) regulated insurance subsidiary for which
 an other-than-temporary impairment was not taken as our position is in the form
 of a $5.0 million trust preferred issue in the regulated insurance subsidiary. At
 September 30, 2008, this security was valued at 75.1% of its book value. The regulated
 insurance subsidiary was purchased by AIG in November 2000. As a regulated insurance
 company, it is excluded from AIGs pledge of assets as collateral for its $85.0
 billion bridge loan from the FRB and the U.S. Treasury Department announced on September
 16, 2008. Management determined that an other-than-temporary impairment of this
 trust preferred issue is not warranted based upon verification of certain legal
 information regarding its exclusion from pledged assets, the rating of the issue,
 the rating of the regulated insurance subsidiary and a review of the status of the
 contractual cash flows.

36




Lending ActivitiesThe
 Company makes residential real estate loans secured by one-to-four family residences,
 commercial real estate loans, residential and commercial construction loans, commercial
 business loans, home equity loans and lines of credit and other consumer loans.
 Table 8 displays the balances of the Companys loan portfolio as of September
 30, 2008 and December 31, 2007.

Table 8:  Loan Portfolio


|                                        |  | September 30, 2008 |           | December 31, 2007
|--------------------------------------- |  | ------------------ | --------- | -----------------
|                                        |  |                    |           |                  
|                                        |  |                    |           |                  
|(Dollars in thousands)                  |  | Amount             |           | of Total         
|                                       
|Residential real estate                 |  | $                  | 2,540,062 |                  
|Residential
 real estate construction   |  |                    | 16,900    |                  
|                                       
|Total
 residential real estate          |  |                    | 2,556,962 |                  
|Commercial
 real estate                 |  |                    | 1,023,711 |                  
|Commercial
 real estate construction    |  |                    | 182,955   |                  
|                                       
|Total
 commercial real estate           |  |                    | 1,206,666 |                  
|Commercial
 business                    |  |                    | 459,998   |                  
|Home Equity
 and equity lines of credit |  |                    | 705,148   |                  
|Other consumer                          |  |                    | 24,702    |                  
|                                       
|Total
 loans                            |  | $                  | 4,953,476 |                  
|                                       

As shown in Table 8, gross loans were $4.96
 billion, up $225.5 million, or 4.8%, at September 30, 2008 from year-end 2007.
 The Company experienced an increase in most major loan categories due to organic
 loan growth.Residential real estate loans continue to represent the largest
 segment of the Companys loan portfolio as of September 30, 2008, comprising
 over fifty percent of gross loans. The increase of $167.0 million was due primarily
 to organic loan growth of ARMs and jumbo loans. With competition somewhat
 diminished due to liquidity and credit problems for many other lenders, NewAlliance
 has been able to capture and grow this market segment. The residential real estate
 loan portfolio has a weighted average FICO score of 750 and a loan to value ratio
 of 48%.Commercial real estate loans and commercial business loans increased
 $14.3 million. The increase was attributable to the commercial real estate loan
 portfolio which increased due to organic loan growth and a shift from the commercial
 construction category due to loans completing the construction phase and converting
 to fully amortizing commercial mortgage loans. The commercial real estate construction
 portfolio of $183.0 million includes approximately $52.7 million of loans to commercial borrowers for
 residential housing development, $21.2 million are condominium projects. Since year-end 2007, the segment
 related to residential development, has experienced
 an increase in charge-offs, delinquencies and adversely classified loans which has
 impacted the current quarter provision for the allowance for loan losses. See the
 Provision for Loan Losses section located on page 31, and Asset
 Quality and Allowance for Loan Losses sections located on pages
 38-39 for further information concerning the allowance for loan losses. The Companys continued strategy is to build its commercial loan portfolios including real
 estate and other business loans by promoting strong business development efforts
 to obtain new business banking relationships, while maintaining strong credit quality
 and profitability. In addition, it is also the Companys strategy to limit
 its exposure to residential construction. As of September 30, 2008, commercial construction
 loans for residential housing development, decreased $13.4 million to $52.7 million
 compared to $66.1 million at December 31, 2007.Home equity loans and lines
 of credit increased $53.0 million from December 31, 2007 to September 30, 2008.
 These products were promoted by the Company through competitive pricing and marketing
 campaigns as the Company is committed to growing this loan segment while maintaining
 credit quality as a higher yielding alternative to first mortgage loans. The weighted
 average FICO score and current loan to value ratio for home equity loans and lines
 of credit is 748 and 47%, respectively. Loan growth has been from organic originations
 in the Companys market area, none of which is sub-prime.

37




Asset QualityAs displayed
 in Table 9, nonperforming assets at September 30, 2008 increased to $36.3 million
 compared to $17.3 million at December 31, 2007. The increase is primarily due to
 loans for residential housing development and commercial and residential real estate,
 largely as a result of the current economic conditions. The increase of $3.4 million
 in the residential real estate portfolio was due primarily to an increase in residential
 inventory levels, declines in the median sales price of residential homes and a
 general worsening of the economy. The commercial construction portfolio increased $9.3 million, primarily related to four relationships
 to a total of $11.7 million as of September 30, 2008. All of these loans are to residential
 home developers, of which $11.4 million are for condominium projects. Similar to the residential real estate
 portfolio, high inventory and few sales are the primary reasons for the problems
 in this portfolio. The $4.1 million increase in the commercial real estate portfolio
 primarily relates to loans secured by retail and warehouse space. The Company continues
 to closely monitor its real estate portfolios which could be negatively impacted
 by the current softening in the real estate market and the decline in real estate
 values.If current economic conditions persist or deteriorate further, there
 will be added stress on our loan portfolios. The Company believes, however, that
 its historical practice of prudent underwriting, the relatively modest size of its
 residential construction portfolio, and strong average FICO scores combined with
 low loan to value ratios associated with its residential portfolio are significant
 advantages in keeping asset quality manageable. Nonperforming loans as a percent
 of total loans outstanding continue to remain at relatively low levels and at September
 30, 2008 were 0.71%, compared to 0.35% at December 31, 2007.

Table 9:  Nonperforming Assets


|                                                             |  | September 30, |        | December 31,
|------------------------------------------------------------ |  | ------------- | ------ | ------------
|(Dollars in thousands)                                       |  | 2008          |        | 2007        
|                                                            
|Nonaccruing loans (1)                                        |  |               |        |             
|Real estate loans                                            |  |               |        |             
|Residential (one-to four-family)                             |  | $             | 8,191  |             
|Commercial
 real estate loans                                |  |               | 7,527  |             
|Commercial
 construction                                     |  |               | 11,706 |             
|                                                            
|Total
 real estate loans                                     |  |               | 27,424 |             
|Commercial
 business                                         |  |               | 6,383  |             
|Consumer
 loans                                              |  |               |        |             
|Home
 equity and equity lines of credit                      |  |               | 1,135  |             
|Other
 consumer                                              |  |               | 54     |             
|                                                            
|Total
 consumer loans                                        |  |               | 1,189  |             
|                                                            
|Total
 nonaccruing loans                                     |  |               | 34,996 |             
|Real estate
 owned                                           |  |               | 1,339  |             
|                                                            
|Total
 nonperforming assets                                  |  | $             | 36,335 |             
|                                                            
|Total nonperforming loans as a percentage of total loans (2) |  |               | 0.71   | %           
|Total nonperforming assets as a percentage of total assets   |  |               | 0.44   |             

|(1) | Nonaccrual
 loans include all loans 90 days or more past due, restructured loans and other loans,
 which have been identified by the Company as presenting uncertainty with respect
 to the collectability of interest or principal.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Total loans
 are stated at their principal amounts outstanding, net of deferred fees and fair
 value adjustments on acquired loans.                                                                                                 

Allowance for Loan LossesAs displayed in Table 10 below, during the three months ended September 30,
 2008, the Company recorded net charge-offs of $2.8 million compared to net charge-offs
 of $423,000 for the three months ended September 30, 2007. Current quarter charge-offs
 include write-downs totaling $2.2 million on two construction loan relationships
 with residential home developers for condominium developments and a commercial mortgage
 relationship for a retail/office facility. For the nine months ended September 30,
 2008, net charge-offs were $4.2 million, compared to $902,000 for the nine months
 ended September 30, 2007.The Company had a loan loss allowance of $49.2
 million and $43.8 million at September 30, 2008 and December 31, 2007, respectively.
 The allowance for loan losses to total loans was 0.99% at September 30, 2008 compared
 to 0.93% at December 31, 2007. Management believes the allowance for loan losses
 is adequate and consistent with asset quality and delinquency indicators.

38




Table 10:  Schedule of Allowance for Loan Losses


|                                                  |  | At or For the Three Months |        | At or For the Nine Months
|------------------------------------------------- |  | -------------------------- | ------ | -------------------------
|                                                  |  | Ended September 30,        |        | Ended September 30,      
|                                                  |  |                            |        |                          
|(Dollars in thousands)                            |  | 2008                       |        |                          
|                                                 
|Balance at beginning of period                    |  | $                          | 47,798 |                          
|Net allowances
 gained through acquisition        |  |                            | -      |                          
|Provision
 for loan losses                        |  |                            | 4,200  |                          
|Charge-offs                                       |  |                            |        |                          
|Residential
 and commercial real estate loans     |  |                            | 910    |                          
|Commercial
 construction                          |  |                            | 1,431  |                          
|Commercial
 business loans                        |  |                            | 468    |                          
|Consumer loans                                    |  |                            | 496    |                          
|                                                 
|Total
 charge-offs                                |  |                            | 3,305  |                          
|                                                 
|Recoveries                                        |  |                            |        |                          
|Residential
 and commercial real estate loans     |  |                            | 255    |                          
|Commercial
 construction                          |  |                            | -      |                          
|Commercial
 business loans                        |  |                            | 186    |                          
|Consumer
 loans                                   |  |                            | 41     |                          
|                                                 
|Total
 recoveries                                 |  |                            | 482    |                          
|                                                 
|Net charge-offs                                   |  |                            | 2,823  |                          
|                                                 
|Balance at
 end of period                         |  | $                          | 49,175 |                          
|                                                 
|Net charge-offs
 to average loans                 |  |                            | 0.23   | %                        
|Allowance
 for loan losses to total loans         |  |                            | 0.99   |                          
|Allowance
 for loan losses to nonperforming loans |  |                            | 140.52 |                          
|Net charge-offs
 to allowance for loan losses     |  |                            | 5.74   |                          
|Total recoveries
 to total charge-offs            |  |                            | 14.58  |                          

Goodwill and Identifiable Intangible
 AssetsAt September 30, 2008, the Company had intangible assets of $573.4
 million, a decrease of $11.1 million, from $584.5 million at December 31, 2007.
 The decrease is due to year-to-date amortization expense for core deposit and customer
 relationships as well as for the reduction of unrecognized tax benefits for tax
 positions taken in prior years related to acquisitions. In accordance with SFAS
 No. 141, all assets acquired and liabilities assumed are recorded based on their
 fair values on the acquisition date.

Identifiable intangible assets are amortized
 on a straight-line or accelerated basis, over their estimated lives. Management
 assesses the recoverability of intangible assets subject to amortization whenever
 events or changes in circumstances indicate that their carrying value may not be
 recoverable. If the carrying amount exceeds fair value, an impairment charge is
 recorded to income. Goodwill is not amortized, but instead is reviewed for impairment
 on an annual basis. The Company performed its annual test for goodwill impairment
 during the first quarter of the year, and no impairment was recorded. No events
 or circumstances subsequent to those evaluations indicate that the carrying value
 of the Companys goodwill may not be recoverable.

Sources of FundsCash flows
 from deposits, loan and mortgage-backed securities repayments, securities sales
 proceeds and maturities, borrowings and earnings are the primary sources of the
 Companys funds available for use in its lending and investment activities
 and in meeting its operational needs. While scheduled loan and securities repayments
 are a relatively stable source of funds, deposit flows and loan and investment security
 prepayments are influenced by prevailing interest rates and local and economic conditions
 and are inherently uncertain. The borrowings primarily include FHLB advances and
 repurchase agreement borrowings. See Note 10 of Notes to Consolidated Financial
 Statements contained elsewhere within this Report for further borrowings information.
The Company attempts to control the flow of funds in its deposit accounts
 according to its need for funds and the cost of alternative sources of funding.
 A Loan and Deposit Pricing Committee meets weekly to determine pricing and marketing
 initiatives. It influences the flow of funds primarily by the pricing of deposits,
 which is affected to a large extent by competitive factors in its market area and
 asset/liability management strategies.

39




Deposits


The Company receives retail and commercial
 deposits through its main office and 88 other banking offices throughout Connecticut
 (77 locations) and Massachusetts (12 locations). Customer deposits generated through
 the NewAlliance banking network are the largest source of funds used to support
 asset growth.


Table 11:  Deposits


|                |  | September 30, |           | December 31,
|--------------- |  | ------------- | --------- | ------------
|(In thousands)  |  | 2008          |           | 2007        
|               
|Savings         |  | $             | 1,402,874 |             
|Money market    |  |               | 344,681   |             
|NOW             |  |               | 356,162   |             
|Demand          |  |               | 497,749   |             
|Time            |  |               | 1,805,488 |             
|               
|Total
 Deposits |  | $             | 4,406,954 |             
|               

As displayed in Table 11, deposits increased
 $33.3 million compared to December 31, 2007. The Companys strategy was to
 reduce rates paid on interest-bearing deposits, particularly on time deposits, in
 order to stabilize the net interest margin and to grow core deposits. The strategy
 helped to increase our net interest margin from December 31, 2007. During the first
 quarter of the year, deposit outflows did occur due to the reduction in the average
 rate paid on deposits. Many of our peers did not reduce their rates as quickly;
 therefore, a portion of maturing time deposits was lost to competitors. However,
 through continued targeted product promotions, the Company was able to increase
 core deposits by approximately $289.9 million, which more than offset the decrease
 in time deposits earlier in the year. In addition, some time deposit customers shifted
 their maturing certificates of deposit into the free savings product to take advantage
 of a higher rate and the liquidity that the product offers compared to certificates
 of deposit.

BorrowingsNewAlliance
 also uses various types of short-term and long-term borrowings in meeting funding
 needs. While customer deposits remain the primary source for funding loan originations,
 management uses short-term and long-term borrowings as a supplementary funding source
 for loan growth and other liquidity needs when the cost of these funds are favorable
 compared to alternative funding, including deposits.

The following table summaries the Companys recorded borrowings at September 30, 2008.

Table 12:  Borrowings


|                                                                |  | September 30, |           | December 31,
|--------------------------------------------------------------- |  | ------------- | --------- | ------------
|(In thousands)                                                  |  | 2008          |           | 2007        
|                                                               
|FHLB advances (1)                                               |  | $             | 2,175,184 |             
|Repurchase
 agreements                                          |  |               | 185,465   |             
|Mortgage loans
 payable                                         |  |               | 1,354     |             
|Junior subordinated
 debentures issued to affiliated trusts (2) |  |               | 24,785    |             
|                                                               
|Total
 borrowings                                               |  | $             | 2,386,788 |             
|                                                               

|(1) | Includes fair
 value adjustments on acquired borrowings, in accordance with SFAS No. 141,BusinessCombinations, of $6.7 million and $9.6 million at September 30, 2008 and December 31, 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes fair
 value adjustments on acquired borrowings, in accordance with SFAS No. 141,BusinessCombinations, of $150,000 and $300,000 at September 30, 2008 and December
 31, 2007, respectively. The trusts were organized to facilitate the issuance of trust preferred securities. The Company acquired these subsidiaries
 when it acquired Alliance Bancorp of New England, Inc. and Westbank Corporation,
 Inc. The affiliated trusts are wholly-owned subsidiaries of the Company and the
 payments of these securities are irrevocably and unconditionally guaranteed by the
 Company.

The acquisition fair value adjustments
 (premiums) are being amortized as an adjustment to interest expense on borrowings
 over their remaining term using the level yield method.Borrowings were $2.39
 billion at September 30, 2008, an increase of $31.3 million from the balance recorded
 at December 31, 2007, and was mainly in FHLB advances. The increase in FHLB advances
 was primarily due to funding loan growth and to offset deposit outflows which occurred
 predominantly during the first quarter, while managing interest rate risk and liquidity.
 At September 30, 2008, all of the Companys outstanding FHLB advances were
 at fixed rates.

40




Stockholders Equity
Total stockholders equity equaled
 $1.40 billion at September 30, 2008, a decrease of $6.7 million compared to $1.41
 billion at December 31, 2007. The decrease was primarily due to $20.8 million payment
 of cash dividends declared on our common stock during the nine months ended September
 30, 2008, treasury shares acquired for $22.0 million representing 1.8 million shares
 of our common stock and a decline in the fair market value of available for sale
 investments of $9.1 million, net of tax. These decreases were partially offset by
 current year earnings of $35.7 million and stock option and restricted stock expense
 of $8.5 million. For information regarding our compliance with applicable capital
 requirements, see Liquidity and Capital Position below.Dividends
 declared year to date September 30, 2008 were $0.205 per share compared to $0.19
 per share for the same period last year. On October 28, 2008, we declared a $0.07
 per share cash dividend payable on November 18, 2008 to shareholders of record on
 November 7, 2008. Book value per share amounted to $13.08 and $12.93 at September
 30, 2008 and December 31, 2007, respectively, and tangible book value amounted to
 $7.72 and $7.56 at the same dates, respectively.

Management Of Market And Interest
 Rate RiskGeneral
Market risk is the exposure to losses resulting
 from changes in interest rates, foreign currency exchange rates, commodity prices
 and equity prices. The Company has no foreign currency or commodity price risk.
 Credit risk related to investment securities is low as all are investment grade
 or have government guarantees. There is no direct sub-prime mortgage exposure in
 the investment portfolio. The chief market risk factor affecting financial condition
 and operating results is interest rate risk. Interest rate risk is the exposure
 of current and future earnings and capital arising from adverse movements in interest
 rates and spreads. This risk is managed by periodic evaluation of the interest rate
 risk inherent in certain balance sheet accounts, determination of the level of risk
 considered appropriate given the Companys capital and liquidity requirements,
 business strategy, performance objectives and operating environment and maintenance
 of such risks within guidelines approved by the Board of Directors. Through such
 management, the Company seeks to reduce the vulnerability of its net earnings to
 changes in interest rates. The Asset/Liability Committee, comprised of numerous
 senior executives, is responsible for managing interest rate risk. On a quarterly
 basis, the Board of Directors reviews the Companys gap position and interest
 rate sensitivity exposure described below and Asset/Liability Committee minutes
 detailing the Companys activities and strategies, the effect of those strategies
 on the Companys operating results, interest rate risk position and the effect
 changes in interest rates would have on the Companys net interest income.
 The extent of movement of interest rates is an uncertainty that could have a negative
 impact on earnings.The principal strategies used to manage interest rate
 risk include (i) emphasizing the origination, purchase and retention of adjustable
 rate loans, and the origination and purchase of loans with maturities matched with
 those of the deposits and borrowings funding the loans, (ii) investing in debt securities
 with relatively short maturities and/or average lives and (iii) classifying a significant
 portion of its investment portfolio as available for sale so as to provide sufficient
 flexibility in liquidity management. By its strategy of limiting the Banks
 risk to rising interest rates, the Bank is also limiting the benefit of falling
 interest rates.The Company employs two approaches to interest rate risk
 measurement; gap analysis and income simulation analysis.

Gap AnalysisThe matching of assets and liabilities may
 be analyzed by examining the extent to which such assets and liabilities are interest
 rate sensitive and by monitoring a banks interest rate sensitivity gap. An asset or liability is deemed to be interest rate sensitive within
 a specific time period if it will mature or reprice within that time period. The
 interest rate sensitivity gap is defined as the difference between the
 amount of interest-earning assets maturing or repricing within a specific time period
 and the amount of interest-bearing liabilities maturing or repricing within that
 same time period. At September 30, 2008, the Companys cumulative one-year
 interest rate gap (which is the difference between the amount of interest-earning
 assets maturing or repricing within one year and interest-bearing liabilities maturing
 or repricing within one year), was $132.1 million, or 1.60% of total assets. The
 Banks approved policy limit is plus or minus 20%. A gap is considered positive
 when the amount of interest rate sensitive assets exceeds the amount of interest
 rate sensitive liabilities. A gap is considered negative when the amount of interest
 rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
 During a period of rising interest rates, a negative gap would tend to adversely
 affect net interest income while a positive gap would tend to result in an increase
 in net interest income. Conversely, during a period of falling interest rates, a
 negative gap would tend to result in an increase in net interest income while a
 positive gap would tend to adversely affect net interest income.

Income Simulation Analysis
Income simulation analysis considers the
 maturity and repricing characteristics of assets and liabilities, as well as the
 relative sensitivities of these balance sheet components over a range of interest
 rate scenarios. Tested scenarios include instantaneous rate shocks, rate ramps over
 a six-month or one-year period, static rates, non-parallel shifts in the yield curve
 and a forward rate

41




scenario. The simulation analysis is used
 to measure the exposure of net interest income to changes in interest rates over
 a specified time horizon, usually a three-year period. Simulation analysis involves
 projecting a future balance sheet structure and interest income and expense under
 the various rate scenarios. The Companys internal guidelines on interest rate
 risk specify that for a range of interest rate scenarios, the estimated net interest
 margin over the next 12 months should decline by less than 12% as compared to the
 forecasted net interest margin in the base case scenario. However, in practice,
 interest rate risk is managed well within these 12% guidelines.For the base
 case rate scenario the yield curve as of September 30, 2008 was utilized. This yield
 curve was utilized due to the recent excessive volatility in the rate markets. As
 of September 30, 2008, the Companys estimated exposure as a percentage of
 estimated net interest income for the next twelve-month period as compared to the
 forecasted net interest income in the base case scenario are as follows:

|                                                               |  | Percentage change in      |      
|-------------------------------------------------------------- |  | ------------------------- | -----
|                                                               |  | estimated net interest    |      
|                                                               |  | income over twelve months |      
|                                                              
|200 basis point twelve month ramp upwards in interest rates    |  |                           | 2.77 
|100 basis
 point twelve month ramp downwards in interest rates |  |                           | -1.91
|                                                              

As of September 30, 2008, a downward twelve
 month ramp of 100 basis points was a realistic representation of the risk of falling
 rates as the housing and banking markets and retail and business spending continued
 to falter, thereby putting pressure on future economic growth. For an increase in
 rates, an upward twelve month ramp of 200 basis points is also a relevant representation
 of potential risk given the recent stimulus initiatives that have been provided
 to the financial markets.Based on the scenarios above, net interest income
 would increase slightly in the 12-month period after an upward movement in rates,
 and would decrease slightly after a downward movement in rates. Computation of prospective
 effects of hypothetical interest rate changes are based on a number of assumptions
 including the level of market interest rates, the degree to which non-maturity deposits
 react to changes in market rates, the expected prepayment rates on loans and investments,
 the degree to which early withdrawals occur on time deposits and other deposit flows.
 As a result, these computations should not be relied upon as indicative of actual
 results. Further, the computations do not reflect any actions that management may
 undertake in response to changes in interest rates.

Liquidity and Capital PositionLiquidity is the ability to meet current and future short-term financial
 obligations. The Company further defines liquidity as the ability to respond to
 the needs of depositors and borrowers as well as maintaining the flexibility to
 take advantage of investment opportunities. The Companys primary sources of
 funds consist of deposit inflows, loan repayments and sales, maturities, paydowns
 and sales of investment and mortgage-backed securities, borrowings from the Federal
 Home Loan Bank and repurchase agreements.The Company has expanded its use
 of borrowings from the Federal Home Loan Bank to fund loan growth while managing
 interest rate risk and liquidity. At September 30, 2008, total borrowings from the
 Federal Home Loan Bank amounted to $2.17 billion, exclusive of $6.7 million in purchase
 accounting adjustments, and the Company had the immediate capacity to increase that
 total to $2.51 billion. Additional borrowing capacity of approximately $674.7 million
 would be readily available by pledging eligible investment securities as collateral.
 Depending on market conditions and the Companys liquidity and gap position,
 the Company may continue to borrow from the Federal Home Loan Bank or initiate borrowings
 through the repurchase agreement market. At September 30, 2008 the Companys
 repurchase agreement lines of credit with two large broker dealers totaled $125.0
 million, $100.0 million of which was available on that date. Agreement terms vary
 based on the collateral submitted.The Companys most liquid assets
 are cash and due from banks, short-term investments and debt securities. The levels
 of these assets are dependent on the Companys operating, financing, lending
 and investment activities during any given period. At September 30, 2008, cash and
 due from banks, short-term investments and debt securities maturing within one year
 amounted to $305.7 million, or 3.7% of total assets.NewAlliances main
 source of liquidity at the parent company level is dividends from NewAlliance Bank.
 The main uses of liquidity are payments of dividends to common stockholders, repurchase
 of NewAlliances common stock, and the payment of principal and interest to
 holders of trust preferred securities.Management believes that the cash
 and due from banks, short term investments and debt securities maturing within one
 year, coupled with the borrowing line at the Federal Home Loan Bank and the available
 repurchase agreement lines at selected broker dealers, provide for sufficient liquidity
 to meet its operating needs.

42




At September 30, 2008, the Company had commitments
 to originate loans, unused outstanding lines of credit and standby letters of credit
 totaling $837.6 million. Commitments generally have fixed expiration dates or other
 termination clauses, therefore, total commitment amounts do not necessarily represent
 future cash requirements. Management anticipates that it will have sufficient funds
 available to meet its current loan commitments. Time deposits maturing within one
 year from September 30, 2008 amount to $1.13 billion.At September 30, 2008,
 the Companys Tier 1 leverage ratio, a primary measure of regulatory capital
 was $846.4 million, or 11.0%, which is above the threshold level of $383.6 million,
 or 5.0% to be considered well-capitalized. The Tier 1 risk-based capital
 ratio stood at 18.8% and the Total risk-based capital ratio stood at 19.9%. The
 Bank also exceeded all of its regulatory capital requirements with leverage capital
 of $721.5 million, or 9.4% of average assets, which is above the required level
 of $306.3 million or 4.0%. The Tier 1 risk-based capital ratio was 16.1% and the
 Total risk-based capital ratio was 17.2%. These ratios qualify the Bank as a well
 capitalized institution under federal capital guidelines.

Item 3.  Quantitative and Qualitative
 Disclosures About Market RiskQuantitative and qualitative disclosures
 about the Companys market risk appears under Item 2, Managements
 Discussion and Analysis of Financial Condition and Results of Operations,
 under the caption Management of Market and Interest Rate Risk on pages
 41 through 43.Item 4.  Controls and Procedures

The Companys management, including
 our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
 of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
 15d-15(e) under the Exchange Act) as of September 30, 2008. Based upon that evaluation,
 the Chief Executive Officer and Chief Financial Officer concluded that our disclosure
 controls and procedures are effective.Disclosure controls and procedures
 are our controls and other procedures that are designed to ensure that the information
 required to be disclosed by us in our reports filed or submitted under the Securities
 Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized
 and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation,
 controls and procedures designed to ensure that information required to be disclosed
 by us in our reports filed under the Exchange Act is accumulated and communicated
 to our management, including the principal executive officer and principal financial
 officer, as appropriate to allow timely decisions regarding required disclosure
 in the third quarter 2008.In addition, based on that evaluation, no change
 in the Companys internal control over financial reporting occurred during
 the quarter ended September 30, 2008 that has materially affected, or is reasonably
 likely to materially affect, the Companys internal control over financial
 reporting.Item 4T.  Controls and Procedures

Not applicable.PART II - OTHER INFORMATIONItem 1.  Legal Proceedings

There are no material legal proceedings
 or other litigation. See the caption Legal Proceedings under Footnote
 14 Commitments and Contingencies in Part I, Item I, Financial Statements
 (Unaudited) of this Form 10-Q for further discussion.

43




Item 1A.  Risk FactorsAn
 investment in our common stock involves certain risks inherent to our
 business. The material risks and uncertainties that management believes affect the
 Company are described below. To understand these risks and to evaluate an investment
 in our common stock, you should read this entire report, including the following
 risk factors.If any of the following risks actually occur, the Companys
 financial condition and results of operations could be materially and adversely
 affected. If this were to happen, the value of the Companys common stock could
 decline significantly.Changes in Interest Rates and Spreads Could Have
 an Impact on Earnings and Results of Operations, Which Could Have a Negative Impact
 on The Value of NewAlliance Stock.NewAlliances earnings and financial
 condition are dependent to a large degree upon net interest income, which is the
 difference between interest earned from loans and investments and interest paid
 on deposits and borrowings. The narrowing of interest rate spreads, meaning the
 difference between interest rates earned on loans and investments and the interest
 rates paid on deposits and borrowings, could adversely affect NewAlliances
 earnings and financial condition. The Company cannot predict with certainty or control
 changes in interest rates. Regional and local economic conditions and the policies
 of regulatory authorities, including monetary policies of the Federal Reserve Board,
 affect interest income and interest expense. The Company has ongoing policies and
 procedures designed to manage the risks associated with changes in market interest
 rates.However, changes in interest rates still may have an adverse effect
 on NewAlliances profitability. For example, high interest rates could also
 affect the amount of loans that we originate, because higher rates could cause customers
 to apply for fewer mortgages, or cause depositors to shift funds from accounts that
 have a comparatively lower cost, to accounts with a higher cost or experience customer
 attrition due to competitor pricing. If the cost of interest-bearing deposits increases
 at a rate greater than the yields on interest-earning assets increase, net interest
 income will be negatively affected. Changes in the asset and liability mix may also
 affect net interest income. Similarly, lower interest rates cause higher yielding
 assets to prepay and floating or adjustable rate assets to reset to lower rates.
 If the Bank is not able to reduce its funding costs sufficiently, due to either
 competitive factors or the maturity schedule of existing liabilities, then the Banks net interest margin will decline.Credit Market Conditions May
 Impact NewAlliances InvestmentsSignificant credit market anomalies
 may impact the valuation and liquidity of the Companys investment securities.
 The problems of numerous primary security dealers have reduced market liquidity,
 increased normal bid-asked spreads and increased the uncertainty of market participants.
 Such illiquidity could reduce the market value of the Companys investments,
 even those with no apparent credit exposure.NewAlliances Business
 Strategy of Growth Through Acquisitions Could Have an Impact on Earnings and Results
 of Operations That May Negatively Impact the Value of NewAlliance Stock.
In recent years, NewAlliance has focused, in part, on acquisitions. Over the past
 four years, the Company has acquired four banking institutions, a non-depository
 trust company and a registered investment advisory firm. From time to time in the
 ordinary course of business, the Company engages in preliminary discussions with
 potential acquisition targets. As of the date of this filing, there are no binding
 or definitive agreements, plans, arrangements, or understandings for such acquisitions
 by the Company. Although our business strategy includes both internal expansion
 and acquisitions, there can be no assurance that, in the future, we will successfully
 identify suitable acquisition candidates, complete acquisitions successfully, integrate
 acquired operations into our existing operations or expand into new markets. Further,
 there can be no assurance that acquisitions will not have an adverse effect upon
 our operating results while the operations of the acquired businesses are being
 integrated into our operations. In addition, once integrated, acquired operations
 may not achieve levels of profitability comparable to those achieved by our existing
 operations, or otherwise perform as expected. Further, transaction-related expenses
 may adversely affect our earnings. These adverse effects on our earnings and results
 of operations may have a negative impact on the value of our stock.If
 The Goodwill That The Company Has Recorded in Connection With Its Acquisitions Becomes
 Impaired, It Could Have a Negative Impact on The Companys Profitability and
 Stockholders Equity.Applicable accounting standards require that the
 purchase method of accounting be used for all business combinations. Under purchase
 accounting, if the purchase price of an acquired company exceeds the fair value
 of the companys net assets, the excess is carried on the acquirers balance
 sheet as goodwill. At September 30, 2008, the Company had approximately $527.2 million
 of goodwill on its balance sheet. Companies must evaluate goodwill for impairment
 at least annually. Write-downs of the amount of any impairment, if necessary, are
 to be charged to the results of operations in the period in which the impairment
 occurs. There can be no assurance that future evaluations of goodwill will not result
 in findings of impairment and related write-downs, which may have a material adverse
 effect on NewAlliances financial conditions and results of operations.

44




NewAlliance May Experience Higher Levels
 of Loan Losses Due to Recent Growth.NewAlliances growth strategy depends
 on generating an increasing level of loans to produce an acceptable return to our
 stockholders. We will also need to accomplish this loan growth while maintaining
 low loan losses in our portfolio. We expect growth to occur in markets that are
 relatively new to us, including central and western Massachusetts through our acquisition
 of Westbank in 2007. As such, NewAlliances allowance for loan losses may need
 to be increased, or may be deemed insufficient by various regulatory agencies. Such
 agencies may require the Bank to recognize an increase to the allowance for loan
 losses. Any increases in the allowance for loan losses will result in a decrease
 in net income and, possibly capital, and may have a material adverse effect on NewAlliances financial condition and results of operations. See the sections titled Allowance
 for Loan Losses and Classification of Assets and Loan Review in
 Item 7, Managements Discussion and Analysis of Financial Condition and Results
 of Operation, located in the Companys most recent Annual Report on Form 10-K
 for further discussion related to the process for determining the appropriate level
 of the allowance for loan losses.NewAlliance May Experience Higher Levels
 of Loan Losses Due to Economic Conditions.NewAlliances business is
 subject to periodic fluctuations based on national and local economic conditions.
 These fluctuations are not predictable, cannot be controlled and may have a material
 adverse impact on the Companys operations and financial condition. For example,
 recent declines in housing activity including declines in building permits, housing
 starts and home prices may make it more difficult for our borrowers to sell their
 homes or refinance their debt. Sales may also slow, which could strain the resources
 of real estate developers and builders. It is apparent that the economy has entered
 a recession. This will likely affect employment levels and the ability of our borrowers
 to service their debt. The Bank may suffer higher loan losses as a result of these
 factors and the resulting impact on our borrowers.The Impact on the Company
 and the Bank of Recently Enacted Legislation, in Particular the Emergency Economic
 Stabilization Act of 2008 and its Implementing Regulations Cannot be Predicted at
 this Time.On October 3, 2008, President Bush signed into law the Emergency
 Economic Stabilization Act of 2008 ("EESA"), which includes the Troubled Asset Relief
 Program (TARP). The legislation was in response to the financial crises
 affecting the banking system and financial markets.EESA is expected to have
 a profound effect on the financial services industry. The effect of programs developed
 under EESA, including the TARP and Capital Purchase Programs, could dramatically
 change the competitive environment of the Company.TARP gave the United States
 Treasury Department (Treasury) authority to deploy up to $700 billion into the
 financial system with an objective of improving liquidity in capital markets. On
 October 14, 2008, Treasury announced plans to direct $250 billion of this authority
 into preferred stock investments in banks, the first $125 billion of which has been
 allocated to nine major financial institutions. Applications are being considered
 through November 14, 2008 for the remaining $125 billion. The general terms of this
 preferred stock program are as follows for a participating bank:

|- |  | Pay 5% dividends
 on the Treasurys preferred stock for the first five years, and then 9% dividends
 thereafter;                                                   
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- |  | Cannot increase
 common stock dividends for three years while Treasury is an investor;                                                                             
|- |  | Cannot redeem
 the Treasury preferred stock for three years unless the participating bank raises
 high-quality private capital;                                    
|- |  | Must receive
 Treasurys consent to buy back their own stock;                                                                                                      
|- |  | Treasury receives
 warrants entitling Treasury to buy participating banks common stock equal
 to 15% of Treasurys total investment in the participating bank, and
|- |  | Participating
 bank executives must agree to certain compensation restrictions, and restrictions
 on the amount of executive compensation which is tax deductible. 

Currently, the Company does not anticipate participating
 in the TARP, however, the actual impact that EESA and the implementation of its
 programs, or any other governmental program will have on the financial markets and
 the Company cannot reliably be determined at this time.Strong Competition
 Within NewAlliances Market Areas May Limit Growth and Profitability.
Competition in the banking and financial services industry is intense. In our market
 areas, we compete with commercial banks, savings institutions, mortgage brokerage
 firms, credit unions, finance companies, mutual funds, insurance companies, and
 brokerage and investment banking firms operating locally and elsewhere. As we grow,
 we will be expanding into market areas where we may not be as well known as other
 institutions that have been operating in those areas for some time. In addition,
 regional, super regional and national interstate banking institutions have become
 increasingly active in our market areas. Many of these competitors, in particular
 the regional, super regional and national institutions, have substantially greater
 resources and lending limits than we have and may offer certain services that we
 do not or cannot efficiently provide. Our profitability depends upon our continued
 ability to successfully compete in our market areas. The greater resources and deposit
 and loan products offered by some of our competitors may limit our ability to grow
 profitably.

45




NewAlliance May Not Pay You Dividends
 if NewAlliance is Not Able to Receive Dividends From Its Subsidiary, NewAlliance
 Bank.Cash dividends from NewAlliance Bank and our liquid assets are our
 principal sources of funds for paying cash dividends on our common stock. Unless
 we receive dividends from NewAlliance Bank or choose to use our liquid assets, we
 may not be able to pay dividends. NewAlliance Banks ability to pay us dividends
 is subject to its ability to earn net income and to meet certain regulatory requirements.
NewAlliance is Subject To Extensive Government Regulation and SupervisionNewAlliance, primarily through NewAlliance Bank and certain non-bank subsidiaries,
 is subject to extensive federal and state regulation and supervision. Banking regulations
 are primarily intended to protect customers, depositors funds, federal deposit
 insurance funds and the banking system as a whole, not stockholders. These regulations
 affect the Companys lending practices, capital structure, investment practices,
 dividend policy and growth, among other things. Congress and federal regulatory
 agencies continually review banking laws, regulations and policies for possible
 changes. Changes to statutes, regulations or regulatory policies, including changes
 in interpretation or implementation of statutes, regulations or policies, could
 affect the Company in substantial and unpredictable ways. Such changes could subject
 the Company to additional costs, limit the types of financial services and products
 we may offer and/or increase the ability of non-banks to offer competing financial
 services and products, among other things. Failure to comply with laws, regulations
 or policies could result in sanctions by regulatory agencies, civil money penalties
 and/or reputation damage, which could have a material adverse effect on the Companys business, financial condition and results of operations. While NewAlliance
 has policies and procedures designed to prevent any such violations, there can be
 no assurance that such violations will not occur. See the section captioned Supervision
 and Regulation in Item 1. of the Companys most recent annual report
 on Form 10-K for further information.NewAlliance May Not Be Able To Attract
 and Retain Skilled PeopleNewAlliances success depends, in large part,
 on its ability to attract and retain key people. Competition for the best people
 in most activities engaged in by the Company can be intense and we may not be able
 to hire people or to retain them. The unexpected loss of services of one or more
 of the Companys key personnel could have a material adverse impact on the
 business because of their skills, knowledge of the market, years of industry experience
 and the difficulty of promptly finding qualified replacement personnel.NewAlliance Continually Encounters Technological ChangeThe financial services
 industry is continually undergoing rapid technological change with frequent introductions
 of new technology-driven products and services. The effective use of technology
 can increase efficiency and enable financial institutions to better serve customers
 and to reduce costs. However, some new technologies needed to compete effectively
 result in incremental operating costs. The Companys future success depends,
 in part, upon its ability to address the needs of its customers by using technology
 to provide products and services that will satisfy customer demands, as well as
 to create additional efficiencies in operations. Many of the Companys competitors
 have substantially greater resources to invest in technological improvements. The
 Company may not be able to effectively implement new technology-driven products
 and services or be successful in marketing these products and services to its customers.
 Failure to successfully keep pace with technological change affecting the financial
 services industry could have a material adverse impact on the Companys business
 and, in turn, its financial condition and results of operations.NewAlliances Controls and Procedures May Fail or Be CircumventedManagement regularly
 reviews and updates the Companys internal controls, disclosure controls and
 procedures, and corporate governance policies and procedures. Any system of controls,
 however well designed and operated, is based in part on certain assumptions and
 can provide only reasonable, not absolute, assurances that the objectives of the
 system are met. Any failure or circumvention of the controls and procedures or failure
 to comply with regulations related to controls and procedures could have a material
 adverse effect on the Companys business, results of operations and financial
 condition.

Customer Information May be Obtained
 and Used FraudulentlyRisk of theft of customer information resulting from
 security breaches by third parties exposes the Company to reputation risk and potential
 monetary loss. The Company has monetary and reputational exposure to fraudulent
 use of our customers personal information resulting from its general business
 operations and through customer use of financial instruments, such as debit cards.

46




NewAlliances Stock Price Can be
 Volatile.NewAlliances stock price can fluctuate widely in response
 to a variety of factors including:

| |  | Actual or
 anticipated variations in quarterly operating results;                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recommendations
 by securities analysts;                                                                                                                                    
| |  | New technology
 used, or services offered, by competitors;                                                                                                                  
| |  | Significant
 acquisitions or business combinations, strategic partnerships, joint ventures or
 capital commitments by or involving the Company or the Companys competitors;
| |  | Failure to
 integrate acquisitions or realize anticipated benefits from acquisitions;                                                                                       
| |  | Operating
 and stock price performance of other companies that investors deem comparable to
 NewAlliance;                                                                   
| |  | News reports
 relating to trends, concerns and other issues in the financial services industry;                                                                             
| |  | Government
 actions to combat the current stress in the financial system;                                                                                                   
| |  | Changes in
 government regulations; and                                                                                                                                     
| |  | Geopolitical
 conditions such as acts or threats of terrorism or military conflicts.                                                                                        

General market fluctuations, industry
 factors and general economic and political conditions and events, such as economic
 slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations
 could also cause NewAlliances stock price to decrease regardless of the Companys operating results.Item 2.  Unregistered Sales of Equity
 Securities and Use of Proceeds

|(a) | None.                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                  
|(b) | Not applicable.                                                                                                                  
|    |                                                                                                                                  
|(c) | The following
 table sets forth information about the Companys stock repurchases for the
 three months ended September 30, 2008.

Issuer Purchases of Equity Securities


|                     |     | (a) Total Number of SharesPurchased | (b) AveragePrice Paid per Share (includes commission) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the
 Plans or Programs
|-------------------- | --- | ----------------------------------- | ----------------------------------------------------- | ------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------
|Period               |     |                                     |                                                       |                                                                                      |                                                                                                                  
|July 1-31, 2008      | (1) | 896,526                             | $          
             12.21                        | 873,440                                                                              | 3,200,440 shares                                                                                                 
|August 1-31, 2008    |     | 0                                   | $    
                          -                     | 0                                                                                    | 3,200,440 shares                                                                                                 
|September 1-30, 2008 |     | 0                                   | $    
                          -                     | 0                                                                                    | 3,200,440 shares                                                                                                 
|Total                |     | 896,526                             | $      
                 12.21                        | 873,440                                                                              |                                                                                                                  

On January 31, 2006, the Companys
 second stock repurchase plan was announced and provides for the repurchase of up
 to 10.0 million shares of common stock of the Company. There is no set expiration
 date for this plan.

|(1) | Includes 23,086
 shares which represent common stock withheld by the Company to satisfy tax withholding
 requirements on the vesting of restricted shares under the Companys 2005 Long-Term
 Compensation Plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3.  Defaults Upon Senior
 SecuritiesNone.Item 4.  Submission of Matters to a
 Vote of Security HoldersNone.

47




Item 5.  Other InformationNone.

Item 6.  Exhibits

|Exhibit | 
|------- | 
|Number  | 
|3.1     | 
|3.2     | 
|4.1     | 
|10.1    | 
|10.2    | 
|        | 
|10.3    | 
|10.4    | 
|10.5    | 
|10.6    | 
|10.7.1  | 
|10.7.2  | 
|10.7.3  | 
|10.7.4  | 
|10.7.5  | 
|10.7.6  | 
|10.7.7  | 
|10.7.8  | 
|10.7.9  | 
|10.7.10 | 
|10.8.1  | 
|10.8.2  | 
|10.9.1  | 
|10.9.2  | 
|10.10   | 
|10.11   | 

48




|10.12 |  | Form of Indemnification
 Agreement for Directors and Certain Executive Officers. Incorporated herein by reference
 is Exhibit 10.12 filed with the Companys Annual Report on Form 10-K, filed
 March 1, 2007.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14    |  | Code of Ethics
 for Senior Financial Officers. Incorporated herein by reference is Exhibit 14 filed
 with the Companys Annual Report on Form 10-KT, filed March 30, 2004.                                    
|21    |  | Subsidiaries
 of NewAlliance Bancshares, Inc. and NewAlliance Bank. Incorporated herein by reference
 is Exhibit 21 filed with the Companys Annual Report on Form 10-K, filed March
 1, 2007.                
|31.1  |  | Certification
 of Peyton R. Patterson pursuant to the requirements of Section 13 or 15(d) of the
 Securities Exchange Act of 1934 (filed herewith).                                                           
|31.2  |  | Certification
 of Merrill B. Blanksteen pursuant to the requirements of Section 13 or 15(d) of
 the Securities Exchange Act of 1934 (filed herewith).                                                         
|32.1  |  | Certification
 of Peyton R. Patterson pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
 Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                             
|32.2  |  | Certification
 of Merrill B. Blanksteen pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
 to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                           

49




SIGNATURES

| | Pursuant to
 the requirements of the Securities Exchange Act of 1934, the registrant has duly
 caused this report to be signed on its behalf by the undersigned thereunto duly
 authorized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                            
| | NewAlliance
 Bancshares, Inc.                                                                                                                                                              

| | By:   | /s/ Merrill
 B. Blanksteen                                      
| | ----- | ----------------------------------------------------------------
| |       |                                                                 
| |       | Merrill B.
 Blanksteen                                          
| |       | Executive
 Vice President, Chief Financial Officer and Treasurer
| |       | (principal
 financial officer)                                  
| |       |                                                                 
| | Date: | November 6,
 2008                                               

50