**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, 2006.

**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 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
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| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| Large accelerated filer  X                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   | Accelerated filer ___ |   |   |   |   | Non-accelerated filer ___ |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| 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) |   |   |   | 109,550,526                      |   |
|--------|-------------------------------|--------|--------|--------|----------------------------------|--------|
|   |                               |   |   |   |                                  |   |
|   | Class                         |   |   |   | Outstanding at November 03, 2006 |   |

----

**TABLE OF CONTENTS**

| **Part I – FINANCIAL INFORMATION** |   |                                                                                                        |
|-----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|
|                                    |   |                                                                                                        |   | **Page No.** |
|                                    |   |                                                                                                        |   |   |
| Item 1.                                 |   | Financial Statements (Unaudited)                                                                            |   |   |
|                                    |   |                                                                                                        |   |   |
|                                    |   | Consolidated Balance Sheets at September 30, 2006 and December 31, 2005                                     |   | 3 |
|                                    |   |                                                                                                        |   |   |
|                                    |   | Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2005           |   | 4 |
|                                    |   |                                                                                                        |   |   |
|                                    |   | Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2006 |   | 5 |
|                                    |   |                                                                                                        |   |   |
|                                    |   | Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005                 |   | 6 |
|                                    |   |                                                                                                        |   |   |
|                                    |   | Notes to Unaudited Consolidated Financial Statements                                                        |   | 7 |
|                                    |   |                                                                                                        |   |   |
| Item 2.                                 |   | Management’s Discussion and Analysis of Financial Condition and Results of Operations                  |   | 23 |
|                                    |   |                                                                                                        |   |   |
| Item 3.                                 |   | Quantitative and Qualitative Disclosures about Market Risk                                                  |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 4.                                 |   | Controls and Procedures                                                                                     |   | 40 |
|                                    |   |                                                                                                        |   |   |
|                                    |   |                                                                                                        |   |   |
| **Part II – OTHER INFORMATION**    |   |                                                                                                        |
|                                    |   |                                                                                                        |   |   |
|                                    |   |                                                                                                        |   |   |
| Item 1.                                 |   | Legal Proceedings                                                                                           |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 1A.                                |   | Risk Factors                                                                                                |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 2.                                 |   | Unregistered Sales of Equity Securities and Use of Proceeds                                                 |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 3.                                 |   | Defaults upon Senior Securities                                                                             |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 4.                                 |   | Submission of Matters to a Vote of Security Holders                                                         |   | 40 |
|                                    |   |                                                                                                        |   |   |
| Item 5.                                 |   | Other Information                                                                                           |   | 41 |
|                                    |   |                                                                                                        |   |   |
| Item 6.                                 |   | Exhibits                                                                                                    |   | 41 |
|                                    |   |                                                                                                        |   |   |
|                                    |   |                                                                                                        |   |   |
|                                    |   |                                                                                                        |   |   |
| **SIGNATURES**                          |   |                                                                                                        |

2

----

**NewAlliance Bancshares, Inc.Consolidated Balance Sheets**

|                                                                                                                                          |   | September 30, |      |   | December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
| (In thousands, except per share data) (Unaudited)                                                                                             |   | 2006          |      |   | 2005         |   |
|                                                                                                                                               |
| **Assets**                                                                                                                                    |   |          |      |   |         |   |   |   |
| Cash and due from banks, noninterest bearing                                                                                                  |   | $             | 117,123   |   |         | $      | 127,290 |   |
| Short-term investments                                                                                                                        |   |          | 76,066    |   |         |   | 46,497 |   |
|                                                                                                                                               |
| Cash and cash equivalents                                                                                                                     |   |          | 193,189   |   |         |   | 173,787 |   |
| Investment securities available for sale (note 4)                                                                                             |   |          | 2,165,695 |   |         |   | 2,363,471 |   |
| Investment securities held to maturity (note 4)                                                                                               |   |          | 320,556   |   |         |   | 91,734 |   |
| Loans held for sale                                                                                                                           |   |          | 1,223     |   |         |   | 1,222 |   |
| Loans, net (note 5)                                                                                                                           |   |          | 3,744,076 |   |         |   | 3,241,154 |   |
| Premises and equipment, net                                                                                                                   |   |          | 51,987    |   |         |   | 50,399 |   |
| Cash surrender value of bank owned life insurance                                                                                             |   |          | 114,741   |   |         |   | 57,325 |   |
| Goodwill (note 6)                                                                                                                             |   |          | 454,043   |   |         |   | 425,001 |   |
| Identifiable intangible assets (note 6)                                                                                                       |   |          | 51,669    |   |         |   | 52,016 |   |
| Other assets (note 7)                                                                                                                         |   |          | 101,396   |   |         |   | 105,293 |   |
|                                                                                                                                               |
| Total assets                                                                                                                                  |   | $             | 7,198,575 |   |         | $      | 6,561,402 |   |
|                                                                                                                                               |
|                                                                                                                                          |
| **Liabilities**                                                                                                                               |   |          |      |   |         |   |   |   |
| Deposits (note 8)                                                                                                                             |   |          |      |   |         |   |   |   |
| Non-interest bearing                                                                                                                          |   | $             | 468,205   |   |         | $      | 486,528 |   |
| Savings, interest-bearing checking and money market                                                                                           |   |          | 1,660,827 |   |         |   | 1,677,693 |   |
| Time                                                                                                                                          |   |          | 1,719,616 |   |         |   | 1,633,891 |   |
|                                                                                                                                               |
| Total deposits                                                                                                                                |   |          | 3,848,648 |   |         |   | 3,798,112 |   |
| Borrowings (note 9)                                                                                                                           |   |          | 1,919,220 |   |         |   | 1,380,775 |   |
| Other liabilities                                                                                                                             |   |          | 76,578    |   |         |   | 71,647 |   |
|                                                                                                                                               |
| Total liabilities                                                                                                                             |   |          | 5,844,446 |   |         |   | 5,250,534 |   |
|                                                                                                                                          |
| Commitments and contingencies (note 12)                                                                                                       |   |          |      |   |         |   |   |   |
|                                                                                                                                          |
| **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 117,474 shares at September 30, 2006 and 114,897 shares at December 31, 2005 |   |          | 1,175     |   |         |   | 1,149 |   |
| Additional paid-in capital                                                                                                                    |   |          | 1,177,048 |   |         |   | 1,137,806 |   |
| Unallocated common stock held by ESOP                                                                                                         |   |          | (100,612  | )      |         |   | (103,356 | ) |
| Unearned restricted stock compensation                                                                                                        |   |          | (35,123   | )      |         |   | (41,302 | ) |
| Treasury stock, at cost (7,923 shares at September 30, 2006 and 6,073 shares at December 31, 2005)                                            |   |          | (114,660  | )      |         |   | (87,998 | ) |
| Retained earnings                                                                                                                             |   |          | 450,926   |   |         |   | 430,971 |   |
| Accumulated other comprehensive loss (note 14)                                                                                                |   |          | (24,625   | )      |         |   | (26,402 | ) |
|                                                                                                                                               |
| Total stockholders’ equity                                                                                                               |   |          | 1,354,129 |   |         |   | 1,310,868 |   |
|                                                                                                                                               |
| Total liabilities and stockholders’ equity                                                                                               |   | $             | 7,198,575 |   |         | $      | 6,561,402 |   |
|                                                                                                                                               |

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)          |   | 2006               |        | 2005   |              |        | 2006 |   | 2005 |   |
|                                                        |
| **Interest and dividend income**                       |   |               |        |   |              |        |   |   |   |   |   |   |   |   |
| Residential real estate loans                          |   | $                  | 25,446      |   | $                 | 20,876      |   |   | $ | 72,019 |   | $ | 61,587 |   |
| Commercial real estate loans                           |   |               | 14,903      |   |              | 11,534      |   |   |   | 43,317 |   |   | 33,255 |   |
| Commercial business loans                              |   |               | 6,478       |   |              | 5,323       |   |   |   | 18,709 |   |   | 14,847 |   |
| Consumer loans                                         |   |               | 9,573       |   |              | 7,457       |   |   |   | 27,064 |   |   | 20,999 |   |
| Investment securities                                  |   |               | 29,290      |   |              | 25,041      |   |   |   | 80,643 |   |   | 72,042 |   |
| Short-term investments                                 |   |               | 658         |   |              | 292         |   |   |   | 2,218 |   |   | 1,030 |   |
|                                                        |
| Total interest and dividend income                     |   |               | 86,348      |   |              | 70,523      |   |   |   | 243,970 |   |   | 203,760 |   |
|                                                        |
| **Interest expense**                                   |   |               |        |   |              |        |   |   |   |   |   |   |   |   |
| Deposits                                               |   |               | 23,843      |   |              | 14,721      |   |   |   | 64,500 |   |   | 38,661 |   |
| Borrowings                                             |   |               | 19,968      |   |              | 11,862      |   |   |   | 49,709 |   |   | 32,458 |   |
|                                                        |
| Total interest expense                                 |   |               | 43,811      |   |              | 26,583      |   |   |   | 114,209 |   |   | 71,119 |   |
|                                                        |
| Net interest income before provision for loan losses   |   |               | 42,537      |   |              | 43,940      |   |   |   | 129,761 |   |   | 132,641 |   |
|                                                   |
| **Provision for loan losses**                          |   |               | -           |   |              | 400         |   |   |   | - |   |   | 400 |   |
|                                                        |
| Net interest income after provision for loan losses    |   |               | 42,537      |   |              | 43,540      |   |   |   | 129,761 |   |   | 132,241 |   |
|                                                        |
| **Non-interest income**                                |   |               |        |   |              |        |   |   |   |   |   |   |   |   |
| Depositor service charges                              |   |               | 6,762       |   |              | 5,915       |   |   |   | 19,305 |   |   | 16,690 |   |
| Loan and servicing income                              |   |               | 433         |   |              | 307         |   |   |   | 1,669 |   |   | 2,215 |   |
| Trust fees                                             |   |               | 1,617       |   |              | 1,759       |   |   |   | 4,929 |   |   | 3,034 |   |
| Investment and insurance fees                          |   |               | 1,184       |   |              | 1,549       |   |   |   | 4,144 |   |   | 4,922 |   |
| Bank owned life insurance                              |   |               | 1,272       |   |              | 609         |   |   |   | 2,560 |   |   | 1,806 |   |
| Rent                                                   |   |               | 882         |   |              | 824         |   |   |   | 2,522 |   |   | 2,410 |   |
| Net gain (loss) on securities and limited partnerships |   |               | 2,040       |   |              | (22         | ) |   |   | 2,095 |   |   | (53 | ) |
| Net gain on sale of loans                              |   |               | 333         |   |              | 76          |   |   |   | 872 |   |   | 197 |   |
| Other                                                  |   |               | 275         |   |              | 1,355       |   |   |   | 968 |   |   | 2,215 |   |
|                                                        |
| Total non-interest income                              |   |               | 14,798      |   |              | 12,372      |   |   |   | 39,064 |   |   | 33,436 |   |
|                                                        |
| **Non-interest expense**                               |   |               |        |   |              |        |   |   |   |   |   |   |   |   |
| Salaries and employee benefits (notes 1 & 10)     |   |               | 19,191      |   |              | 19,985      |   |   |   | 59,831 |   |   | 52,566 |   |
| Occupancy                                              |   |               | 3,545       |   |              | 3,061       |   |   |   | 10,524 |   |   | 9,193 |   |
| Furniture and fixtures                                 |   |               | 1,579       |   |              | 1,558       |   |   |   | 4,848 |   |   | 4,815 |   |
| Outside services                                       |   |               | 3,722       |   |              | 4,334       |   |   |   | 13,198 |   |   | 13,621 |   |
| Advertising, public relations, and sponsorships        |   |               | 1,160       |   |              | 747         |   |   |   | 4,294 |   |   | 3,282 |   |
| Amortization of identifiable intangible assets         |   |               | 2,267       |   |              | 2,437       |   |   |   | 7,124 |   |   | 8,408 |   |
| Conversion and merger related charges                  |   |               | 186         |   |              | 344         |   |   |   | 2,667 |   |   | 1,234 |   |
| Other                                                  |   |               | 3,217       |   |              | 3,297       |   |   |   | 9,769 |   |   | 10,213 |   |
|                                                        |
| Total non-interest expense                             |   |               | 34,867      |   |              | 35,763      |   |   |   | 112,255 |   |   | 103,332 |   |
|                                                        |
| Income before income taxes                             |   |               | 22,468      |   |              | 20,149      |   |   |   | 56,570 |   |   | 62,345 |   |
| Income tax provision                                   |   |               | 7,369       |   |              | 7,405       |   |   |   | 18,642 |   |   | 21,397 |   |
|                                                        |
| **Net income**                                         |   | $                  | 15,099      |   | $                 | 12,744      |   |   | $ | 37,928 |   | $ | 40,948 |   |
|                                                        |
| Basic earnings per share (note 15)                     |   | $                  | 0.15        |   | $                 | 0.12        |   |   | $ | 0.38 |   | $ | 0.38 |   |
| Diluted earnings per share (note 15)                   |   |               | 0.15        |   |              | 0.12        |   |   |   | 0.38 |   |   | 0.38 |   |
| Weighted-average shares outstanding (note 15)          |   |               |        |   |              |        |   |   |   |   |   |   |   |   |
| Basic                                                  |   |               | 99,817,007  |   |              | 106,472,247 |   |   |   | 100,045,514 |   |   | 106,757,245 |   |
| Diluted                                                |   |               | 100,207,704 |   |              | 106,804,980 |   |   |   | 100,428,645 |   |   | 106,871,171 |   |
| Dividends per share                                    |   | $                  | 0.06        |   | $                 | 0.055       |   |   | $ | 0.175 |   | $ | 0.155 |   |

See accompanying notes to consolidated financial statements.

4

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**NewAlliance Bancshares, Inc.Consolidated Statement of Changes in Stockholders’ Equity**

|                                              |   |        |   |   |      |   |       |   |      |       |   | Unallocated |         |   |   |     |    |   |     |   |     |          |   |   |               |   | Accumulated |   |    |   |   |   |
|---------------------------------------------------|--------|-------------|--------|--------|-----------|--------|------------|--------|-----------|------------|--------|-------------|--------------|--------|--------|----------|---------|--------|----------|--------|----------|---------------|--------|--------|--------------------|--------|-------------|--------|---------|--------|--------|--------|
|                                              |   | Common      |   |   | Par Value |   | Additional |   |      | Common     |   |        |         |   |   |     |    |   |     |   |     |          |   |   | Other              |   |        | Total  |    |
| For the Nine Months Ended September 30, 2006      |   | Shares      |   |   | Common    |   | Paid-in    |   |      | Stock Held |   |        | Unearned     |   |   | Treasury |    |   | Retained |   |     | Comprehensive |   |   | Stockholders’ |   |
| (In thousands, except per share data) (Unaudited) |   | Outstanding |   |   | Stock     |   | Capital    |   |      | by ESOP    |   |        | Compensation |   |   | Stock    |    |   | Earnings |   |     | Loss          |   |   | Equity             |   |
|                                                   |
| Balance December 31, 2005                         |   | 108,824     |   |   | $         | 1,149  |       | $      | 1,137,806 |       |   | $           | (103,356     | )      |   | $        | (41,302 | )      |     | $      | (87,998  | )             |   |   | 430,971            |   |        | $      | (26,402 | )      |   | $      | 1,310,868 |   |
| Common stock issued for acquisition               |   | 2,577       |   |   |      | 26     |       |   | 35,826    |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   | 35,852 |   |
| Dividends declared ($0.175 per share)             |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   |     |          |   | $      | (17,973            | )      |        |   |    |   |   |   | (17,973 | ) |
| Allocation of ESOP shares, net of tax             |   |        |   |   |      |   |       |   | (48       | )          |   |        | 2,744        |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   | 2,696 |   |
| Treasury shares acquired (note 13)                |   | (1,850      | )      |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   | (26,662  | )             |   |   |               |   |        |   |    |   |   |   | (26,662 | ) |
| Restricted stock expense                          |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     | 6,179   |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   | 6,179 |   |
| Stock option expense                              |   |        |   |   |      |   |       |   | 3,464     |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   | 3,464 |   |
| Comprehensive income:                             |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   |   |   |
| Net income                                        |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   | 37,928             |   |        |   |    |   |   |   | 37,928 |   |
| Other comprehensive income, net of tax (note 14)  |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   | 1,777   |   |   |   | 1,777 |   |
|                                                   |
| Total comprehensive income                        |   |        |   |   |      |   |       |   |      |       |   |        |         |   |   |     |    |   |     |   |     |          |   |   |               |   |        |   |    |   |   |   | 39,705 |   |
|                                                   |
| Balance September 30, 2006                        |   | 109,551     |   |   | $         | 1,175  |       | $      | 1,177,048 |       |   | $           | (100,612     | )      |   | $        | (35,123 | )      |     | $      | (114,660 | )             |   |   | 450,926            |   |        | $      | (24,625 | )      |   | $      | 1,354,129 |   |
|                                                   |

See accompanying notes to consolidated financial statements.

5

----

**NewAlliance Bancshares, Inc.Consolidated Statements of Cash Flows**

|                                                                                           |   | Nine Months Ended |     |
|------------------------------------------------------------------------------------------------|--------|-------------------|----------|
|                                                                                           |   | September 30,     |     |
| (In thousands) (Unaudited)                                                                     |   | 2006              |     |   | 2005 |   |
|                                                                                                |
| **Cash flows from operating activities**                                                       |   |              |     |   |   |   |   |   |
| Net income                                                                                     |   | $                 | 37,928   |   |   | $ | 40,948 |   |
| Adjustments to reconcile net income to net cash provided by operating activities               |   |              |     |   |   |   |   |   |
| Provision for loan losses                                                                      |   |              | -        |   |   |   | 400 |   |
| Loss on sale of OREO                                                                           |   |              | 21       |   |   |   | - |   |
| Restricted stock compensation expense                                                          |   |              | 6,179    |   |   |   | 4,483 |   |
| Stock option compensation expense                                                              |   |              | 3,464    |   |   |   | - |   |
| ESOP expense                                                                                   |   |              | 2,696    |   |   |   | 2,668 |   |
| Amortization of identifiable intangible assets                                                 |   |              | 7,124    |   |   |   | 8,408 |   |
| Net amortization/accretion of fair market adjustments from net assets acquired                 |   |              | (5,757   | ) |   |   | (6,757 | ) |
| Net amortization/accretion of investment securities                                            |   |              | 1,478    |   |   |   | 5,408 |   |
| Change in deferred income taxes                                                                |   |              | 1,047    |   |   |   | 6,237 |   |
| Depreciation and amortization                                                                  |   |              | 4,691    |   |   |   | 4,459 |   |
| Net securities gains                                                                           |   |              | (30      | ) |   |   | (12 | ) |
| Net gain on sales of performing loans                                                          |   |              | (872     | ) |   |   | (197 | ) |
| Proceeds from sales of loans held for sale                                                     |   |              | 31,319   |   |   |   | 39,208 |   |
| Loans originated for sale                                                                      |   |              | (30,361  | ) |   |   | (41,589 | ) |
| Loss (gain) on sale of fixed assets                                                            |   |              | 104      |   |   |   | (553 | ) |
| (Gain) provision for loss on limited partnerships                                              |   |              | (2,065   | ) |   |   | 65 |   |
| Increase in cash surrender value of bank owned life insurance                                  |   |              | (2,560   | ) |   |   | (1,806 | ) |
| Decrease in other assets                                                                       |   |              | 12,567   |   |   |   | 5,902 |   |
| Decrease in other liabilities                                                                  |   |              | (10,420  | ) |   |   | (15,095 | ) |
|                                                                                                |
| Net cash provided by operating activities                                                      |   |              | 56,553   |   |   |   | 52,177 |   |
|                                                                                                |
| **Cash flows from investing activities**                                                       |   |              |     |   |   |   |   |   |
| Purchase of securities available for sale                                                      |   |              | (185,298 | ) |   |   | (740,528 | ) |
| Purchase of securities held to maturity                                                        |   |              | (249,660 | ) |   |   | (67,283 | ) |
| Proceeds from maturity, sales, calls and principal reductions of securities available for sale |   |              | 435,267  |   |   |   | 579,472 |   |
| Proceeds from maturity, calls and principal reductions of securities held to maturity          |   |              | 21,333   |   |   |   | 2,829 |   |
| Proceeds from sales of fixed assets                                                            |   |              | 474      |   |   |   | 2,341 |   |
| Net increase in loans held for investment                                                      |   |              | (365,834 | ) |   |   | (95,511 | ) |
| Net cash paid for acquisitions                                                                 |   |              | (5,581   | ) |   |   | (995 | ) |
| Proceeds from sales of other real estate owned                                                 |   |              | 132      |   |   |   | - |   |
| Purchase of bank owned life insuance                                                           |   |              | (50,000  | ) |   |   | - |   |
| Proceeds from bank owned life insurance                                                        |   |              | 13       |   |   |   | 18 |   |
| Purchase of premises and equipment                                                             |   |              | (4,090   | ) |   |   | (3,350 | ) |
|                                                                                                |
| Net cash used in investing activities                                                          |   |              | (403,244 | ) |   |   | (323,007 | ) |
|                                                                                                |
| **Cash flows from financing activities**                                                       |   |              |     |   |   |   |   |   |
| Net (decrease) increase in customer deposit balances                                           |   |              | (124,804 | ) |   |   | 46,112 |   |
| Net increase (decrease) in short-term borrowings                                               |   |              | 35,061   |   |   |   | (38,600 | ) |
| Proceeds from long-term borrowings                                                             |   |              | 827,082  |   |   |   | 565,198 |   |
| Repayments of long-term borrowings                                                             |   |              | (326,611 | ) |   |   | (206,989 | ) |
| Acquisition of treasury shares                                                                 |   |              | (26,662  | ) |   |   | (68,527 | ) |
| Dividends paid                                                                                 |   |              | (17,973  | ) |   |   | (16,604 | ) |
|                                                                                                |
| Net cash provided by financing activities                                                      |   |              | 366,093  |   |   |   | 280,590 |   |
|                                                                                                |
| Net increase in cash and cash equivalents                                                      |   |              | 19,402   |   |   |   | 9,760 |   |
|                                                                                                |
| Cash and equivalents, beginning of period                                                      |   |              | 173,787  |   |   |   | 201,099 |   |
|                                                                                                |
| Cash and equivalents, end of period                                                            |   | $                 | 193,189  |   |   | $ | 210,859 |   |
|                                                                                                |
| **Supplemental information**                                                                   |   |              |     |   |   |   |   |   |
| Cash paid for                                                                                  |   |              |     |   |   |   |   |   |
| Interest on deposits and borrowings                                                            |   | $                 | 110,142  |   |   | $ | 69,502 |   |
| Income taxes paid (refunded), net                                                              |   |              | 12,209   |   |   |   | (2,130 | ) |

In 2006, the fair values on noncash assets acquired and liabilities assumed in the acquisition of Cornerstone were $212.3 millionand $199.8 million, respectively.In 2006, approximately 2.6 million shares of common stock, valued at approximately $35.9 million were issued in connection withthe acquistion of Cornerstone and the contingent payment due to former shareholders of Trust Company.

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. All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts 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 10K as of and for the year ended December 31, 2005.

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, the valuation of mortgage servicing rights and estimates used to evaluate asset impairment including other-than-temporary declines in the value of securities, income tax accruals and the recoverability of goodwill and other intangible assets.

**Cash and Cash Equivalents**For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks and short-term investments with original maturities of three months or less. At September 30, 2006, included in the balance of cash and due from banks were cash on hand of $18.1 million and required reserves in the form of deposits with the Federal Reserve Bank of Boston of $26.1 million. Short-term investments included money market funds and commercial paper of $76.1 million and $46.5 million at September 30, 2006 and December 31, 2005, respectively.

**Investment Securities**Marketable equity and debt securities (other than those reported as short-term investments) are classified as either trading, available for sale, or held to maturity (applies only to debt securities). Management determines the appropriate classifications of securities at the time of purchase. Trading securities are bought and held principally for the purpose of selling them in the near term. Held to maturity securities are debt securities for which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. Federal Home Loan Bank (“FHLB”) stock is a non-marketable security reported at cost. At September 30, 2006 and December 31, 2005, the Company had no debt or equity securities classified as trading.

Held to maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Trading and available for sale securities are recorded at fair value. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available for sale securities are excluded from earnings and are reported in accumulated other comprehensive income, a separate component of equity, until realized.

Premiums and discounts on debt securities are amortized or accreted into interest income over the term of the securities using the level yield method. In accordance with FASB Staff Position No. 115-1, a decline in market value of a security below amortized cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. Gains and losses on sales of securities are recognized at the time of sale on a specific identification basis.

**Investments in Limited Partnerships**The Company invests in limited partnerships. As of September 30, 2006 and December 31, 2005, the carrying value of the Company’s investment in limited partnerships was approximately $6.5 million and $4.0 million, respectively, and are included in other assets. The investments in limited partnerships, for which the Company has a 5.0% or greater ownership interest which is deemed to constitute the ability to exercise significant influence, are reviewed and adjusted quarterly based on the equity method. If the Company does not have the ability to exercise significant influence, the Company’s investment is accounted for under the cost method and the carrying value is periodically evaluated for other than temporary impairment.

During the quarter ended September 30, 2006, it was determined that investment in four of the Company’s limited partnerships that had been accounted for under the cost method through June 30, 2006 should have been accounted for under the equity method. As a result of this change to the equity method, the Company recorded a non-cash cumulative adjustment to net income of $1.3 million, or $0.01 per diluted share on an earnings per share basis. Because the amounts involved were not material to our financial statements, quantitatively or qualitatively, in any individual prior period, and the cumulative amount is not material to projected 2006 results, we recorded the cumulative adjustment, which increased both “Net gain on securities and limited partnerships” and “Other assets” by $1.9 million in the third quarter of 2006.

7

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**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**Loans Held for Sale**The Company currently sells all originated fixed rate residential real estate loans with terms of over 15 years. Loans held for sale are valued at the lower of cost (less principal payments received and net of deferred fees and costs) or estimated fair value. Fair value is estimated using quoted market prices provided by government-sponsored entities. Residential loans are sold by the Company without recourse.

The Company has historically originated Small Business Association (“SBA”) loans which have been held in its portfolio. However, with the acquisition of Cornerstone Bancorp, the Company became involved in the SBA loan secondary market. The Company currently sells the guaranteed portion of SBA loans that meet certain criteria and retains the unguaranteed portion and the right to service the sold portion of the loan in its portfolio. Such loans are included in loans held for sale on the balance sheet upon origination. SBA loans held for sale are valued at the lower of cost (less principal payments received and net of deferred fees and costs) or estimated fair value. Fair value is estimated using quoted market prices. All other loan originations are classified as loans not held for resale.

**Loans Receivable**Loans are stated at their principal amounts outstanding, net of deferred loan fees and costs and fair value adjustments for loans acquired.

Interest on loans is credited to income as earned based on the rate applied to principal amounts outstanding. Loans are placed on nonaccrual status when timely collection of principal or interest in accordance with contractual terms is in question. The Company’s policy is to discontinue the accrual of interest when principal or interest payments become 90 days delinquent or sooner if management concludes that circumstances indicate borrowers may be unable to meet contractual principal or interest payments. If ultimately collected, such interest is credited to income when received. Loans are removed from nonaccrual status when they become current as to principal and interest and when, in the opinion of management concern no longer exists as to the collectability of principal and interest.

Certain direct loan origination fees and costs and fair value adjustments to acquired loans are recognized over the lives of the related loans as an adjustment of interest using the level yield method. When loans are prepaid, sold or participated out, the unamortized portion is recognized as income or expense at that time.

**Allowance for Loan Losses**The adequacy of the allowance for loan losses is regularly evaluated by management. Factors considered in evaluating the adequacy of the allowance include previous loss experience, current economic conditions and their effect on borrowers, the performance of individual loans in relation to contract terms, and other pertinent factors. The provision for loan losses charged to expense is based upon management’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable losses inherent in the loan portfolio. Loan losses are charged against the allowance when management believes the collectability of the principal balance outstanding is unlikely.

In determining the adequacy of the allowance for loan losses, management reviews overall portfolio quality through an evaluation of individual performing and impaired loans, the risk characteristics of the loan portfolios, an analysis of current levels and trends in charge offs, delinquency and nonaccruing loan data, and the credit risk profile of each component of the portfolio, among other factors. While management uses the best available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.

The allowance for loan losses consists of a formula allowance, based on a variety of factors including historical loss experience for various loan portfolio classifications, and a specific valuation allowance for loans identified as impaired. The allowance is an estimate, and ultimate losses may vary from management’s estimate. Changes in the estimate are recorded in the results of operations in the period in which they become known, along with provisions for estimated losses incurred during that period.

A loan is considered to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans, as defined, may be measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. When the measurement of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance.

8

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**Loan Servicing Rights**The Company capitalizes servicing rights for loans sold based on the relative fair value which is allocated between the servicing rights and the loans (without servicing rights).

The cost basis of loan servicing rights is amortized on a level yield basis over the period of estimated net servicing revenue and such amortization is included in the consolidated statement of income as a reduction of loan servicing fee income. Servicing rights are evaluated for impairment by comparing their aggregate carrying amount to their fair value. The fair value of loan 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 loan prepayments and discount rates. All assumptions are based on standards used by market participants. An independent appraisal of the fair value of the Company’s loan servicing rights is obtained on a quarterly basis and is used by management to evaluate the reasonableness of the fair value estimates. Impairment is recognized through a valuation reserve and is recorded as an adjustment to loan and servicing income.

**Premises and Equipment**Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method using the estimated lives of the assets. Estimated lives are 5 to 40 years for building and improvements and 3 to 10 years for furniture, fixtures and equipment. Amortization of leasehold improvements is calculated on a straight-line basis over the terms of the related leases or the life of the asset, whichever is shorter. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renovations are capitalized.

**Bank Owned Life Insurance**Bank owned life insurance (“BOLI”) represents life insurance on certain employees who have consented to allow the Bank to be the beneficiary of those policies. BOLI is recorded as an asset at cash surrender value. Increases in the cash surrender value of the policies, as well as insurance proceeds received, are recorded in other non-interest income and are not subject to income tax. Management reviews the financial strength of the insurance carriers on an annual basis and BOLI with any individual carrier is limited to 15% of capital plus reserves.

**Goodwill and Identifiable Intangible Assets**The assets (including identifiable intangible assets) and liabilities acquired in a business combination are recorded at fair value at the date of acquisition. Goodwill is recognized for the excess of the acquisition cost over the fair values of the net assets acquired and is not subsequently amortized. Identifiable intangible assets are subsequently amortized on a straight-line or accelerated basis, over their estimated lives. Management assesses the recoverability of goodwill at least on an annual basis and all intangible assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If carrying amount exceeds fair value an impairment charge is recorded to income.

**Income Taxes**The Company files a consolidated federal tax return and a combined state tax return. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, *“Accounting for Income Taxes,”* the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred 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. Deferred tax assets are also recognized for available tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when temporary differences and carryforwards are realized or settled.

The deferred tax asset is subject to reduction by a valuation allowance in certain circumstances. This valuation allowance is recognized if, based on an analysis of available evidence, management determines that it is more likely than not that some portion or all of the deferred tax asset will not be realized. The valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realization of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense.

Income tax expense includes the amount of taxes payable for the current year, and the deferred tax benefit or expense for the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

**Trust Assets**The Bank had approximately $1.05 billion and $1.15 billion of assets under management at September 30, 2006 and December 31, 2005, respectively, in a fiduciary or agency capacity for customers. These assets are not included in the accompanying consolidated financial statements since they are not owned by the Bank.

9

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**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**Pension and Other Postretirement Benefit Plans**The Company has a noncontributory pension plan covering substantially all employees. Pension costs related to this plan are based upon actuarial computations of current and future benefits for employees based on years of service and the employee’s highest career earnings over a five-year consecutive period. Costs are charged to non-interest expense and are funded in accordance with requirements of the Employee Retirement Income Security Act.

In addition to the qualified plan, the Company has adopted supplemental retirement plans for certain key officers. These plans, which are nonqualified, were designed to offset the impact of changes in the pension plan that limit benefits for highly compensated employees under qualified pension plans.

The Company also accrues costs related to postretirement healthcare and life insurance benefits, which recognizes costs over the employee’s period of active employment.

The Company uses a September 30 measurement date. In accordance with SFAS No. 87,*“Employers’ Accounting for Pension*s,*”* the discount rate is set for the retirement plans by reference to investment grade bond and yields. The expected long-term rate of return on the assets held in our defined pension plan is based on market and economic conditions, the Plan’s asset allocation and other factors.

**Stock-Based Compensation**On January 1, 2006, the Company began accounting for stock option and restricted stock awards in accordance with revised SFAS No.123 (“SFAS No. 123R”),*“Share Based Payment,”* and chose the modified prospective application transition method provided for under this statement. 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 financial impact of the implementation of SFAS No. 123R is discussed in Note 10 of the Notes to Unaudited Consolidated Financial Statements. Prior to the adoption of SFAS No. 123R, the Company accounted for stock options and restricted stock in accordance with Accounting Principles Board (“APB”) Opinion No. 25,*“Accounting for Stock Issued to Employees,”* and related interpretations. Accordingly, compensation expense was not recognized for fixed stock options as the exercise price of the option was equal to the fair value of the underlying stock at the grant date. The fair value of restricted stock awards, measured at grant date, was amortized to compensation expense on a straight-line basis over the vesting period. SFAS No. 123,*“Accounting for Stock-Based Compensation,”* encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period. However, as permitted by SFAS No. 123, the Company continued to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 through December 31, 2005 and disclosed certain proforma amounts as if the fair value approach of SFAS No. 123 had been applied.

**Conversion and Merger Related Charges**The Company records costs incurred due to a plan to either exit an activity or involuntarily terminate employees of an acquired company as recognized liabilities assumed in a purchase business combination and included in the allocation of the acquisition cost when: (a) the plan to exit an activity begins by the acquisition date; (b) commitment to the plan occurs within one year of the acquisition; (c) the plan is sufficiently detailed to ensure its completion; and (d) plan activities begin shortly after the plan is finalized.

Costs that do not meet the conditions for inclusion in the allocation of acquisition cost are expensed as incurred and are reported as *Conversion and Merger Related Charges*. These merger charges consist primarily of consulting, legal, system conversion, printing and advertising costs associated with acquired companies, acquisition targets and potential acquisition targets. Certain merger related charges continue to be incurred after the closing of these acquisitions primarily due to the timing of banking system conversion activities, which often occur several months after the closing of an acquisition. The Company expects to incur similar charges in the future.

**Related Party Transactions**Directors and executive officers of the Company and its subsidiaries and their associates have been customers of and have had transactions with the Company, and management expects that such persons will continue to have such transactions in the future. All deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who are not related parties and, in the opinion of management, the transactions did not involve more than normal risks of collectability, favored treatment or terms, or present other unfavorable features.

10

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**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**Comprehensive Income**The purpose of reporting comprehensive income is to report a measure of all changes in an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income includes net income and certain changes in capital that are not recognized in the statement of income (such as changes in net unrealized gains and losses on securities available for sale). The Company has reported comprehensive income for the nine months ended September 30, 2006 in the consolidated statement of changes in stockholders’ equity. The components of comprehensive income are presented in Note 14 of the Notes to Unaudited Consolidated Financial Statements.

**Segment Reporting**The Company’s only business segment is Community Banking. During the periods presented this segment represented all the revenues and income of the consolidated group and therefore, is the only reported segment as defined by SFAS No. 131,*“Disclosures about Segments of an Enterprise and Related Information*.*”*

**Earnings Per Share**Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common shares (such as stock options and unvested restricted stock) were issued during the period. Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

**2.      Recent Accounting Pronouncements**

On September 29, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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. The Company will adopt the provisions of SFAS No. 158 on December 31, 2006, prospectively. The Company estimates that the impact of adopting SFAS No. 158 will reduce shareholders’ equity by approximately $3.3 million, net of tax, with no impact to the consolidated statements of income and cash flows. This estimate is based on the December 31, 2005 valuation measurement date for pension costs.

In September 2006, the FASB issued SFAS No 157, *Fair Value Measurements*, 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, it establishes a fair value hierarchy and will require companies to make expanded disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, but early adoption is permitted. Management has elected not to early adopt SFAS No. 157 and does not believe that the adoption of SFAS No. 157 will have a material impact on the Company’s consolidated financial statements.

In September 2006, the Emerging Issue Task Force (“EITF”) affirmed as a final consensus EITF Issue No. 06-4 –*Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements*. Issue 06-4 stipulates that the agreement by the employer to share a portion of a life insurance policy with the employee during the employees post retirement period is a post retirement benefit arrangement and the purchase of a split dollar life insurance policy does not constitute a settlement of the postretirement benefit as defined in SFAS No. 106, *Employers Accounting for Postretirement Benefits Other Than Pensions*. Issue 06-4 requires a liability to be recorded for the postretirement obligation. Issue 06-4 is applicable for the first annual or interim reporting period beginning after December 15, 2007 and should be applied through either (1) a cumulative effect adjustment to retained earnings or (2) retrospective application in accordance with the guidance in SFAS No. 154, *Accounting for Changes in Error Corrections*, but early adoption is permitted. Management has elected not to early adopt EITF 06-4 and has not yet analyzed the estimated impact on the Company’s consolidated financial statements.

On July, 13, 2006, the FASB issued Interpretation No. 48 (“FIN 48”), *Accounting for Uncertainty in Income Taxes*. FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109, *Accounting for Income Taxes*. This includes tax positions considered to be “routine” as well as those with a high degree of uncertainty. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its

11

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**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

FIN 48 is effective for fiscal years beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an enterprise’s fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. Management elected not to early adopt FIN 48 and does not believe that the adoption of FIN 48 will have a material impact on the Company’s consolidated financial statements.

In March of 2006, the FASB issued SFAS No. 156, *Accounting for Servicing of Financial Assets*. The statement is an amendment to SFAS No. 140, *Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*, and was issued with the intention of simplifying the accounting for servicing assets and liabilities by permitting an entity with a separately recognized servicing asset or servicing liability to choose either the amortization or fair value method for the subsequent measurement. The statement also permits a servicer that uses derivative financial instruments to offset risks on servicing to report both the derivative financial instrument and related servicing asset or liability by using a consistent fair value measurement attribute.

SFAS No. 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, but early adoption is permitted. Management has elected not to early adopt SFAS No. 156 and is currently analyzing the method that will be implemented upon adoption. Regardless of the form of adoption, the Company does not believe that it will have a material impact on the Company’s consolidated financial statements.

|   | • |   | Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133.                                                                                                                        |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. |
|   | • |   | Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives.                                                                                                                                     |
|   | • |   | Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.           |

SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, but early adoption is permitted. Management has elected not to early adopt SFAS No. 155 and does not believe that the adoption of SFAS No. 155 will have a material impact on the Company’s consolidated financial statements.

**3.      Business Combinations**

The following table summarizes acquisitions completed between April 1, 2004 and September 30, 2006.

|   |                                  |   |        |   | Balance at           |   |                      |    |     |   |        |   |         |   |   |   |    |   |     |
|--------|---------------------------------------|--------|-------------|--------|----------------------|--------|---------------------------|---------|----------|--------|-------------|--------|--------------|--------|--------|--------|---------|--------|----------|
|   |                                  |   |        |   | Acquisition Date     |   | Transaction Related Items |
|   |                                  |   |        |   |                      |   |                           |
|   |                                  |   |        |   |                 |   |                      |    |     |   |        |   |         |   |   |   |    |   |     |   | Total |
|   |                                  |   | Acquisition |   |                 |   |                      |    |     |   |        |   | Identifiable |   | Cash   |   | Shares  |   | Purchase |
|   | (In thousands)                        |   | Date        |   | Assets               |   | Equity                    |    | Goodwill |   | Intangibles |   | Paid         |   | Issued |   | Price   |
|   |                                       |
|   | Cornerstone Bancorp, Inc.             |   | 1/2/2006    |   | $  211,358 |   | $                         | 18,290  |     | $      | 24,908      |   | $            | 6,777  |   | $      | 14,261  |   | 2,393    |   | $ | 47,519 |
|   | Trust Company of Connecticut          |   | 7/1/2005    |   | 5,611                |   |                      | 4,937   |     |   | 10,487      |   |         | 7,277  |   |   | 6,528   |   | 922      |   |   | 19,499 |
|   | Connecticut Bancshares, Inc.          |   | 4/1/2004    |   | 2,541,575            |   |                      | 239,139 |     |   | 368,619     |   |         | 56,609 |   |   | 610,600 |   | -        |   |   | 610,600 |
|   | Alliance Bancorp of New England, Inc. |   | 4/1/2004    |   | 427,631              |   |                      | 26,664  |     |   | 49,464      |   |         | 10,010 |   |   | 191     |   | 7,665    |   |   | 76,841 |
|   |                                       |

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.

12

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

*Cornerstone Bancorp, Inc. Acquisition*On January 2, 2006 the Company completed the acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), the parent company of Cornerstone Bank. Under the terms of the purchase agreement, the Company paid approximately $14.3 million in cash and issued 2,392,648 shares of stock for an aggregated merger consideration of approximately $47.5 million. Cornerstone had assets of approximately $211.4 million and stockholders’ equity of approximately $18.3 million on January 2, 2006.

*Transactions Pending Consummation*On July 18, 2006, the Company announced that it had signed a definitive agreement to acquire Westbank Corporation (“Westbank”), the parent company of Westbank, a commercial bank and trust company. At June 30, 2006, Westbank had assets of $822.1 million and a branch network of 17 banking offices in Massachusetts and Connecticut. Under the terms of the agreement, each outstanding share of Westbank common stock will be converted into the right to receive $23.00 in cash or stock subject to a collar on the stock consideration. The exchange ratio for the stock consideration will be determined by dividing $23.00 by a 20-day average daily closing price of NewAlliance common stock, provided that should the average NewAlliance price be below $13.30, the exchange ratio will be fixed at 1.7293, or should the average NewAlliance price be above $14.70, the exchange ratio will be fixed at 1.5646. As a result of the elective option, the merger consideration each Westbank shareholder elects to receive may be adjusted if necessary, so that 50% of the total merger consideration will be paid in Company stock. The aggregate merger consideration is valued at approximately $116.0 million. The transaction is subject to all required regulatory approvals and the shareholders of Westbank and other customary conditions. The definitive agreement has been approved by the directors of both the Company and Westbank. The transaction is expected to close in the first quarter of 2007.

**4.       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, 2006 and December 31, 2005.

|   |                                             |   | September 30, 2006 |      | December 31, 2005 |
|--------|--------------------------------------------------|--------|--------------------|-----------|-------------------|
|   |                                             |   |                    |      |                   |
|   |                                             |   |               |      |              | Gross |   | Gross |   |   |   |   |   |   |   |   | Gross |   | Gross |   |   |   |   |
|   |                                             |   | Amortized          |      | unrealized        |   | unrealized |   |   | Fair |   | Amortized |   | unrealized |   | unrealized |   |   | Fair |
|   | (In thousands)                                   |   | cost               |      | gains             |   | losses |   |   | value |   | cost |   | gains |   | losses |   |   | value |
|   |                                                  |
|   | **Available for sale**                           |   |               |      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   | U.S. Treasury obligations                        |   | $                  | 8,818     | $                 | 1 |   | $ | (147 | ) |   | $ | 8,672 |   | $ | 8,877 |   | $ | 1 |   | $ | (133 | ) |   | $ | 8,745 |
|   | U.S. Government sponsored enterprise obligations |   |               | 171,570   |              | 115 |   |   | (904 | ) |   |   | 170,781 |   |   | 159,008 |   |   | 19 |   |   | (1,641 | ) |   |   | 157,386 |
|   | Corporate obligations                            |   |               | 35,647    |              | - |   |   | (746 | ) |   |   | 34,901 |   |   | 54,831 |   |   | 48 |   |   | (1,262 | ) |   |   | 53,617 |
|   | Other bonds and obligations                      |   |               | 96,751    |              | 149 |   |   | (728 | ) |   |   | 96,172 |   |   | 120,663 |   |   | 191 |   |   | (1,006 | ) |   |   | 119,848 |
|   | Marketable and trust preferred equity securities |   |               | 187,776   |              | 1,058 |   |   | (951 | ) |   |   | 187,883 |   |   | 161,122 |   |   | 783 |   |   | (1,099 | ) |   |   | 160,806 |
|   | Mortgage-backed securities                       |   |               | 1,702,939 |              | 824 |   |   | (36,477 | ) |   |   | 1,667,286 |   |   | 1,899,374 |   |   | 537 |   |   | (36,842 | ) |   |   | 1,863,069 |
|   |                                                  |
|   | Total available for sale                         |   |               | 2,203,501 |              | 2,147 |   |   | (39,953 | ) |   |   | 2,165,695 |   |   | 2,403,875 |   |   | 1,579 |   |   | (41,983 | ) |   |   | 2,363,471 |
|   |                                                  |
|   | **Held to maturity**                             |   |               |      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   | Mortgage-backed securities                       |   |               | 314,751   |              | 2,478 |   |   | (1,466 | ) |   |   | 315,763 |   |   | 87,104 |   |   | 81 |   |   | (1,034 | ) |   |   | 86,151 |
|   | Other bonds                                      |   |               | 5,805     |              | 6 |   |   | (96 | ) |   |   | 5,715 |   |   | 4,630 |   |   | - |   |   | (74 | ) |   |   | 4,556 |
|   |                                                  |
|   | Total held to maturity                           |   |               | 320,556   |              | 2,484 |   |   | (1,562 | ) |   |   | 321,478 |   |   | 91,734 |   |   | 81 |   |   | (1,108 | ) |   |   | 90,707 |
|   |                                                  |
|   | Total securities                                 |   | $                  | 2,524,057 | $                 | 4,631 |   | $ | (41,515 | ) |   | $ | 2,487,173 |   | $ | 2,495,609 |   | $ | 1,660 |   | $ | (43,091 | ) |   | $ | 2,454,178 |
|   |                                                  |

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, 2006.

|   |                                              |   | Less Than One Year |    | More Than One Year |   | Total  |
|--------|---------------------------------------------------|--------|--------------------|---------|--------------------|--------|--------|
|   |                                              |   |                    |    |                    |   |        |
|   |                                              |   | Fair               |    | Unrealized         |   |   | Fair |   | Unrealized |   |   | Fair |   | Unrealized |   |
|   | (In thousands)                                    |   | value              |    | losses             |   |   | value |   | losses |   |   | value |   | losses |   |
|   |                                                   |
|   | U. S. Treasury obligations                        |   | $                  | 3,964   |               | $      | (22    | ) |   | $ | 3,628 |   | $ | (125 | ) |   | $ | 7,592 |   | $ | (147 | ) |
|   | U. S. Government sponsored enterprise obligations |   |               | 70,004  |               |   | (134   | ) |   |   | 53,376 |   |   | (770 | ) |   |   | 123,380 |   |   | (904 | ) |
|   | Corporate obligations                             |   |               | -       |               |   | -      |   |   |   | 34,901 |   |   | (746 | ) |   |   | 34,901 |   |   | (746 | ) |
|   | Other bonds and obligations                       |   |               | 8,043   |               |   | (39    | ) |   |   | 44,793 |   |   | (785 | ) |   |   | 52,836 |   |   | (824 | ) |
|   | Marketable and trust preferred equity obligations |   |               | 16      |               |   | (2     | ) |   |   | 26,012 |   |   | (949 | ) |   |   | 26,028 |   |   | (951 | ) |
|   | Mortgage-backed securities                        |   |               | 180,568 |               |   | (1,247 | ) |   |   | 1,442,619 |   |   | (36,696 | ) |   |   | 1,623,187 |   |   | (37,943 | ) |
|   |                                                   |
|   | Total securities with unrealized losses           |   | $                  | 262,595 |               | $      | (1,444 | ) |   | $ | 1,605,329 |   | $ | (40,071 | ) |   | $ | 1,867,924 |   | $ | (41,515 | ) |
|   |                                                   |

Of the issues summarized above, 59 issues have unrealized losses for less than twelve months and 381 have unrealized losses for twelve months or more. Management believes that no individual unrealized loss as of September 30, 2006 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-backed securities relate to securities issued by FNMA,

13

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

FHLMC and AAA rated securities issued by private institutions and the unrealized losses on these securities are attributable to changes in market interest rates. The unrealized losses reported for trust-preferred securities, corporate obligations and other bonds and obligations relate to securities that are investment grade and the unrealized losses on these securities are attributable to changes in market interest rates rather than credit quality of the issuer. 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.

**5.      Loans**

The composition of the Company’s loan portfolio is as follows:

|   |                                   |   | September 30, |      |   | December 31, |   |
|--------|----------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|   | (In thousands)                         |   | 2006          |      |   | 2005         |   |
|   |                                        |
|   | Residential real estate                |   | $             | 1,923,894 |   |         | $      | 1,650,527 |   |
|   | Commercial real estate                 |   |          | 929,312   |   |         |   | 768,582 |   |
|   | Commercial business                    |   |          | 345,505   |   |         |   | 314,562 |   |
|   | Consumer                               |   |          |      |   |         |   |   |   |
|   | Home equity and equity lines of credit |   |          | 565,785   |   |         |   | 520,290 |   |
|   | Other                                  |   |          | 17,450    |   |         |   | 22,745 |   |
|   |                                        |
|   | Total consumer                         |   |          | 583,235   |   |         |   | 543,035 |   |
|   |                                        |
|   | Total loans                            |   |          | 3,781,946 |   |         |   | 3,276,706 |   |
|   | Allowance for loan losses              |   |          | (37,870   | )      |         |   | (35,552 | ) |
|   |                                        |
|   | Total loans, net                       |   | $             | 3,744,076 |   |         | $      | 3,241,154 |   |
|   |                                        |

At September 30, 2006 and December 31, 2005, the Company’s residential real estate loan, home equity and equity lines of credit portfolios are entirely collateralized by one to four family homes and condominiums, the majority of which are located in Connecticut. The commercial real estate loan portfolio is collateralized primarily by multi-family, commercial and industrial properties located predominately in Connecticut. A variety of different assets, including accounts receivable, inventory and property, and plant and equipment, collateralize the majority of commercial business loans.

The following table provides a summary of activity in the allowance for loan losses.

|   |                                         |   | At or For the Three Months |   | At or For the Nine Months |
|--------|----------------------------------------------|--------|----------------------------|--------|---------------------------|
|   |                                         |   | Ended September 30,        |   | Ended September 30,       |
|   | (In thousands)                               |   | 2006                       |   | 2005                      |   | 2006 |   |   | 2005 |
|   |                                              |
|   | Balance at beginning of period               |   | $                          | 37,958 |                      | $ | 36,181 |   | $ | 35,552 |   |   | $ | 36,163 |
|   | Net allowances gained through acquisition    |   |                       | -      |                      |   | - |   |   | 2,224 |   |   |   | - |
|   | Provision for loan losses                    |   |                       | -      |                      |   | 400 |   |   | - |   |   |   | 400 |
|   | Charge-offs                                  |   |                       |   |                      |   |   |   |   |   |   |   |   |   |
|   | Residential and commercial real estate loans |   |                       | 283    |                      |   | 7 |   |   | 399 |   |   |   | 28 |
|   | Commercial business loans                    |   |                       | 281    |                      |   | 1,222 |   |   | 951 |   |   |   | 2,532 |
|   | Consumer loans                               |   |                       | 154    |                      |   | 64 |   |   | 343 |   |   |   | 220 |
|   |                                              |
|   | Total charge-offs                            |   |                       | 718    |                      |   | 1,293 |   |   | 1,693 |   |   |   | 2,780 |
|   |                                              |
|   | Recoveries                                   |   |                       |   |                      |   |   |   |   |   |   |   |   |   |
|   | Residential and commercial real estate loans |   |                       | 28     |                      |   | 32 |   |   | 200 |   |   |   | 223 |
|   | Commercial business loans                    |   |                       | 579    |                      |   | 296 |   |   | 1,482 |   |   |   | 1,527 |
|   | Consumer loans                               |   |                       | 23     |                      |   | 51 |   |   | 105 |   |   |   | 134 |
|   |                                              |
|   | Total recoveries                             |   |                       | 630    |                      |   | 379 |   |   | 1,787 |   |   |   | 1,884 |
|   |                                              |
|   | Net charge-offs (recoveries)                 |   |                       | 88     |                      |   | 914 |   |   | (94 | ) |   |   | 896 |
|   |                                              |
|   | Balance at end of period                     |   | $                          | 37,870 |                      | $ | 35,667 |   | $ | 37,870 |   |   | $ | 35,667 |
|   |                                              |

14

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**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**6.      Goodwill and Identifiable Intangible Assets**

The changes in the carrying amount of goodwill and identifiable intangible assets for the nine months ended September 30, 2006 are summarized as follows:

|   |                                                         |   |     |    |   |          |         |   |       |        |   |   |       |         | Total  |   |
|--------|--------------------------------------------------------------|--------|----------|---------|--------|---------------|--------------|--------|------------|-------------|--------|--------|------------|--------------|--------|--------|
|   |                                                         |   |     |    |   |          | Core Deposit |   |       |        |   |   |       | Identifiable |   |
|   |                                                         |   |     |    |   |          | and Customer |   |       | Non-Compete |   |   | Intangible |         |
|   | (In thousands)                                               |   | Goodwill |    |   | Relationships |         |   | Agreements |        |   | Assets |       |
|   |                                                              |
|   | Balance, December 31, 2005                                   |   | $        | 425,001 |   |          | $            | 49,149 |       |        | $      | 2,867  |       |         | $      | 52,016 |   |
|   | Cornerstone acquisition                                      |   |     | 24,908  |   |          |         | 6,777  |       |        |   | -      |       |         |   | 6,777  |   |
|   | Additional Trust Company of Connecticut merger consideration |   |     | 4,289   |   |          |         | -      |       |        |   | -      |       |         |   | -      |   |
|   | Other                                                        |   |     | (155    | )      |          |         |   |       |        |   |   |       |         |   |   |   |
|   | Amortization expense                                         |   |     | -       |   |          |         | (5,630 | )          |        |   | (1,494 | )          |         |   | (7,124 | ) |
|   |                                                              |
|   | Balance, September 30, 2006                                  |   | $        | 454,043 |   |          | $            | 50,296 |       |        | $      | 1,373  |       |         | $      | 51,669 |   |
|   |                                                              |
|   | Estimated amortization expense for the year ending:          |   |     |    |   |          |         |   |       |        |   |   |       |         |   |   |   |
|   | Remaining 2006                                               |   |     |    |   |          | $            | 1,850  |       |        | $      | 416    |       |         | $      | 2,266  |   |
|   | 2007                                                         |   |     |    |   |          |         | 6,955  |       |        |   | 957    |       |         |   | 7,912  |   |
|   | 2008                                                         |   |     |    |   |          |         | 6,628  |       |        |   | -      |       |         |   | 6,628  |   |
|   | 2009                                                         |   |     |    |   |          |         | 6,370  |       |        |   | -      |       |         |   | 6,370  |   |
|   | 2010                                                         |   |     |    |   |          |         | 6,185  |       |        |   | -      |       |         |   | 6,185  |   |
|   | Thereafter                                                   |   |     |    |   |          |         | 22,308 |       |        |   | -      |       |         |   | 22,308 |   |
|   |                                                              |

The components of identifiable intangible assets are as follows:

|   |                                    |   | Original |   |         |   |          | Balance |
|--------|-----------------------------------------|--------|----------|--------|--------------|--------|---------------|---------|
|   |                                    |   | Recorded |   | Cumulative   |   | September 30, |
|   | (In thousands)                          |   | Amount   |   | Amortization |   | 2006          |
|   |                                         |
|   | Identifiable intangible assets          |   |     |   |         |   |          |    |   |   |
|   | Core deposit and customer relationships |   | $        | 71,313 |         | $      | 21,017        |    | $ | 50,296 |
|   | Non-compete agreements                  |   |     | 9,758  |         |   | 8,385         |    |   | 1,373 |
|   |                                         |
|   | Total                                   |   | $        | 81,071 |         | $      | 29,402        |    | $ | 51,669 |
|   |                                         |

**7.     Other Assets**

Selected components of other assets are as follows:

|   |                                                      |   | September 30, |   | December 31, |
|--------|-----------------------------------------------------------|--------|---------------|--------|--------------|
|   | (In thousands)                                            |   |          | 2006   |         |   | 2005 |
|   |                                                           |
|   | Deferred tax asset                                        |   | $             | 26,915 |         | $ | 27,971 |
|   | Current Federal income tax receivable                     |   |          | 5,928  |         |   | 2,579 |
|   | Accrued interest receivable                               |   |          | 28,959 |         |   | 25,684 |
|   | Prepaid pension                                           |   |          | 13,290 |         |   | 11,921 |
|   | Wire transfer for January 2, 2006 Cornerstone acquisition |   |          | -      |         |   | 14,254 |
|   | Receivable arising from securities transactions           |   |          | 4,018  |         |   | 3,262 |
|   | Investments in limited partnerships and other investments |   |          | 8,317  |         |   | 8,044 |
|   | Mortgage servicing rights                                 |   |          | 2,761  |         |   | 2,702 |
|   |                                                           |

15

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**8.**     **Deposits**

|   | A summary of deposits by account type is as follows: |   |          |      |         |   |   |      |   |
|--------|------------------------------------------------------|--------|---------------|-----------|--------------|--------|--------|-----------|--------|
|   |                                                 |   | September 30, |      | December 31, |
|   | (In thousands)                                       |   | 2006          |      | 2005         |
|   |                                                      |
|   | Savings                                              |   | $             | 763,356   |         |   | $      | 781,346   |   |
|   | Money market                                         |   |          | 533,496   |         |   |   | 554,079   |   |
|   | NOW                                                  |   |          | 363,975   |         |   |   | 342,268   |   |
|   | Demand                                               |   |          | 468,205   |         |   |   | 486,528   |   |
|   | Time                                                 |   |          | 1,719,616 |         |   |   | 1,633,891 |   |
|   |                                                      |
|   | Total deposits                                       |   | $             | 3,848,648 |         |   | $      | 3,798,112 |   |
|   |                                                      |

**9.**     **Borrowings**

|   | The following is a summary of the Company’s borrowed funds: |   |          |      |         |   |   |      |   |
|--------|------------------------------------------------------------------|--------|---------------|-----------|--------------|--------|--------|-----------|--------|
|   |                                                             |   | September 30, |      | December 31, |
|   | (In thousands)                                                   |   | 2006          |      | 2005         |
|   |                                                                  |
|   | FHLB advances (1)                                                |   | $             | 1,758,127 |         |   | $      | 1,191,280 |   |
|   | Repurchase agreements                                            |   |          | 151,810   |         |   |   | 179,970   |   |
|   | Mortgage loans payable                                           |   |          | 1,624     |         |   |   | 1,716     |   |
|   | Junior subordinated debentures issued to affiliated trusts (2)   |   |          | 7,659     |         |   |   | 7,809     |   |
|   |                                                                  |
|   | Total borrowings                                                 |   | $             | 1,919,220 |         |   | $      | 1,380,775 |   |
|   |                                                                  |

|   | (1) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, *“Business Combinations,”* of $14.5 million and $18.2 million at September 30, 2006 and December 31, 2005, respectively.                                                                                                                                                                                                                                                                                                                                             |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, *“Business Combinations,”* of $550,000 and $700,000 at September 30, 2006 and December 31, 2005, respectively. The trusts were organized by Alliance to facilitate the issuance of “trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. 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.

FHLB advances are secured by the Company’s investment in FHLB stock, a blanket security agreement and other eligible securities. This agreement requires the Bank to maintain as collateral certain qualifying assets, principally mortgage loans. At September 30, 2006 and December 31, 2005, the Bank was in compliance with the FHLB collateral requirements. At September 30, 2006, the Company could borrow an additional $114.8 million from the FHLB, inclusive of a line of credit of approximately $20.0 million. Additional borrowing capacity 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 $167.9 million as of September 30, 2006, all of which was available on that date. At September 30, 2006, the majority of the Company’s $1.74 billion outstanding FHLB advances were at fixed rates, while only $60.0 million had floating rates.

**10.**    **Employee Benefits**

*Postretirement Benefits*

The Company provides various defined benefit and other postretirement benefit plans (postretirement health and life insurance benefits) to substantially all employees. 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.

16

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**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, 2006 and 2005:

|   |                                             |   |      |   |             |   |           |   |   |   |   |   |   |   |   |   |   |   | Other  |
|--------|--------------------------------------------------|--------|-----------|--------|------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                             |   | Qualified |   | Supplemental     |   | Postretirement |
|   |                                             |   | Pension   |   | Retirement Plans |   | Benefits       |
|   | (In thousands)                                   |   | 2006      |   | 2005             |   | 2006           |   | 2005   |   | 2006   |   | 2005   |
|   |                                                  |
|   | Service cost - benefits earned during the period |   | $         | 719    |             |   | $              | 710    |   |   | $      | 139    |   |   | $      | 103    |   |   | $      | 39 |   |   | $ | 43 |   |
|   | Interest cost on projected benefit obligation    |   |      | 1,137  |             |   |           | 1,173  |   |   |   | 150    |   |   |   | 142    |   |   |   | 83 |   |   |   | 94 |   |
|   | Expected return on plan assets                   |   |      | (1,736 | )                |   |           | (1,259 | )      |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
|   | Amortization and deferral                        |   |      | -      |             |   |           | -      |   |   |   | -      |   |   |   | -      |   |   |   | 13 |   |   |   | 13 |   |
|   | Prior service cost recognized                    |   |      | 13     |             |   |           | 13     |   |   |   | 3      |   |   |   | 7      |   |   |   | 1 |   |   |   | - |   |
|   | Recognized net loss (gain)                       |   |      | 19     |             |   |           | 26     |   |   |   | -      |   |   |   | -      |   |   |   | (4 | ) |   |   | (1 | ) |
|   |                                                  |
|   | Net periodic benefit cost                        |   | $         | 152    |             |   | $              | 663    |   |   | $      | 292    |   |   | $      | 252    |   |   | $      | 132 |   |   | $ | 149 |   |
|   |                                                  |

The following table presents the amount of net periodic pension cost for the nine months ended September 30, 2006 and 2005:

|   |                                             |   |      |   |             |   |           |   |   |   |   |   |   |   |   |   |   |   | Other  |
|--------|--------------------------------------------------|--------|-----------|--------|------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|   |                                             |   | Qualified |   | Supplemental     |   | Postretirement |
|   |                                             |   | Pension   |   | Retirement Plans |   | Benefits       |
|   | (In thousands)                                   |   | 2006      |   | 2005             |   | 2006           |   |   | 2005   |   |   | 2006   |   |   | 2005   |
|   |                                                  |
|   | Service cost - benefits earned during the period |   | $         | 2,158  |             |   | $              | 2,131  |   |   | $      | 417    |   |   | $      | 309    |   |   | $      | 120 |   |   |   | $ | 129 |   |
|   | Interest cost on projected benefit obligation    |   |      | 3,413  |             |   |           | 3,519  |   |   |   | 449    |   |   |   | 426    |   |   |   | 249 |   |   |   |   | 282 |   |
|   | Expected return on plan assets                   |   |      | (5,209 | )                |   |           | (3,777 | )      |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   |   | - |   |
|   | Amortization and deferral                        |   |      | -      |             |   |           | -      |   |   |   | -      |   |   |   | -      |   |   |   | 39 |   |   |   |   | 39 |   |
|   | Prior service cost recognized                    |   |      | 38     |             |   |           | 39     |   |   |   | 9      |   |   |   | 21     |   |   |   | 2 |   |   |   |   | - |   |
|   | Recognized net loss (gain)                       |   |      | 57     |             |   |           | 78     |   |   |   | -      |   |   |   | -      |   |   |   | (13 | ) |   |   |   | (2 | ) |
|   |                                                  |
|   | Net periodic benefit cost                        |   | $         | 457    |             |   | $              | 1,990  |   |   | $      | 875    |   |   | $      | 756    |   |   | $      | 397 |   |   |   | $ | 448 |   |
|   |                                                  |

In connection with its conversion to a state-chartered stock bank the Company established an ESOP to provide substantially all employees of the Company the opportunity to also become shareholders. 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 28 years. The unallocated ESOP shares are pledged as collateral on the loan. At September 30, 2006, the loan had an outstanding balance of $104.8 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 shareholders’ 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 differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released. 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, 2006 was approximately $893,000 and $2.7 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, 2006 were as follows:

|   |                                                                        |
|--------|------------------------------------------------------------------------|
|   | Shares released for allocation                                         |   |   | 601,996 |
|   | Unreleased shares                                                      |   |   | 6,852,566 |
|   |                                                                        |
|   | Total ESOP shares                                                      |   |   | 7,454,562 |
|   |                                                                        |
|   | Market value of unreleased shares at September 30, 2006 (in thousands) |   | $ | 100,390 |

17

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

*Stock-Based Compensation*As provided for under the Company’s 2005 Long-Term Compensation Plan (the “LTCP”), which was approved by shareholders, the Company’s Compensation Committee awarded 8.6 million stock options with an exercise price of $14.39 per share and approximately 3.4 million restricted stock awards with a value of $14.39 per share to directors and certain employees on June 17, 2005. Additional stock option awards of 215,000, 15,000, 8,750 and 6,541 were made in the second half of 2005, April, June and July 2006, respectively, and have weighted average exercise prices of $14.71, $14.15, $13.89 and $14.25. Furthermore, additional restricted stock awards of 3,060 and 1,052 with values of $13.89 and $14.25 were made in June and July 2006, respectively. The LTCP allows the issuance of up to 11.4 million Options or Stock Appreciation Rights, and up to 4.6 million Stock Awards or Performance Awards. On January 1, 2006, the Company began accounting for stock option and restricted stock awards in accordance with SFAS No. 123R, and chose the modified prospective application transition method provided for under this statement. 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.

Options awarded to date are for a term of ten years. Substantially all of these options have the following vesting schedule; 40% vested at year-end 2005, and 20% will vest at year-end of each of the years 2006 through 2008. Of the options granted in 2006, 15,291 will vest in three years and 15,000 will vest in four years. Option and share awards provide for accelerated vesting if there is a change in control, as defined in the LTCP. Compensation cost on options recognized during the three and nine month periods ending September 30, 2006 was approximately $1.2 million or $766,000 after tax and $3.5 million or $2.3 million after tax, respectively. There was no compensation cost on options recognized in the same period the prior year because the Company continued to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 through December 31, 2005. It is anticipated that the Company will recognize expense of approximately $4.6 million, $4.5 million and $4.2 million in 2006, 2007 and 2008, respectively. The Company has assumed a 0.4% forfeiture rate on options as the majority of the options have been awarded to senior level management and the Company has only experienced one significant forfeiture. Management considers this forfeiture to be an aberration that is unlikely to occur again. The following table presents the weighted-average fair value and related assumptions using the Black-Scholes Option Pricing Model for all stock options granted through September 30, 2006.

|   | Weighted-average fair value |   | $      | 2.61  |   |
|--------|-----------------------------|--------|--------|-------|--------|
|   | Risk-free interest rate     |   |   | 3.89  | %      |
|   | Expected dividend yield     |   |   | 1.53  | %      |
|   | Expected volatility         |   |   | 19.84 | %      |
|   | Expected life (in years)    |   |   | 3.84  |   |
|   |                             |

Since the Company had no share-based compensation history, it used peer group historical data of recently converted thrifts for volatility and life estimates. The risk-free rate is based on the U.S Treasury yield curve in effect at the time of the grant.

Fifteen percent, or 513,675 shares of restricted stock awarded on June 15, 2005 with a total fair value of approximately $7.5 million, vested on January 1, 2006. Fifteen percent of the restricted stock awarded in 2005 will vest in January 1st on each of the years 2007 through 2011 and 10% on January 1, 2012, while the associated expense on the awarded stock will be recorded from the award date through 2011. The 2006 awards vest over three years. For the three and nine month periods ended September 30, 2006, the Company recorded expense of approximately $2.1 million and $6.2 million, or after tax expense of approximately $1.2 million and $3.6 million, respectively. The Company anticipates that it will record expense of approximately $8.1 million, $7.7 million, $6.8 million, $6.3 million, $6.2 million and $4.1 million in calendar years 2006 through 2011, respectively in connection with the restricted stock awards. For the three and nine months ended September 30, 2005, the Company recorded expense of approximately $3.9 million and $4.5 million, respectively.

18

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

A summary of option activity under the plan as of September 30, 2006 and changes during the period ended is presented below.

|   |                                      |   |      |   |   |      |   |        |   | Weighted- |   |   |   |   |
|--------|-------------------------------------------|--------|-----------|--------|--------|-----------|--------|-------------|--------|-----------|--------|--------|--------|--------|
|   |                                      |   |      |   |   | Weighted- |   | Average     |   | Aggregate |
|   |                                      |   |      |   |   | Average   |   | Remaining   |   | Intrinsic |
|   |                                      |   |      |   |   | Exercise  |   | Contractual |   | Value     |
|   |                                      |   | Shares    |   |   | Price     |   | Term        |   | ($000)    |
|   |                                           |
|   | Options outstanding at beginning of year  |   | 8,757,100 |   |   | $         | 14.40  |        |   |      |   |   |   |   |   |   |
|   | Granted                                   |   | 30,291    |   |   |      | 14.10  |        |   |      |   |   |   |   |   |   |
|   | Exercised                                 |   | -         |   |   |      | -      |        |   |      |   |   |   |   | - |   |
|   | Forfeited/cancelled                       |   | (237,360  | )      |   |      | 14.39  |        |   |      |   |   |   |   |   |   |
|   | Expired                                   |   | (152,700  | )      |   |      | 14.39  |        |   |      |   |   |   |   |   |   |
|   |                                           |
|   | Options outstanding at September 30, 2006 |   | 8,397,331 |   |   | $         | 14.40  |        |   |      | 8.71   |   |   | $      | 2,136 |   |
|   |                                           |
|   | Options exercisable at September 30, 2006 |   | 3,344,440 |   |   | $         | 14.40  |        |   |      | 8.71   |   |   | $      | 849 |   |
|   |                                           |

The weighted-average grant-date fair value of options granted in 2006 and 2005 was $2.44 and $2.61, respectively. No options have been exercised.

A summary of the status of the Company’s nonvested shares as of September 30, 2006 and changes during the period is presented below.

|   |                            |   | Restricted Stock |      | Options |
|--------|---------------------------------|--------|------------------|-----------|---------|
|   |                            |   |                  |      |         |
|   |                            |   |             |      |    |   | Weighted-average |   |   |   |   |   | Weighted-average |
|   |                            |   |             |      |    |   | Grant-Date |   |   |   |   |   | Grant-Date |
|   |                            |   |             | Shares    |    |   | Fair Value |   |   | Shares |   |   | Fair Value |
|   |                                 |
|   | Nonvested at January 1, 2006    |   |             | 3,424,500 |    |   | $ | 14.39 |   |   |   | 5,259,960 |   |   | $ | 2.61 |   |
|   | Granted                         |   |             | 4,112     |    |   |   | 13.98 |   |   |   | 30,291 |   |   |   | 2.44 |   |
|   | Vested                          |   |             | (513,675  | )       |   |   | 14.39 |   |   |   | - |   |   |   | - |   |
|   | Forfeited / Cancelled           |   |             | (146,200  | )       |   |   | 14.39 |   |   |   | (237,360 | ) |   |   | 2.61 |   |
|   |                                 |
|   | Nonvested at September 30, 2006 |   |             | 2,768,737 |    |   | $ | 14.39 |   |   |   | 5,052,891 |   |   | $ | 2.61 |   |
|   |                                 |

The following table provides proforma net income and earnings per share for the three and nine months ended September 30, 2005, during which time the fair value-based method was not used to account for stock-based compensation.

|   |                                                                                                                                            |   | Three Months        |   | Nine Months         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|---------------------|
|   |                                                                                                                                            |   | Ended September 30, |   | Ended September 30, |
|   | (In thousands, except per share data)                                                                                                           |   | 2005                |   | 2005                |
|   |                                                                                                                                                 |
|   | Net income, as reported                                                                                                                         |   | $                   | 12,744 |                |   | $ | 40,948 |   |
|   | Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                      |   |                | 2,516  |                |   |   | 2,914 |   |
|   | Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects |   |                | 5,196  |                |   |   | 6,040 |   |
|   |                                                                                                                                                 |
|   | Proforma net income                                                                                                                             |   | $                   | 10,064 |                |   | $ | 37,822 |   |
|   |                                                                                                                                                 |
|   | Basic and diluted earnings per share                                                                                                            |   |                |   |                |   |   |   |   |
|   | As reported                                                                                                                                     |   | $                   | 0.12   |                |   | $ | 0.38 |   |
|   | Proforma                                                                                                                                        |   |                | 0.09   |                |   |   | 0.35 |   |
|   |                                                                                                                                                 |

19

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**11.**    **Deferred 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. Deferred taxes charged to goodwill were in connection with the acquisitions of Connecticut Bancshares, Inc. (“Connecticut Bancshares”), Alliance Bancorp of New England, Inc. (“Alliance”), Trust Company of Connecticut (“Trust Company”) and Cornerstone. The Company had a net deferred tax asset of $26.9 million and $28.0 million at September 30, 2006 and December 31, 2005, respectively.

The allocation of deferred tax expense (benefit) involving items charged to income, items charged directly to shareholders’ equity and items charged to goodwill is as follows:

|   |                                                                                                                           |   | Three Months Ended |   | Nine Months Ended |
|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|-------------------|
|   |                                                                                                                           |   | September 30,      |   | September 30,     |
|   | (In thousands)                                                                                                                 |   | 2006               |   | 2005              |   | 2006 |   | 2005 |
|   |                                                                                                                                |
|   | Deferred tax benefit allocated to:                                                                                             |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |
|   | Stockholders’ equity, tax effect of unrealized gains (losses) on marketable equity securities, net of valuation allowance |   | $                  | 7,896  |              |   | $ | (6,606 | ) |   | $ | 822 |   |   | $ | (8,694 | ) |
|   | Goodwill                                                                                                                       |   |               | 23     |              |   |   | 2,357 |   |   |   | (813 | ) |   |   | 3,570 |   |
|   | (Loss) income                                                                                                                  |   |               | (405   | )                 |   |   | 5,326 |   |   |   | 1,047 |   |   |   | 6,237 |   |
|   |                                                                                                                                |
|   | Total deferred tax expense                                                                                                     |   | $                  | 7,514  |              |   | $ | 1,077 |   |   | $ | 1,056 |   |   | $ | 1,113 |   |
|   |                                                                                                                                |

**12.**    **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, generally having 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.

|   |                                     |   | September 30, |    | December 31, |
|--------|------------------------------------------|--------|---------------|---------|--------------|
|   | (In thousands)                           |   | 2006          |    | 2005         |
|   |                                          |
|   | Loan commitments                         |   | $             | 43,471  |         |   | $ | 68,160 |   |
|   | Unadvanced portion of construction loans |   |          | 203,865 |         |   |   | 98,360 |   |
|   | Standby letters of credit                |   |          | 22,170  |         |   |   | 11,701 |   |
|   | Unadvanced portion of lines of credit    |   |          | 520,038 |         |   |   | 491,977 |   |
|   |                                          |
|   | Total commitments                        |   | $             | 789,544 |         |   | $ | 670,198 |   |
|   |                                          |

*Investment Commitments*As of September 30, 2006 and December 31, 2005, the Company was contractually committed under limited partnership agreements to make additional partnership investments of approximately $2.8 million and $3.4 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.

For a discussion of legal proceedings and other material litigation, see Part II, Item I, Legal Proceedings, of this Form 10-Q.

20

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**13.**    **Stockholders’ Equity**

At September 30, 2006, stockholders’ equity amounted to $1.35 billion, or 18.8% of total assets, compared to $1.31 billion, or 20.0% at December 31, 2005. The Company paid cash dividends totaling $0.175 per share on common stock during the nine months ended September 30, 2006.

*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.

*Share Repurchase Plan*On January, 31, 2006, the Company’s Board of Directors authorized the repurchase of up to an additional 10.0 million shares or approximately 10% of the then outstanding Company common stock. The Company repurchased 540,300 shares of common stock at a weighted average price of $13.96 per share as of September 30, 2006. There is no set expiration date for this repurchase plan.

During the quarter ended March 31, 2006, the Company completed its repurchase of approximately 10.7 million shares of common stock at a weighted average price of $14.55 per share under its first repurchase plan authorized by the Company’s Board of Directors on May 9, 2005.

*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, 2006, 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.

|   |                                     |   |   |    |     |   |              |   |        |    |              |   |   |   | To Be Well |
|--------|------------------------------------------|--------|--------|---------|----------|--------|-------------------|--------|-------------|---------|-------------------|--------|--------|--------|------------|
|   |                                     |   |   |    |     |   |              |   | For Capital |    | Capitalized Under |
|   |                                     |   |   |    |     |   |              |   | Adequacy    |    | Prompt Corrective |
|   |                                     |   | Actual |    | Purposes |   | Action Provisions |
|   |                                     |   |        |    |          |   |                   |
|   | (Dollars in thousands)                   |   |   | Amount  |     | Ratio  |              |   | Amount      |    | Ratio             |   |   | Amount |       | Ratio |
|   |                                          |
|   | NewAlliance Bank                         |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | September 30, 2006                       |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | Tier 1 Capital (to Average Assets)       |   | $      | 666,045 |     | 10.1   | %                 |   | $           | 263,237 |              | 4.0    | %      |   | $          | 329,047 |   | 5.0 | % |
|   | Tier 1 Capital (to Risk Weighted Assets) |   |   | 666,045 |     | 17.3   |              |   |        | 153,626 |              | 4.0    |   |   |       | 230,439 |   | 6.0 |   |
|   | Total Capital (to Risk Weighted Assets)  |   |   | 703,915 |     | 18.3   |              |   |        | 307,252 |              | 8.0    |   |   |       | 384,065 |   | 10.0 |   |
|   |                                     |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | December 31, 2005                        |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | Tier 1 Capital (to Average Assets)       |   | $      | 601,971 |     | 10.0   | %                 |   | $           | 241,043 |              | 4.0    | %      |   | $          | 301,303 |   | 5.0 | % |
|   | Tier 1 Capital (to Risk Weighted Assets) |   |   | 601,971 |     | 17.6   |              |   |        | 136,899 |              | 4.0    |   |   |       | 205,349 |   | 6.0 |   |
|   | Total Capital (to Risk Weighted Assets)  |   |   | 637,523 |     | 18.6   |              |   |        | 273,798 |              | 8.0    |   |   |       | 342,248 |   | 10.0 |   |
|   |                                     |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | NewAlliance Bancshares, Inc.             |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | September 30, 2006                       |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | Tier 1 Capital (to Average Assets)       |   | $      | 879,621 |     | 13.3   | %                 |   | $           | 264,077 |              | 4.0    | %      |   | $          | 330,096 |   | 5.0 | % |
|   | Tier 1 Capital (to Risk Weighted Assets) |   |   | 879,621 |     | 22.8   |              |   |        | 154,518 |              | 4.0    |   |   |       | 231,777 |   | 6.0 |   |
|   | Total Capital (to Risk Weighted Assets)  |   |   | 917,491 |     | 23.8   |              |   |        | 309,036 |              | 8.0    |   |   |       | 386,294 |   | 10.0 |   |
|   |                                     |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | December 31, 2005                        |   |   |    |     |   |              |   |        |    |              |   |   |   |       |   |   |   |   |
|   | Tier 1 Capital (to Average Assets)       |   | $      | 866,567 |     | 14.3   | %                 |   | $           | 242,239 |              | 4.0    | %      |   | $          | 302,799 |   | 5.0 | % |
|   | Tier 1 Capital (to Risk Weighted Assets) |   |   | 866,567 |     | 25.0   |              |   |        | 138,686 |              | 4.0    |   |   |       | 208,029 |   | 6.0 |   |
|   | Total Capital (to Risk Weighted Assets)  |   |   | 902,119 |     | 26.0   |              |   |        | 277,372 |              | 8.0    |   |   |       | 346,715 |   | 10.0 |   |
|   |                                          |

21

----

**NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements**

**14.**    **Other Comprehensive Income (Loss)**

The following table presents the components of other comprehensive income (loss) and the related tax effects for the three and nine months ended September 30, 2006 and 2005.

|   |                                                         |   | Three Months Ended |   | Nine Months Ended |
|--------|--------------------------------------------------------------|--------|--------------------|--------|-------------------|
|   |                                                         |   | September 30,      |   | September 30,     |
|   |                                                         |   |                    |   |                   |
|   | (In thousands)                                               |   | 2006               |   | 2005              |   | 2006 |   | 2005 |
|   |                                                              |
|   | Net income                                                   |   | $                  | 15,099 |              |   | $ | 12,744 |   |   | $ | 37,928 |   |   | $ | 40,948 |   |
|   | Other comprehensive gain (loss), before tax                  |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |
|   | Unrealized losses on securities                              |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |
|   | Unrealized holding gains (losses), arising during the period |   |               | 23,186 |              |   |   | (18,873 | ) |   |   | 2,628 |   |   |   | (24,676 | ) |
|   | Reclassification adjustment for gains included in net income |   |               | (25    | )                 |   |   | - |   |   |   | (30 | ) |   |   | (12 | ) |
|   |                                                              |
|   | Other comprehensive gain (loss), before tax                  |   |               | 23,161 |              |   |   | (18,873 | ) |   |   | 2,598 |   |   |   | (24,688 | ) |
|   | Income tax (expense) benefit net of valuation allowance      |   |               | (7,896 | )                 |   |   | 6,606 |   |   |   | (821 | ) |   |   | 8,694 |   |
|   |                                                              |
|   | Other comprehensive income (loss), net of tax                |   |               | 15,265 |              |   |   | (12,267 | ) |   |   | 1,777 |   |   |   | (15,994 | ) |
|   |                                                              |
|   | Comprehensive income                                         |   | $                  | 30,364 |              |   | $ | 477 |   |   | $ | 39,705 |   |   | $ | 24,954 |   |
|   |                                                              |

**15.**    **Earnings Per Share**

The calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2006 and 2005 is presented below.

|   |                                                         |   | Three Months Ended |    | Nine Months Ended |
|--------|--------------------------------------------------------------|--------|--------------------|---------|-------------------|
|   |                                                         |   | September 30,      |    | September 30,     |
|   | (In thousands, except per share data)                        |   | 2006               |    |              | 2005 |   |   | 2006 |   |   | 2005 |   |
|   |                                                              |
|   | Net income                                                   |   | $                  | 15,099  |              |   | $ | 12,744 |   |   | $ | 37,928 |   |   | $ | 40,948 |   |
|   | Average common shares outstanding for basic EPS              |   |               | 99,817  |              |   |   | 106,472 |   |   |   | 100,046 |   |   |   | 106,757 |   |
|   | Effect of dilutive stock options and unvested stock awards   |   |               | 391     |              |   |   | 333 |   |   |   | 383 |   |   |   | 114 |   |
|   |                                                              |
|   | Average common and common-equivalent shares for dilutive EPS |   |               | 100,208 |              |   |   | 106,805 |   |   |   | 100,429 |   |   |   | 106,871 |   |
|   | Net income per common share:                                 |   |               |    |              |   |   |   |   |   |   |   |   |   |   |   |   |
|   | Basic                                                        |   | $                  | 0.15    |              |   | $ | 0.12 |   |   | $ | 0.38 |   |   | $ | 0.38 |   |
|   | Diluted                                                      |   |               | 0.15    |              |   |   | 0.12 |   |   |   | 0.38 |   |   |   | 0.38 |   |
|   |                                                              |

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**Item 2.****Management’s Discussion and Analysis of Financial Condition and Results of Operations**

**Forward-Looking Statements**

This report may contain certain forward-looking statements as that term is defined in the U.S. federal securities laws. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of Management, 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. and its subsidiaries (the “Company”) include, but are not limited to, changes in market interest rates, loan prepayment rates and delinquencies, general economic conditions, legislation, and regulation; changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, and loan, deposit and investment products in the Company’s markets; the ability of the Company to successfully integrate the operations of recent or future acquisitions; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the Company’s operations, pricing and services.

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, the Company 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.

**Critical Accounting Policies**

The accounting policies followed by the Company conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. 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, intangible assets, mortgage servicing rights, the allowance for loan losses, other than temporary impairment of securities and amortization and accretion on investment securities. None of the Company’s critical accounting policies have changed during the quarter. Further information about the Company’s accounting policies can be found in Note 1 of the Notes to Unaudited Consolidated Financial Statements.

**Business Overview**

NewAlliance Bancshares, Inc. was organized as a Delaware business corporation in connection with the conversion of NewAlliance Bank (the “Bank”), formerly New Haven Savings Bank, from mutual to capital stock form, which became effective on April 1, 2004. The Bank’s conversion resulted in NewAlliance Bancshares, Inc. owning all of the Bank’s outstanding capital stock. The Bank is now a wholly-owned subsidiary of NewAlliance Bancshares, Inc., a bank holding company regulated by the Federal Reserve Board.

The Company’s business philosophy is to operate as a community bank with local decision-making authority, providing a broad array of banking and financial services including investment management, trust and insurance services to retail and commercial business customers.

The Company’s core operating objectives are to (1) build high quality, profitable loan portfolios, in particular through growth in commercial real estate, commercial business, residential real estate and home equity loans using organic, purchase and acquisition strategies, (2) increase the non-interest income component of total revenues through (i) development of banking-related fee income, (ii) growth in existing wealth management services, including trust and the sale of insurance and investment products, and (iii) the potential acquisition of additional financial services businesses, (3) increase deposit relationships with a focus on checking accounts, (4) grow through a disciplined acquisition strategy, supplemented by de-novo branching, (5) utilize technology to provide superior customer service and new products and (6) improve operating efficiencies through increased scale and process improvements.

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 and efficiency

23

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ratio, asset quality, loan and deposit growth, liquidity and interest rate sensitivity levels, customer service standards, market share and peer comparisons.

The Company entered into a definitive agreement to acquire Westbank Corporation (“Westbank”). This agreement became effective July 18, 2006 and the transaction is expected to close in the first quarter of 2007. Westbank had approximately $822.1 million of assets and approximately $46.4 million of stockholders’ equity at June 30, 2006. Further information regarding these acquisitions can be found in Note 3, “Business Combinations,” in the Notes to the Unaudited Consolidated Financial Statements. On January 2, 2006, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), the holding company for Cornerstone Bank. Cornerstone had assets and stockholders’ equity of approximately $211.4 and $18.3 million, respectively at December 31, 2005, with six full service offices serving the attractive Fairfield County market in Southern Connecticut. Cornerstone is the fourth acquisition completed by the Company since April 1, 2004.

For the three months ended September 30, 2006 and 2005, diluted earnings per share were $0.15 and $0.12, respectively. The increase in EPS was primarily due to an increase in non-interest income due primarily to a gain recorded on four limited partnerships as a result of a change to the equity method in accounting for these partnerships and a decrease in operating expenses due to the timing of expense on restricted stock awards, partially offset by a decrease in net interest income which was driven by a 104 basis point increase in the average rate paid on interest-bearing liabilities. Net interest income was favorably impacted by an additional $1.0 million of dividend income on FHLB stock which was recorded during the quarter due to changes by the FHLB in the timing of their quarterly dividend.

For both the nine months ended September 30, 2006 and 2005, diluted earnings per share were $0.38. The nine months ended September 30, 2006 was positively impacted by increases in non-interest income including a $1.3 million, net of tax cumulative adjustment in limited partnerships as described above and a lower tax provision, offset by higher operating expenses and conversion and merger related charges. The acquisitions of Trust Company of Connecticut (“Trust Company”) and Cornerstone, new accounting rules for stock-based compensation and executive severance were the main reasons for the increases in non-interest expense during the nine months ended September 30, 2006 compared to the same period in 2005.

Annualized return on average equity (“ROE”) and annualized return on average assets (“ROA”) were 4.52% and 0.85%, respectively for the quarter ended September 30, 2006 compared to 3.58% and 0.78%, respectively for the quarter ended September 30, 2005. For the nine months ended September 30, 2006, ROE and ROA were 3.80% and 0.73%, respectively, compared to ROE of 3.85% and ROA of 0.85% for the nine months ended September 30, 2005.

The Company’s net interest margin was 2.68%, down 33 basis points for the quarter ended September 30, 2006 from the quarter ended September 30, 2005. The net interest margin has also declined for the nine months ended September 30, 2006 compared to the same period in 2005 and was 2.80 % and 3.07%, respectively. This is primarily due to intense competition for quality loans and deposits in the marketplace and the current rate environment.

Asset quality remained strong even though nonperforming loans increased $3.2 million since year-end, primarily as a result of the Cornerstone acquisition. Nonperforming loans totaled $10.6 million at September 30, 2006 compared to $7.4 million at December 31, 2005. Nonperforming loans to total loans were 0.28% at September 30, 2006, up from 0.23% at December 31, 2005 and nonperforming assets to total assets also increased to 0.15% at September 30, 2006 from 0.11% at December 31, 2005. Net charge-offs were $88,000 and no provision for loan losses was recorded for the three months ended September 30, 2006. For the nine months ended September 30, 2006, there were net recoveries of $94,000.

During the current quarter, the Company purchased approximately $50.0 million in Bank Owned Life Insurance (“BOLI”) which resulted in additional non-interest income of approximately $600,000.

Selected financial data, ratios and per share data are provided in Table 1.

24

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**Table 1: Selected Data**

|                                                 |   | Three Months Ended |   | Nine Months Ended |
|------------------------------------------------------|--------|--------------------|--------|-------------------|
|                                                 |   | September 30,      |   | September 30,     |
|                                                 |   |               |        |
| (Dollars in thousands, except share data)            |   | 2006               |   | 2005              |   | 2006 |   | 2005 |   |
|                                                      |
| ***Condensed Income Statement***                     |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest and dividend income                         |   |               | $      | 86,348            |   |   |   |   | $ | 70,523 |   |   |   |   | $ | 243,970 |   |   |   | $ | 203,760 |   |
| Interest expense                                     |   |               |   | 43,811            |   |   |   |   |   | 26,583 |   |   |   |   |   | 114,209 |   |   |   |   | 71,119 |   |
|                                                      |
| Net interest income before provision for loan losses |   |               |   | 42,537            |   |   |   |   |   | 43,940 |   |   |   |   |   | 129,761 |   |   |   |   | 132,641 |   |
| Provision for loan losses                            |   |               |   | -                 |   |   |   |   |   | 400 |   |   |   |   |   | - |   |   |   |   | 400 |   |
|                                                      |
| Net interest income after provision for loan losses  |   |               |   | 42,537            |   |   |   |   |   | 43,540 |   |   |   |   |   | 129,761 |   |   |   |   | 132,241 |   |
| Non-interest income                                  |   |               |   | 14,798            |   |   |   |   |   | 12,372 |   |   |   |   |   | 39,064 |   |   |   |   | 33,436 |   |
| Operating expenses                                   |   |               |   | 34,681            |   |   |   |   |   | 35,419 |   |   |   |   |   | 109,588 |   |   |   |   | 102,098 |   |
| Conversion and merger related charges                |   |               |   | 186               |   |   |   |   |   | 344 |   |   |   |   |   | 2,667 |   |   |   |   | 1,234 |   |
|                                                      |
| Income before income taxes                           |   |               |   | 22,468            |   |   |   |   |   | 20,149 |   |   |   |   |   | 56,570 |   |   |   |   | 62,345 |   |
| Income tax provision                                 |   |               |   | 7,369             |   |   |   |   |   | 7,405 |   |   |   |   |   | 18,642 |   |   |   |   | 21,397 |   |
|                                                      |
| Net income                                           |   |               | $      | 15,099            |   |   |   |   | $ | 12,744 |   |   |   |   | $ | 37,928 |   |   |   | $ | 40,948 |   |
|                                                      |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding                  |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                |   |               |   | 99,817,007        |   |   |   |   |   | 106,472,247 |   |   |   |   |   | 100,045,514 |   |   |   |   | 106,757,245 |   |
| Diluted                                              |   |               |   | 100,207,704       |   |   |   |   |   | 106,804,980 |   |   |   |   |   | 100,428,645 |   |   |   |   | 106,871,171 |   |
| Earnings per share                                   |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                |   |               | $      | 0.15              |   |   |   |   | $ | 0.12 |   |   |   |   | $ | 0.38 |   |   |   | $ | 0.38 |   |
| Diluted                                              |   |               |   | 0.15              |   |   |   |   |   | 0.12 |   |   |   |   |   | 0.38 |   |   |   |   | 0.38 |   |
|                                                      |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Financial Ratios***                               |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets (1)                         |   |               |   | 0.85              | % |   |   |   |   | 0.78 | % |   |   |   |   | 0.73 | % |   |   |   | 0.85 | % |
| Return on average equity (1)                         |   |               |   | 4.52              |   |   |   |   |   | 3.58 |   |   |   |   |   | 3.80 |   |   |   |   | 3.85 |   |
| Net interest margin (1)                              |   |               |   | 2.68              |   |   |   |   |   | 3.01 |   |   |   |   |   | 2.80 |   |   |   |   | 3.07 |   |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Non-GAAP Ratios***                                |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Efficiency ratio (2)                                 |   |               |   | 62.80             |   |   |   |   |   | 63.41 |   |   |   |   |   | 67.14 |   |   |   |   | 62.07 |   |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Per share data***                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Book value per share                                 |   |               | $      | 12.36             |   |   |   |   | $ | 12.09 |   |   |   |   | $ | 12.36 |   |   |   | $ | 12.09 |   |
| Tangible book value per share                        |   |               |   | 7.74              |   |   |   |   |   | 7.87 |   |   |   |   |   | 7.74 |   |   |   |   | 7.87 |   |
|                                                      |

| (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 gains or losses and limited partnership 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. |

**Comparison of Operating Results for the Three and Nine Months Ended September 30, 2006 and 2005**

**Table 2: Summary Income Statements**

|                                          |   | Three Months Ended |   |             |   |          |   |             |   |   |   | Nine Months Ended |   |   |   |    |   |   |    |   |
|-----------------------------------------------|--------|--------------------|--------|------------------|--------|---------------|--------|------------------|--------|--------|--------|-------------------|--------|--------|--------|---------|--------|--------|---------|--------|
|                                          |   | September 30,      |   | Change 2006/2005 |   | September 30, |   | Change 2006/2005 |
|                                          |   |                    |   |                  |   |               |   |                  |
| (Dollars in thousands, except per share data) |   | 2006               |   | 2005             |   | Amount        |   | Percent          |   | 2006   |   | 2005              |   | Amount |   | Percent |
|                                               |
| Net interest income                           |   | $                  | 42,537 |             |   | $             | 43,940 |             |   | $      | (1,403 | )                 |   |   | (3     | )%      |   | $      | 129,761 |   |   | $ | 132,641 |   |   | $ | (2,880 | ) |   |   | (2 | )% |
| Provision for loan losses                     |   |               | -      |             |   |          | 400    |             |   |   | (400   | )                 |   |   | -      |    |   |   | -       |   |   |   | 400 |   |   |   | (400 | ) |   |   | - |   |
| Non-interest income                           |   |               | 14,798 |             |   |          | 12,372 |             |   |   | 2,426  |              |   |   | 20     |    |   |   | 39,064  |   |   |   | 33,436 |   |   |   | 5,628 |   |   |   | 17 |   |
| Operating expenses                            |   |               | 34,681 |             |   |          | 35,419 |             |   |   | (738   | )                 |   |   | (2     | )       |   |   | 109,588 |   |   |   | 102,098 |   |   |   | 7,490 |   |   |   | 7 |   |
| Conversion and merger related charges         |   |               | 186    |             |   |          | 344    |             |   |   | (158   | )                 |   |   | (46    | )       |   |   | 2,667   |   |   |   | 1,234 |   |   |   | 1,433 |   |   |   | 116 |   |
| Income before income taxes                    |   |               | 22,468 |             |   |          | 20,149 |             |   |   | 2,319  |              |   |   | 12     |    |   |   | 56,570  |   |   |   | 62,345 |   |   |   | (5,775 | ) |   |   | (9 | ) |
| Income tax provision                          |   |               | 7,369  |             |   |          | 7,405  |             |   |   | (36    | )                 |   |   | (0     | )       |   |   | 18,642  |   |   |   | 21,397 |   |   |   | (2,755 | ) |   |   | (13 | ) |
|                                               |
| Net income                                    |   | $                  | 15,099 |             |   | $             | 12,744 |             |   | $      | 2,355  |              |   |   | 18     | %       |   | $      | 37,928  |   |   | $ | 40,948 |   |   | $ | (3,020 | ) |   |   | (7 | )% |
|                                               |
| Basic and diluted earnings per share          |   | $                  | 0.15   |             |   | $             | 0.12   |             |   | $      | 0.03   |              |   |   | 25     | %       |   | $      | 0.38    |   |   | $ | 0.38 |   |   | $ | - |   |   |   | - | % |
|                                               |

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For the nine months ended September 30, 2006, net income was $37.9 million, a decrease of $3.0 million from the comparative period in 2005. This decrease is primarily a result of higher operating expenses and conversion and merger related charges coupled with a decline in net interest income, partially offset by an increase in non-interest income. Higher operating expenses are largely due to the acquisitions of Trust Company and Cornerstone in the areas of salaries and employee benefits and occupancy expenses. Additionally, charges in 2006 associated with the 2005 Long-Term Compensation Plan (“LTCP”)and executive severance were also significant factors in the increase of salaries and employee benefits. Conversion and merger related charges are primarily due to the Trust Company and Cornerstone acquisitions. The Company expects to incur future conversion and merger related charges due to the pending Westbank acquisition. Non-interest income increased primarily due to an increase in net gains on limited partnerships as discussed above, an increase in trust fees as a result of the Trust Company acquisition, an increase in depositor service charges, BOLI and gains recorded on the sale of Small Business Administration (“SBA”) loans. Net interest income declined largely due to the growth in interest-bearing liabilities outpacing growth in interestearning assets principally because of stock buy-backs and the BOLI purchase coupled with offering promotional rates on higher cost time deposits and general market conditions. This is also causing downward pressure on the net interest margin which was 2.80% for the nine months ended September 30, 2006 compared to 3.07% for the nine months ended September 30, 2005.

Table 5 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.

26

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**Table 3: Average Balance Sheets for the Three Months Ended September 30, 2006 and 2005**

|                                                                                       |   |               | Three Months Ended |               |
|--------------------------------------------------------------------------------------------|--------|--------------------|--------------------|--------------------|
|                                                                                       |   |               |                    |               |
|                                                                                       |   | September 30, 2006 |               | September 30, 2005 |
|                                                                                       |   |               |                    |               |   |   |  |   |
|                                                                                       |   |               |               |               |   |   |   |   |   |   |   | Average |   |   |   |   |   |   |   |   |   |   |   | Average |
|                                                                                       |   | Average            |               |               |   |   |   |   | Yield/ |   | Average |   |   |   |   |   |   | Yield/ |
| (Dollars in thousands)                                                                     |   | Balance            |               | Interest           |   | Rate |   | Balance |   | Interest |   | Rate |
|                                                                                            |   |
| **Interest-earning assets**                                                                |   |               |               |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                      |   |               |               |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential real estate                                                                    |   |               | $                  | 1,895,506          |   |   |   | $ | 25,446 |   |   |   | 5.37 | % |   |   | $ | 1,610,295 |   |   |   | $ | 20,876 |   |   |   | 5.19 | % |
| Commercial real estate                                                                     |   |               |               | 910,891            |   |   |   |   | 14,903 |   |   |   | 6.54 |   |   |   |   | 750,751 |   |   |   |   | 11,534 |   |   |   | 6.15 |   |
| Commercial business                                                                        |   |               |               | 354,668            |   |   |   |   | 6,478 |   |   |   | 7.31 |   |   |   |   | 324,955 |   |   |   |   | 5,323 |   |   |   | 6.55 |   |
| Consumer                                                                                   |   |               |               | 580,506            |   |   |   |   | 9,573 |   |   |   | 6.60 |   |   |   |   | 529,754 |   |   |   |   | 7,457 |   |   |   | 5.63 |   |
|                                                                                            |   |
| Total Loans                                                                                |   |               |               | 3,741,571          |   |   |   |   | 56,400 |   |   |   | 6.03 |   |   |   |   | 3,215,755 |   |   |   |   | 45,190 |   |   |   | 5.62 |   |
| Short-term investments                                                                     |   |               |               | 49,491             |   |   |   |   | 658 |   |   |   | 5.32 |   |   |   |   | 35,698 |   |   |   |   | 292 |   |   |   | 3.27 |   |
| Investment securities                                                                      |   |               |               | 2,551,625          |   |   |   |   | 29,290 |   |   |   | 4.59 |   |   |   |   | 2,583,318 |   |   |   |   | 25,041 |   |   |   | 3.88 |   |
|                                                                                            |   |
| Total interest-earning assets                                                              |   |               |               | 6,342,687          |   |   |   | $ | 86,348 |   |   |   | 5.45 | % |   |   |   | 5,834,771 |   |   |   | $ | 70,523 |   |   |   | 4.83 | % |
| Non-interest-earning assets                                                                |   |               |               | 765,251            |   |   |   |   |   |   |   |   |   |   |   |   |   | 706,544 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                               |   |               | $                  | 7,107,938          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 6,541,315 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities**                                                           |   |               |               |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                   |   |               |               |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money market                                                                               |   |               | $                  | 557,748            |   |   |   | $ | 4,031 |   |   |   | 2.89 | % |   |   | $ | 749,643 |   |   |   | $ | 3,762 |   |   |   | 2.01 | % |
| NOW                                                                                        |   |               |               | 351,161            |   |   |   |   | 553 |   |   |   | 0.63 |   |   |   |   | 322,200 |   |   |   |   | 148 |   |   |   | 0.18 |   |
| Savings                                                                                    |   |               |               | 774,467            |   |   |   |   | 2,177 |   |   |   | 1.12 |   |   |   |   | 837,179 |   |   |   |   | 974 |   |   |   | 0.47 |   |
| Time                                                                                       |   |               |               | 1,710,448          |   |   |   |   | 17,082 |   |   |   | 3.99 |   |   |   |   | 1,363,825 |   |   |   |   | 9,837 |   |   |   | 2.89 |   |
|                                                                                            |   |
| Total interest-bearing deposits                                                            |   |               |               | 3,393,824          |   |   |   |   | 23,843 |   |   |   | 2.81 |   |   |   |   | 3,272,847 |   |   |   |   | 14,721 |   |   |   | 1.80 |   |
| Repurchase agreements                                                                      |   |               |               | 147,431            |   |   |   |   | 1,248 |   |   |   | 3.39 |   |   |   |   | 178,855 |   |   |   |   | 1,072 |   |   |   | 2.40 |   |
| FHLB advances and other borrowings                                                         |   |               |               | 1,694,722          |   |   |   |   | 18,720 |   |   |   | 4.42 |   |   |   |   | 1,143,660 |   |   |   |   | 10,790 |   |   |   | 3.77 |   |
|                                                                                            |   |
| Total interest-bearing-liabilities                                                         |   |               |               | 5,235,977          |   |   |   |   | 43,811 |   |   |   | 3.35 | % |   |   |   | 4,595,362 |   |   |   |   | 26,583 |   |   |   | 2.31 | % |
| Non-interest-bearing demand deposits                                                       |   |               |               | 467,678            |   |   |   |   |   |   |   |   |   |   |   |   |   | 452,082 |   |   |   |   |   |   |   |   |   |   |
| Other non-interest-bearing liabilities                                                     |   |               |               | 68,816             |   |   |   |   |   |   |   |   |   |   |   |   |   | 71,777 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                          |   |               |               | 5,772,471          |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,119,221 |   |   |   |   |   |   |   |   |   |   |
| Equity                                                                                     |   |               |               | 1,335,467          |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,422,094 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and equity                                                               |   |               | $                  | 7,107,938          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 6,541,315 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                                |   |               | $                  | 1,106,710          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 1,239,409 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                    |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                        |   |               |               |               |   |   |   | $ | 42,537 |   |   |   |   |   |   |   |   |   |   |   |   | $ | 43,940 |   |   |   |   |   |
|                                                                                       |   |               |               |               |   |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Interest rate spread                                                                       |   |               |               |               |   |   |   |   |   |   |   |   | 2.10 | % |   |   |   |   |   |   |   |   |   |   |   |   | 2.52 | % |
| Net interest margin (net interest income as a percentage of total interest-earning assets) |   |               |               |               |   |   |   |   |   |   |   |   | 2.68 | % |   |   |   |   |   |   |   |   |   |   |   |   | 3.01 | % |
| Ratio of total interest-earning assets to total interest-bearing liabilities               |   |               |               |               |   |   |   |   |   |   |   |   | 121.14 | % |   |   |   |   |   |   |   |   |   |   |   |   | 126.97 | % |
|                                                                                            |   |

27

----

**Table 4: Average Balance Sheets for the Nine Months Ended September 30, 2006 and 2005**

|                                                                                       |   |               | Nine Months Ended |               |
|--------------------------------------------------------------------------------------------|--------|--------------------|-------------------|--------------------|
|                                                                                       |   |               |                   |               |
|                                                                                       |   | September 30, 2006 |              | September 30, 2005 |
|                                                                                       |   |               |                   |               |   |   |  |   |
|                                                                                       |   |               |              |               |   |   |   |   |   |   |   | Average |   |   |   |   |   |   |   |   |   |   |   | Average |
|                                                                                       |   | Average            |              |               |   |   |   |   | Yield/ |   | Average |   |   |   |   |   |   | Yield/ |
| (Dollars in thousands)                                                                     |   | Balance            |              | Interest           |   | Rate |   | Balance |   | Interest |   | Rate |
|                                                                                            |
| **Interest-earning assets**                                                                |   |               |              |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                      |   |               |              |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential real estate                                                                    |   |               | $                 | 1,807,521          |   |   |   | $ | 72,019 |   |   |   | 5.31 | % |   |   | $ | 1,584,243 |   |   |   | $ | 61,587 |   |   |   | 5.18 | % |
| Commercial real estate                                                                     |   |               |              | 888,911            |   |   |   |   | 43,317 |   |   |   | 6.50 |   |   |   |   | 737,862 |   |   |   |   | 33,255 |   |   |   | 6.01 |   |
| Commercial business                                                                        |   |               |              | 349,086            |   |   |   |   | 18,709 |   |   |   | 7.15 |   |   |   |   | 320,815 |   |   |   |   | 14,847 |   |   |   | 6.17 |   |
| Consumer                                                                                   |   |               |              | 565,806            |   |   |   |   | 27,064 |   |   |   | 6.38 |   |   |   |   | 522,383 |   |   |   |   | 20,999 |   |   |   | 5.36 |   |
|                                                                                            |
| Total Loans                                                                                |   |               |              | 3,611,324          |   |   |   |   | 161,109 |   |   |   | 5.95 |   |   |   |   | 3,165,303 |   |   |   |   | 130,688 |   |   |   | 5.51 |   |
| Short-term investments                                                                     |   |               |              | 60,864             |   |   |   |   | 2,218 |   |   |   | 4.86 |   |   |   |   | 50,626 |   |   |   |   | 1,030 |   |   |   | 2.71 |   |
| Investment securities                                                                      |   |               |              | 2,503,306          |   |   |   |   | 80,643 |   |   |   | 4.30 |   |   |   |   | 2,535,675 |   |   |   |   | 72,042 |   |   |   | 3.79 |   |
|                                                                                            |
| Total interest-earning assets                                                              |   |               |              | 6,175,494          |   |   |   | $ | 243,970 |   |   |   | 5.27 | % |   |   |   | 5,751,604 |   |   |   | $ | 203,760 |   |   |   | 4.72 | % |
| Non-interest-earning assets                                                                |   |               |              | 741,852            |   |   |   |   |   |   |   |   |   |   |   |   |   | 707,563 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                               |   |               | $                 | 6,917,346          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 6,459,167 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |              |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities**                                                           |   |               |              |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                   |   |               |              |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money market                                                                               |   |               | $                 | 567,239            |   |   |   | $ | 10,830 |   |   |   | 2.55 | % |   |   | $ | 757,190 |   |   |   | $ | 10,246 |   |   |   | 1.80 | % |
| NOW                                                                                        |   |               |              | 351,656            |   |   |   |   | 1,221 |   |   |   | 0.46 |   |   |   |   | 330,427 |   |   |   |   | 451 |   |   |   | 0.18 |   |
| Savings                                                                                    |   |               |              | 786,789            |   |   |   |   | 5,362 |   |   |   | 0.91 |   |   |   |   | 882,765 |   |   |   |   | 3,128 |   |   |   | 0.47 |   |
| Time                                                                                       |   |               |              | 1,704,174          |   |   |   |   | 47,087 |   |   |   | 3.68 |   |   |   |   | 1,287,685 |   |   |   |   | 24,836 |   |   |   | 2.57 |   |
|                                                                                            |
| Total interest-bearing deposits                                                            |   |               |              | 3,409,858          |   |   |   |   | 64,500 |   |   |   | 2.52 |   |   |   |   | 3,258,067 |   |   |   |   | 38,661 |   |   |   | 1.58 |   |
| Repurchase agreements                                                                      |   |               |              | 163,556            |   |   |   |   | 3,797 |   |   |   | 3.10 |   |   |   |   | 187,608 |   |   |   |   | 2,831 |   |   |   | 2.01 |   |
| FHLB advances and other borrowings                                                         |   |               |              | 1,471,299          |   |   |   |   | 45,912 |   |   |   | 4.16 |   |   |   |   | 1,072,730 |   |   |   |   | 29,627 |   |   |   | 3.68 |   |
|                                                                                            |
| Total interest-bearing-liabilities                                                         |   |               |              | 5,044,713          |   |   |   |   | 114,209 |   |   |   | 3.02 | % |   |   |   | 4,518,405 |   |   |   |   | 71,119 |   |   |   | 2.10 | % |
| Non-interest-bearing demand deposits                                                       |   |               |              | 473,181            |   |   |   |   |   |   |   |   |   |   |   |   |   | 444,295 |   |   |   |   |   |   |   |   |   |   |
| Other non-interest-bearing liabilities                                                     |   |               |              | 68,881             |   |   |   |   |   |   |   |   |   |   |   |   |   | 77,405 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                          |   |               |              | 5,586,775          |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,040,105 |   |   |   |   |   |   |   |   |   |   |
| Equity                                                                                     |   |               |              | 1,330,571          |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,419,062 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and equity                                                               |   |               | $                 | 6,917,346          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 6,459,167 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                                |   |               | $                 | 1,130,781          |   |   |   |   |   |   |   |   |   |   |   |   | $ | 1,233,199 |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |               |                   |               |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                        |   |               |              |               |   |   |   | $ | 129,761 |   |   |   |   |   |   |   |   |   |   |   |   | $ | 132,641 |   |   |   |   |   |
|                                                                                       |   |               |              |               |   |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |
| Interest rate spread                                                                       |   |               |              |               |   |   |   |   |   |   |   |   | 2.25 | % |   |   |   |   |   |   |   |   |   |   |   |   | 2.62 | % |
| Net interest margin (net interest income as a percentage of total interest-earning assets) |   |               |              |               |   |   |   |   |   |   |   |   | 2.80 | % |   |   |   |   |   |   |   |   |   |   |   |   | 3.07 | % |
| Ratio of total interest-earning assets to total interest-bearing liabilities               |   |               |              |               |   |   |   |   |   |   |   |   | 122.42 | % |   |   |   |   |   |   |   |   |   |   |   |   | 127.29 | % |
|                                                                                            |

28

----

**Table 5: Rate/Volume Analysis**

|                                       |   |   | Three Months Ended  |   |   |   | Nine Months Ended  |   |
|--------------------------------------------|--------|--------|---------------------|--------|--------|--------|--------------------|--------|
|                                       |   |   | September 30, 2006  |   |   |   | September 30, 2006 |   |
|                                       |   |   | Compared to         |   |   |   | Compared to        |   |
|                                       |   |   | Three Months Ended  |   |   |   | Nine Months Ended  |   |
|                                       |   |   | September 30, 2005  |   |   |   | September 30, 2005 |   |
|                                       |   |        |
|                                       |   |   | Increase (Decrease) |   |   |   |               |   |   |   |   | Increase (Decrease) |   |   |   |   |   |   |
|                                       |   |   | Due to              |   |   |   |               |   |   |   |   | Due to |   |   |   |   |   |   |
| (In thousands)                             |   |   | Rate                |   |   |   | Volume             |   |   |   | Net |   |   |   | Rate |   |   |   | Volume |   |   |   | Net |   |
|                                            |
| Interest-earning assets                    |   |   |                |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                      |   |   |                |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential real estate                    |   |   | $                   | 763    |   |   |               | $      | 3,807 |   |   |   | $ | 4,570 |   |   |   | $ | 1,569 |   |   |   | $ | 8,863 |   |   |   | $ | 10,432 |   |
| Commercial real estate                     |   |   |                | 786    |   |   |               |   | 2,583 |   |   |   |   | 3,369 |   |   |   |   | 2,859 |   |   |   |   | 7,203 |   |   |   |   | 10,062 |   |
| Commercial business                        |   |   |                | 643    |   |   |               |   | 512 |   |   |   |   | 1,155 |   |   |   |   | 2,480 |   |   |   |   | 1,382 |   |   |   |   | 3,862 |   |
| Consumer                                   |   |   |                | 1,358  |   |   |               |   | 758 |   |   |   |   | 2,116 |   |   |   |   | 4,218 |   |   |   |   | 1,847 |   |   |   |   | 6,065 |   |
|                                            |
| Total loans                                |   |   |                | 3,550  |   |   |               |   | 7,660 |   |   |   |   | 11,210 |   |   |   |   | 11,126 |   |   |   |   | 19,295 |   |   |   |   | 30,421 |   |
| Short-term investments                     |   |   |                | 226    |   |   |               |   | 140 |   |   |   |   | 366 |   |   |   |   | 946 |   |   |   |   | 242 |   |   |   |   | 1,188 |   |
| Investment securities                      |   |   |                | 4,560  |   |   |               |   | (311 | ) |   |   |   | 4,249 |   |   |   |   | 9,532 |   |   |   |   | (931 | ) |   |   |   | 8,601 |   |
|                                            |
| Total interest-earning assets              |   |   | $                   | 8,336  |   |   |               | $      | 7,489 |   |   |   | $ | 15,825 |   |   |   | $ | 21,604 |   |   |   | $ | 18,606 |   |   |   | $ | 40,210 |   |
|                                            |
| Interest-bearing liabilities               |   |   |                |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                   |   |   |                |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Money market                               |   |   | $                   | 1,388  |   |   |               | $      | (1,119 | ) |   |   | $ | 269 |   |   |   | $ | 3,554 |   |   |   | $ | (2,970 | ) |   |   | $ | 584 |   |
| NOW                                        |   |   |                | 391    |   |   |               |   | 14 |   |   |   |   | 405 |   |   |   |   | 739 |   |   |   |   | 31 |   |   |   |   | 770 |   |
| Savings                                    |   |   |                | 1,281  |   |   |               |   | (78 | ) |   |   |   | 1,203 |   |   |   |   | 2,607 |   |   |   |   | (373 | ) |   |   |   | 2,234 |   |
| Time                                       |   |   |                | 4,362  |   |   |               |   | 2,883 |   |   |   |   | 7,245 |   |   |   |   | 12,731 |   |   |   |   | 9,520 |   |   |   |   | 22,251 |   |
|                                            |
| Total interest bearing deposits            |   |   |                | 7,422  |   |   |               |   | 1,700 |   |   |   |   | 9,122 |   |   |   |   | 19,631 |   |   |   |   | 6,208 |   |   |   |   | 25,839 |   |
| Repurchase agreements                      |   |   |                | 387    |   |   |               |   | (211 | ) |   |   |   | 176 |   |   |   |   | 1,367 |   |   |   |   | (401 | ) |   |   |   | 966 |   |
| FHLB advances and other borrowings         |   |   |                | 2,075  |   |   |               |   | 5,855 |   |   |   |   | 7,930 |   |   |   |   | 4,220 |   |   |   |   | 12,065 |   |   |   |   | 16,285 |   |
|                                            |
| Total interest-bearing liabilities         |   |   |                | 9,884  |   |   |               |   | 7,344 |   |   |   |   | 17,228 |   |   |   |   | 25,218 |   |   |   |   | 17,872 |   |   |   |   | 43,090 |   |
|                                            |
| (Decrease) increase in net interest income |   |   | $                   | (1,548 | )      |   |               | $      | 145 |   |   |   | $ | (1,403 | ) |   |   | $ | (3,614 | ) |   |   | $ | 734 |   |   |   | $ | (2,880 | ) |
|                                            |

As shown in Table 3, net interest income for the quarter ended September 30, 2006 was $42.5 million, compared to $43.9 million for the same period last year. This decrease of $1.4 million, or 3.2%, is primarily due to the decline of $132.7 million in net interest-earning assets, principally due to stock buy-backs and purchase of BOLI, and the increase in the average cost of interest-bearing liabilities from a year ago. The average rate paid on interest-bearing liabilities increased 104 basis points while the average yield earned on interest-earning assets increased 62 basis points, resulting in a net interest rate spread decline of 42 basis points. The majority of the decline in the interest rate spread is from time deposits, which increased interest expense $7.2 million mainly due to a 110 basis point increase in the average rate. The company has continued to offer premium time deposit rates due to the competitive market for deposits. Partially offsetting the decline in net interest income, was an additional $1.0 million of dividend income on FHLB stock which was recorded during the quarter due to changes by the FHLB in declaring their quarterly dividend beginning in the second quarter of 2006. The FHLB dividend declared in the third quarter was for 183 days and made up for the absence of a dividend in the second quarter.

Interest income for the three months ended September 30, 2006 was $86.3 million, compared to $70.5 million for the quarter ended September 30, 2005, an increase of $15.8 million, or 22.4%. The increase in interest income was driven primarily by loans due to both an increase in the average balances of $525.8 million and a 41 basis point increase in the average yield earned. While all loan categories experienced increases in average balances and average yields, the commercial and residential real estate loan portfolios continued to be the drivers of growth. The increases in average balances are due to the acquisition of Cornerstone; the Company’s continued strategy of purchasing residential mortgages in the secondary market and increased organic loan originations. This volume increase accounted for approximately $7.7 million of the increase in interest income. The remainder of the increase in interest income was due to increases in market interest rates of 41 basis points on the loan portfolio and 71 basis points on investment securities, including the additional income from the FHLB as previously mentioned.

The cost of funds for the quarter ended September 30, 2006 increased $17.2 million, or 64.8% to $43.8 million compared to the prior year period. The average rate on interest-bearing liabilities increased 104 basis points to 3.35% from 2.31%. The increase in interest expense was primarily due to increases in time deposits and FHLB advances, of $7.2 million and $7.9 million, respectively, from the quarter ended September 30, 2005. The increase in time deposits interest expense is due to a 110 basis point increase in the average rate on these deposits coupled with an average balance increase of $346.6 million. The 110 basis point increase in the average rate was due to market interest rate increases and offering promotional rates to customers who either had or established a checking relationship with the Bank. Increasing market interest rates and checking and savings promotions were the primary factors for the higher interest expense in the other deposit categories, but was partially offset by a

29

----

decline in the average balances of money market and savings deposits as monies shifted to higher paying time deposits or were lost to competitors. The increase in interest expense on FHLB advances was predominantly due to an increase in the average balance of $551.0 million which funded the purchase of residential mortgages, investment securities and to a lesser extent helped fund the Company’s stock buy-back program. There was also a 65 basis point increase in the average rate paid on these borrowings due to increases in market interest rates.

As shown in Table 4, net interest income for the nine months ended September 30, 2006 was $129.8 million, compared to $132.6 million for the nine months ended September 30, 2005. This year over year net interest income decrease of $2.8 million was primarily due to the same factors as previously discussed above, with the exception of the FHLB dividend anomaly in the third quarter. The increase in interest expense on time deposits was again the main driver of the decrease of 37 basis points in the interest rate spread as the average rate paid on time deposits increased 111 basis points. Even though there has been significant growth in interest-earning assets, it has been outpaced by the growth and cost of funds of the interest-bearing liabilities causing an average balance decrease in net interest-earning assets of $102.4 million.

For the nine months ended September 30, 2006, interest income was $244.0 million, an increase of $40.2 million, or 19.7%, from $203.8 million for the nine months ended September 30, 2005. The increase in interest income attributable to the loan portfolio is $30.4 million, with $19.3 million due to an increase in the average balances of $446.0 million and $11.1 million due to a 44 basis point increase in the average yield, for the same reasons in the quarterly discussion. Additionally, higher market interest rates caused a 51 basis point increase in the average yield of the investment securities portfolio which contributed $9.5 million of the increase in interest income.

For the nine months ended September 30, 2006, the cost of funds was $114.2 million compared to $71.1 million for the nine months ended September 30, 2005. The dynamics affecting this increase of $43.1 million, or 60.6%, was consistent with the quarterly change in the cost of funds outlined above.

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 did not record a provision for loan losses for either the three or nine months ended September 30, 2006. The primary factor that influenced management’s decision not to record a provision was that net charge-offs of only $88,000 were recorded during the quarter, while still having net recoveries of $94,000 for the nine months ended September 30, 2006. For the three months ended September 30, 2005, a $400,000 provision was recorded to partially offset net charge-offs of $914,000 which were primarily attributable to the commercial business portfolio. This $400,000 provision was also the year-to-date provision at September 30, 2005. The allowance was deemed adequate based on the acceptable level of delinquencies, nonperforming loans and criticized assets, and considering the growth in the portfolio, including the Cornerstone acquisition.

At September 30, 2006, the allowance for loan losses was $37.9 million, which represented 358.55% of nonperforming loans and 1.00% of total loans. This compared to the allowance for loan losses of $35.6 million at December 31, 2005 representing 481.02% of nonperforming loans and 1.08% of total loans at that date. The allowance acquired as a result of the Cornerstone acquisition on January 2, 2006 was $2.2 million.

**Table 6: Non-Interest Income**

|                                                   |   | Three Months Ended |   |   |   |          |   |   |   |    | Nine Months Ended |   |      |   |   |   |   |   |   |
|--------------------------------------------------------|--------|--------------------|--------|--------|--------|---------------|--------|--------|--------|---------|-------------------|--------|-----------|--------|--------|--------|--------|--------|--------|
|                                                   |   | September 30,      |   | Change |   | September 30, |   | Change |
|                                                   |   |                    |   |        |   |               |   |        |
| (Dollars in thousands)                                 |   | 2006               |   | 2005   |   |          | Amount |   |   | Percent |              | 2006   |      | 2005   |   |   | Amount |   |   |   | Percent |
|                                                        |
| Depositor service charges                              |   | $                  | 6,762  |   | $      | 5,915         |   |   | $      | 847     |              |   | 14.32     | %      |   | $      | 19,305 |   | $      | 16,690 |   |   | $ | 2,615 |   |   |   | 15.67 | % |
| Loan and servicing income                              |   |               | 433    |   |   | 307           |   |   |   | 126     |              |   | 41.04     |   |   |   | 1,669  |   |   | 2,215 |   |   |   | (546 | ) |   |   | (24.65 | ) |
| Trust fees                                             |   |               | 1,617  |   |   | 1,759         |   |   |   | (142    | )                 |   | (8.07     | )      |   |   | 4,929  |   |   | 3,034 |   |   |   | 1,895 |   |   |   | 62.46 |   |
| Investment and insurance fees                          |   |               | 1,184  |   |   | 1,549         |   |   |   | (365    | )                 |   | (23.56    | )      |   |   | 4,144  |   |   | 4,922 |   |   |   | (778 | ) |   |   | (15.81 | ) |
| Bank owned life insurance                              |   |               | 1,272  |   |   | 609           |   |   |   | 663     |              |   | 108.87    |   |   |   | 2,560  |   |   | 1,806 |   |   |   | 754 |   |   |   | 41.75 |   |
| Rent                                                   |   |               | 882    |   |   | 824           |   |   |   | 58      |              |   | 7.04      |   |   |   | 2,522  |   |   | 2,410 |   |   |   | 112 |   |   |   | 4.65 |   |
| Net gain (loss) on securities and limited partnerships |   |               | 2,040  |   |   | (22           | )      |   |   | 2,062   |              |   | (9,372.73 | )      |   |   | 2,095  |   |   | (53 | ) |   |   | 2,148 |   |   |   | (4,052.83 | ) |
| Net gain on sale of loans                              |   |               | 333    |   |   | 76            |   |   |   | 257     |              |   | 338.16    |   |   |   | 872    |   |   | 197 |   |   |   | 675 |   |   |   | 342.64 |   |
| Other                                                  |   |               | 275    |   |   | 1,355         |   |   |   | (1,080  | )                 |   | (79.70    | )      |   |   | 968    |   |   | 2,215 |   |   |   | (1,247 | ) |   |   | (56.30 | ) |
|                                                        |
| Total non-interest income                              |   | $                  | 14,798 |   | $      | 12,372        |   |   | $      | 2,426   |              |   | 19.61     | %      |   | $      | 39,064 |   | $      | 33,436 |   |   | $ | 5,628 |   |   |   | 16.83 | % |
|                                                        |

30

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Other income decreased mostly due to non-recurring income received in the prior year related to gains on the sale of excess real estate and the sale of a portion of merchant services book of business. Investment and insurance fees decreased mainly due to an unfavorable market for fixed annuity insurance products.

For the nine months ended September 30, 2006, non-interest income increased $5.7 million to $39.1 million from $33.4 million for the nine months ended September 30, 2005. The Company had significant year-to-date increases in net gain on securities and limited partnerships, depositor service charges, BOLI, and net gain on sale of loans, which are all due to the same reasons as outlined in the quarterly discussion. In addition to the quarterly discussion, depositor service charges also increased due to the implementation of a check card overdraft program during the second quarter of 2005 while trust fees increased due to the acquisition of Trust Company of Connecticut in July 2005. The quarterly discussion also parallels the primary reasons for the year-to-date decreases in investment and insurance fees and other income. Loan and servicing income decreased in part due to a larger write-up of previously recorded impairment in the valuation of the mortgage servicing assets during the nine months ended September 30, 2005 compared to the same period in 2006 and a decrease in commercial loan fees due to a slow-down in the real estate market.

**Table 7: Non-Interest Expense**

|                                            |   | Three Months Ended |   |   |   |   |   |          |    |   |   | Nine Months Ended |   |   |   |   |    |   |   |    |   |
|-------------------------------------------------|--------|--------------------|--------|--------|--------|--------|--------|---------------|---------|--------|--------|-------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|
|                                            |   | September 30,      |   |   | Change |   |   | September 30, |    |   | Change |              |
|                                            |   |                    |   |   |        |   |   |               |    |   |        |              |
| (Dollars in thousands)                          |   | 2006               |   | 2005   |   |   | Amount |          | Percent |   |   | 2006              |   | 2005   |   |   | Amount  |   |   | Percent |   |
|                                                 |
| Salaries and employee benefits                  |   | $                  | 19,191 |   | $      | 19,985 |   |          | $       | (794   | )      |              | (3.97  | )%     |   | $      | 59,831  |   | $      | 52,566  |   |   | $ | 7,265 |   |   |   | 13.82 | % |
| Occupancy                                       |   |               | 3,545  |   |   | 3,061  |   |          |    | 484    |   |              | 15.81  |   |   |   | 10,524  |   |   | 9,193   |   |   |   | 1,331 |   |   |   | 14.48 |   |
| Furniture and fixtures                          |   |               | 1,579  |   |   | 1,558  |   |          |    | 21     |   |              | 1.35   |   |   |   | 4,848   |   |   | 4,815   |   |   |   | 33 |   |   |   | 0.69 |   |
| Outside services                                |   |               | 3,722  |   |   | 4,334  |   |          |    | (612   | )      |              | (14.12 | )      |   |   | 13,198  |   |   | 13,621  |   |   |   | (423 | ) |   |   | (3.11 | ) |
| Advertising, public relations, and sponsorships |   |               | 1,160  |   |   | 747    |   |          |    | 413    |   |              | 55.29  |   |   |   | 4,294   |   |   | 3,282   |   |   |   | 1,012 |   |   |   | 30.83 |   |
| Amortization of identifiable intangible assets  |   |               | 2,267  |   |   | 2,437  |   |          |    | (170   | )      |              | (6.98  | )      |   |   | 7,124   |   |   | 8,408   |   |   |   | (1,284 | ) |   |   | (15.27 | ) |
| Conversion and merger related charges           |   |               | 186    |   |   | 344    |   |          |    | (158   | )      |              | (45.93 | )      |   |   | 2,667   |   |   | 1,234   |   |   |   | 1,433 |   |   |   | 116.13 |   |
| Other                                           |   |               | 3,217  |   |   | 3,297  |   |          |    | (80    | )      |              | (2.43  | )      |   |   | 9,769   |   |   | 10,213  |   |   |   | (444 | ) |   |   | (4.35 | ) |
|                                                 |
| Total non-interest expense                      |   | $                  | 34,867 |   | $      | 35,763 |   |          | $       | (896   | )      |              | (2.51  | )%     |   | $      | 112,255 |   | $      | 103,332 |   |   | $ | 8,923 |   |   |   | 8.64 | % |
|                                                 |

31

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The net decrease in outside services was comprised of various components including reductions in: i) consulting relating to Sarbanes Oxley (“SOX”), the 2005 LTCP and systems projects; and ii) a reduction in data processing fees due to a new contract extension; partially offset by increases due to: iii) additional transactional volume related to the acquisitions and iv) outsourced internal audit services for SOX compliance.

The decrease in the amortization of identifiable intangible assets was due to fewer non-compete agreements remaining in 2006 as they began to expire in 2005. The non-compete agreements are being amortized on a straight-line basis over the terms of each agreement. Additionally, the Company experienced a reduction of amortization on the core deposit intangibles, due to the Company utilizing an accelerated method which calls for a higher level of expense in earlier periods, both relating to the Connecticut Bancshares and Alliance acquisitions, partially offset by new amortization of a core deposit intangible recorded in conjunction with the Cornerstone acquisition.

These decreases in non-interest expense for the quarter ended September 30, 2006 were partially offset by increases in occupancy and advertising, public relations and sponsorships. The increase in occupancy expense was mostly attributable to the acquisition of Cornerstone Bank on January 2, 2006 as we added six branches to our branch network. The increase in advertising, public relations and sponsorships is due to increases in media advertising, various sponsorships, and market research.

On a year-to-date basis, non-interest expense increased $8.9 million to $112.3 million for the nine months ended September 30, 2006 from $103.3 million for the nine months ended September 30, 2005. The main driver of this increase is salaries and employee benefits. Other increases include conversion and merger charges, occupancy and advertising, public relations and sponsorships. The majority of the increase in salaries and employee benefits is primarily due to the additional employees as a result of the acquisitions of Cornerstone Bank and Trust Company that occurred July 1, 2005 and January 2, 2006, respectively, severance that was recorded for an executive who left the Company, and expenses associated with the LTCP that was implemented in June 2005. These increases in salaries are partially offset by decreases in bonuses and pension expense which has the same explanation as outlined in the quarterly discussion.

Conversion and merger related charges increased mostly due to consulting and data processing expenses related to Cornerstone for system conversions along with legal and consulting expenses related to a potential plan of merger that was abandoned during the due-diligence phase in the first quarter of 2006. Increases in occupancy expenses were due to the increased branch network from the acquisitions of Cornerstone and Trust Company while advertising expenses, largely newspaper, radio and direct mail campaigns, correlated with the Company’sdeployment of various deposit and loan product promotions and accounted for much of the increase in advertising, public relations and sponsorships. These increases were partially offset by decreases in amortization of identifiable intangible assets and outside services. These decreases are consistent with the quarterly explanations. Other expense also decreased and is largely due to a reduction in the Company’s operating insurance premiums.

The decrease in the effective tax rate for the three and nine months ended September 30, 2006 is primarily due to the disallowance of excess remuneration under Internal Revenue Code Section 162(m) and the increase in the valuation allowance related to losses inherent in our capital assets during the three and nine months ended September 30, 2005 and the increase in the tax benefit for BOLI in the three and nine months ended September 30, 2006. Losses on capital assets are only realizable for tax purposes to the extent they can be offset by gains on capital assets. The valuation allowance was established because management believed it was more likely than not that there would be insufficient capital gains to offset capital losses within the carryover period. The effective rate as of September 30, 2006 is representative of the Company’s projected effective tax rate for the year.

32

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**Financial Condition**

**Table 8: Investment Securities**

|                                             |   | September 30, 2006 |      | December 31, 2005 |
|--------------------------------------------------|--------|--------------------|-----------|-------------------|
|                                             |   |                    |      |                   |
|                                             |   | Amortized          |      | Fair              |   | Amortized |   | Fair |
| (In thousands)                                   |   | cost               |      | value             |   | Cost |   | value |
|                                                  |
| **Available for sale**                           |   |               |      |              |   |   |   |   |   |   |   |   |   |
| U.S. Treasury obligations                        |   | $                  | 8,818     |              | $ | 8,672 |   | $ | 8,877 |   | $ | 8,745 |   |
| U.S. Government sponsored enterprise obligations |   |               | 171,570   |              |   | 170,781 |   |   | 159,008 |   |   | 157,386 |   |
| Corporate obligations                            |   |               | 35,647    |              |   | 34,901 |   |   | 54,831 |   |   | 53,617 |   |
| Other bonds and obligations                      |   |               | 96,751    |              |   | 96,172 |   |   | 120,663 |   |   | 119,848 |   |
| Marketable and trust preferred equity securities |   |               | 187,776   |              |   | 187,883 |   |   | 161,122 |   |   | 160,806 |   |
| Mortgage-backed securities                       |   |               | 1,702,939 |              |   | 1,667,286 |   |   | 1,899,374 |   |   | 1,863,069 |   |
|                                                  |
| Total available for sale                         |   |               | 2,203,501 |              |   | 2,165,695 |   |   | 2,403,875 |   |   | 2,363,471 |   |
|                                                  |
| **Held to maturity**                             |   |               |      |              |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                       |   |               | 314,751   |              |   | 315,763 |   |   | 87,104 |   |   | 86,151 |   |
| Other bonds                                      |   |               | 5,805     |              |   | 5,715 |   |   | 4,630 |   |   | 4,556 |   |
|                                                  |
| Total held to maturity                           |   |               | 320,556   |              |   | 321,478 |   |   | 91,734 |   |   | 90,707 |   |
|                                                  |
| Total securities                                 |   | $                  | 2,524,057 |              | $ | 2,487,173 |   | $ | 2,495,609 |   | $ | 2,454,178 |   |
|                                                  |

At September 30, 2006 the Company had total investments of $2.49 billion, or 34.5%, of total assets. The increase of $31.0 million, or 1.3%, from $2.46 billion at December 31, 2005 is primarily the result of purchasing held to maturity mortgagebacked securities that were duration-match funded against FHLB borrowings, partially offset by a decrease in available for sale mortgage-backed securities. The principal payments from these investments were used to purchase residential real estate loans as well as offset any deposit outflow.

The Company’s underlying investment strategy is to purchase hybrid adjustable rate mortgage-backed securities, five and seven year balloon mortgage-backed securities, ten-year pass through mortgage-backed securities and collateralized mortgage obligations based off fifteen-year mortgage collateral. The Company is focusing on the purchases of these securities due to their limited extension risk in a rising rate environment 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 and asset-backed securities. For mortgage-backed securities, the average life, when purchased, would range between 1.5 and 3.5 years and the maturity dates for Agency obligations would range between one and five years.

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, 2006, $2.17 billion, or 87.1%, of the portfolio, was classified as available for sale and $320.6 million of the portfolio was classified as held to maturity. The net unrealized loss on securities classified as available for sale as of September 30, 2006 was $37.8 million compared to an unrealized loss of $40.4 million as of December 31, 2005. The depreciation in the market value of securities available for sale was primarily due to fluctuations in market interest rates during

33

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the period. Management has performed a review of all investments with unrealized losses and determined that none of these investments had other-than-temporary impairment.

***Lending Activities***The 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, multi-family loans, home equity loans and lines of credit and other consumer loans. Table 9 displays the balances of the Company’s loan portfolio as of September 30, 2006 and December 31, 2005.

| **Table 9: Loan Portfolio**            |   |               |      |              |     |   |   |   |      |     |   |   |
|----------------------------------------|--------|--------------------|-----------|-------------------|----------|--------|--------|--------|-----------|----------|--------|--------|
|                                   |   | September 30, 2006 |      | December 31, 2005 |
|                                   |   |                    |      |                   |
|                                   |   |               |      |              | Percent  |   |   |   |      | Percent  |
| (Dollars in thousands)                 |   |               | Amount    |              | of Total |   |   | Amount |      | of Total |
|                                        |
| Residential real estate                |   | $                  | 1,923,894 |              | 50.8     | %      |   | $      | 1,650,527 |     | 50.4   | %      |
| Commercial real estate                 |   |               | 929,312   |              | 24.6     |   |   |   | 768,582   |     | 23.4   |   |
| Commercial business                    |   |               | 345,505   |              | 9.1      |   |   |   | 314,562   |     | 9.6    |   |
| Home equity and equity lines of credit |   |               | 565,785   |              | 15.0     |   |   |   | 520,290   |     | 15.9   |   |
| Other consumer                         |   |               | 17,450    |              | 0.5      |   |   |   | 22,745    |     | 0.7    |   |
|                                        |
| Total loans                            |   | $                  | 3,781,946 |              | 100.0    | %      |   | $      | 3,276,706 |     | 100.0  | %      |
|                                        |

As shown in Table 9, gross loans were $3.78 billion, up $505.2 million, or 15.4%, at September 30, 2006 from year-end 2005. The Company experienced an increase in all but one loan category and was primarily attributable to the acquisition of Cornerstone, loan purchases and an increase in loan originations.

Residential real estate loans continue to represent the largest segment of the Company’s loan portfolio as of September 30, 2006, comprising over fifty percent of gross loans. The increase of $273.4 million is due to loan portfolio purchases, organic originations and balances acquired from Cornerstone, partially offset by a decrease in organic loan balances. The purchased portfolio includes adjustable rate and 10 and 15 year fixed rate residential real estate loans with property locations throughout the United States, with just over 50% in the Northeast. For 2006, loan purchases accounted for $329.0 million of the year-to-date increase in residential real estate loans and were primarily purchased with cash flows from the available for sale investment portfolio and funds borrowed from the FHLB. The acquisition of Cornerstone added approximately $12.1 million in residential loans.

Commercial business loans increased $30.9 million to $345.5 million at September 30, 2006, primarily due to $125.4 million in originations and $35.5 million acquired through the Cornerstone acquisition, partially offset by payoffs and loan maturities. Commercial real estate loans increased $160.7 million from December 31, 2005 to September 30, 2006. The increase was attributable to the acquisition of Cornerstone which added approximately $86.7 million to the portfolio as well as increases in both the number and average balance of organic loan originations partially as a result of the Company’s competitive position in the Connecticut commercial real estate lending market subsequent to the acquisitions of Cornerstone, Connecticut Bancshares and Alliance. The Company’s continued strategy is to build a larger percentage of the Company’s assets in commercial loans including real estate, construction and other commercial loans. To accomplish this goal, the Company is expanding penetration of its geographical target area as well as promoting stronger business development efforts to obtain new business banking relationships, while maintaining strong credit quality.

Home equity loans and lines of credit increased $45.5 million from December 31, 2005 to September 30, 2006, with Cornerstone contributing approximately $2.6 million of the increase. 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 investments.

***Asset Quality***As displayed in Table 10, nonperforming assets at September 30, 2006 increased to $10.8 million compared to $7.4 million at December 31, 2005. The increase is primarily due to an increase in the commercial real estate category, which includes commercial construction loans, as a result of the Cornerstone acquisition as well as an increase in nonperforming commercial business loans, offset by a decrease in the residential real estate category due to loans that were either brought to a current status and reinstated, or that paid off during the nine months ended September 30, 2006. Nonperforming loans as a percent of total loans outstanding at September 30, 2006 was 0.28%, up from 0.23% at December 31, 2005. The allowance for loan losses to nonperforming loans ratio, a general measure of coverage adequacy, was 358.55% at September 30, 2006, down from the ratio of 481.02% at year-end 2005. The allowance for loan losses to total loans was 1.00% at the end of the September 30, 2006, compared to 1.08% at December 31, 2005.

34

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| **Table 10: Nonperforming Assets**                                  |   |          |   |         |   |   |   |   |
|---------------------------------------------------------------------|--------|---------------|--------|--------------|--------|--------|--------|--------|
|                                                                |   | September 30, |   | December 31, |
| (Dollars in thousands)                                              |   | 2006          |   | 2005         |
|                                                                     |
| Nonaccruing loans (1)                                               |   |          |   |         |   |   |   |   |
| Real estate loans                                                   |   |          |   |         |   |   |   |   |
| Residential (one- to four- family)                                  |   | $             | 1,204  |         |   | $      | 1,808  |   |
| Commercial                                                          |   |          | 4,703  |         |   |   | 2,889  |   |
|                                                                     |
| Total real estate loans                                             |   |          | 5,907  |         |   |   | 4,697  |   |
| Commercial business                                                 |   |          | 4,245  |         |   |   | 2,446  |   |
| Consumer loans                                                      |   |          |   |         |   |   |   |   |
| Home equity and equity lines of credit                              |   |          | 385    |         |   |   | 29     |   |
| Other consumer                                                      |   |          | 25     |         |   |   | 219    |   |
|                                                                     |
| Total consumer loans                                                |   |          | 410    |         |   |   | 248    |   |
|                                                                     |
| Total Nonaccruing loans                                             |   |          | 10,562 |         |   |   | 7,391  |   |
| Real Estate Owned                                                   |   |          | 215    |         |   |   | -      |   |
|                                                                     |
| Total nonperforming assets                                          |   | $             | 10,777 |         |   | $      | 7,391  |   |
|                                                                     |
| Allowance for loan losses as a percent of total loans (2)           |   |          | 1.00   | %            |   |   | 1.08   | %      |
| Allowance for loan losses as a percent of total nonperforming loans |   |          | 358.55 | %            |   |   | 481.02 | %      |
| Total nonperforming loans as a percentage of total loans (2)        |   |          | 0.28   | %            |   |   | 0.23   | %      |
| Total nonperforming assets as a percentage of total assets          |   |          | 0.15   | %            |   |   | 0.11   | %      |

| (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 Losses***As displayed in Table 11 below, during the three months ended September 30, 2006, the Company recorded net charge-offs of $88,000, compared to net charge-offs of $914,000 for the three months ended September 30, 2005. For the nine months ended September 30, 2006, the Company recorded net recoveries of $94,000 primarily due to the receipt of significant cash recoveries, including $433,000 received from one commercial relationship in the first quarter. Management believes that the allowance for loan losses is adequate and consistent with positive asset quality and delinquency indicators. The Company had a loan loss allowance of $37.9 million and $35.6 million at September 30, 2006 and December 31, 2005, respectively. The September 30, 2006 allowance includes $2.2 million which was acquired as a result of the Cornerstone acquisition in January 2006.

| **Table 11: 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)                                    |   | 2006                       |   |                      | 2005   |   |   | 2006   |   |   | 2005   |   |
|                                                           |
| Balance at beginning of period                            |   | $                          | 37,958 |                      |   | $      | 36,181 |   |   | $      | 35,552 |   |   | $      | 36,163 |   |
| Net allowances gained through acquisition                 |   |                       | -      |                      |   |   | -      |   |   |   | 2,224  |   |   |   | -      |   |
| Provision for loan losses                                 |   |                       | -      |                      |   |   | 400    |   |   |   | -      |   |   |   | 400    |   |
| Charge-offs                                               |   |                       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential and commercial real estate loans              |   |                       | 283    |                      |   |   | 7      |   |   |   | 399    |   |   |   | 28     |   |
| Commercial business loans                                 |   |                       | 281    |                      |   |   | 1,222  |   |   |   | 951    |   |   |   | 2,532  |   |
| Consumer loans                                            |   |                       | 154    |                      |   |   | 64     |   |   |   | 343    |   |   |   | 220    |   |
|                                                           |
| Total charge-offs                                         |   |                       | 718    |                      |   |   | 1,293  |   |   |   | 1,693  |   |   |   | 2,780  |   |
|                                                           |
| Recoveries                                                |   |                       |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential and commercial real estate loans              |   |                       | 28     |                      |   |   | 32     |   |   |   | 200    |   |   |   | 223    |   |
| Commercial business loans                                 |   |                       | 579    |                      |   |   | 296    |   |   |   | 1,482  |   |   |   | 1,527  |   |
| Consumer loans                                            |   |                       | 23     |                      |   |   | 51     |   |   |   | 105    |   |   |   | 134    |   |
|                                                           |
| Total recoveries                                          |   |                       | 630    |                      |   |   | 379    |   |   |   | 1,787  |   |   |   | 1,884  |   |
|                                                           |
| Net charge-offs (recoveries)                              |   |                       | 88     |                      |   |   | 914    |   |   |   | (94    | )      |   |   | 896    |   |
|                                                           |
| Balance at end of period                                  |   | $                          | 37,870 |                      |   | $      | 35,667 |   |   | $      | 37,870 |   |   | $      | 35,667 |   |
|                                                           |
| Net charge-offs (recoveries) to average loans             |   |                       | 0.01   | %                         |   |   | 0.11   | %      |   |   | -      | %      |   |   | 0.04   | %      |
| Allowance for loan losses to total loans                  |   |                       | 1.00   |                      |   |   | 1.10   |   |   |   | 1.00   |   |   |   | 1.10   |   |
| Allowance for loan losses to nonperforming loans          |   |                       | 358.55 |                      |   |   | 378.39 |   |   |   | 358.55 |   |   |   | 378.39 |   |
| Net charge-offs (recoveries) to allowance for loan losses |   |                       | 0.23   |                      |   |   | 10.25  |   |   |   | (0.25  | )      |   |   | 3.35   |   |
| Total recoveries to total charge-offs                     |   |                       | 87.74  |                      |   |   | 29.31  |   |   |   | 105.55 |   |   |   | 67.77  |   |

35

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***Cash Surrender Value of Bank Owned Life Insurance***As of September 30, 2006, the Company had cash surrender value of bank owned life insurance assets of $114.7 million, an increase of $57.4 million from $57.3 million at December 31, 2005. The increase is due to the purchase of $50.0 million in life insurance coverage during the quarter and the acquisition of Cornerstone. Increases in the cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income and are not subject to income tax.

***Intangible Assets***At September 30, 2006, the Company had intangible assets of $505.7 million, an increase of $28.7 million, or 6.0%, from $477.0 million at December 31, 2005. The increase was predominately due to the acquisition of Cornerstone on January 2, 2006 which resulted in the Company recording additional goodwill of $24.9 million and a core deposit intangible of $6.8 million, partially offset by year-to-date amortization expense of $7.1 million. Also, in accordance with the definitive agreement the Company previously entered into with Trust Company, additional merger consideration in the form of Company stock and cash was remitted to Trust Company shareholders, which resulted in the Company recording an additional $4.3 million of goodwill. In accordance with SFAS No. 141, the 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 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. For 2006, the goodwill evaluation occurred during the first quarter and no impairment was recorded. Also, no events or circumstances subsequent to that evaluation indicate that the carrying value of the Company’s goodwill may not be recoverable.

***Deposits and Borrowings***The Company’s traditional sources of funds are the deposits it gathers, borrowings from the FHLB and customer repurchase agreements. The Company’s FHLB borrowings are collateralized by stock in the FHLB, certain mortgage loans and other investments. Repayment and prepayment of loans and securities, proceeds from sales of loans and securities and proceeds from maturing securities are also sources of funds for the Company.

|                   |   |          |      |         |   |   |      |   |
|------------------------|--------|---------------|-----------|--------------|--------|--------|-----------|--------|
| **Table 12: Deposits** |   |          |      |         |   |   |      |   |
|                   |   | September 30, |      | December 31, |
| (In thousands)         |   | 2006          |      | 2005         |
|                        |
| Savings                |   | $             | 763,356   |         |   | $      | 781,346   |   |
| Money market           |   |          | 533,496   |         |   |   | 554,079   |   |
| NOW                    |   |          | 363,975   |         |   |   | 342,268   |   |
| Demand                 |   |          | 468,205   |         |   |   | 486,528   |   |
| Time                   |   |          | 1,719,616 |         |   |   | 1,633,891 |   |
|                        |
| Total deposits         |   | $             | 3,848,648 |         |   | $      | 3,798,112 |   |
|                        |

As displayed in Table 12, deposits increased $50.5 million compared to December 31, 2005, primarily attributable to the acquisition of Cornerstone which added approximately $178.3 million in deposits. The Company continued to focus on its strategy of offering premium time deposit rates to customers who either have or establish a checking relationship with the Company coupled with the offering of free checking and free “interest” checking products. NewAlliance also established a promotional free savings account available to customers who either have or establish a checking account with the Company. As a result of these promotions, the Company was able to attract new customers as well as offering attractive products to existing customers. NOW accounts increased by $21.7 million due in part to the free interest checking product. This increase was partially offset by a decrease in organic deposit balances, much of which is due to the competitive market environment.

36

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| **Table 13: Borrowings**                                       |   |          |      |         |   |   |      |   |
|----------------------------------------------------------------|--------|---------------|-----------|--------------|--------|--------|-----------|--------|
|                                                           |   | September 30, |      | December 31, |
| (In thousands)                                                 |   | 2006          |      | 2005         |
|                                                                |
| FHLB advances (1)                                              |   | $             | 1,758,127 |         |   | $      | 1,191,280 |   |
| Repurchase agreements                                          |   |          | 151,810   |         |   |   | 179,970   |   |
| Mortgage loans payable                                         |   |          | 1,624     |         |   |   | 1,716     |   |
| Junior subordinated debentures issued to affiliated trusts (2) |   |          | 7,659     |         |   |   | 7,809     |   |
|                                                                |
| Total borrowings                                               |   | $             | 1,919,220 |         |   | $      | 1,380,775 |   |
|                                                                |

| (1) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, *“Business**Combinations,”* of $14.5 million and $18.2 million at September 30, 2006 and December 31, 2005, respectively.                                                                                                                                                                                                                                                                                                                                             |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, *“Business**Combinations,”* of $550,000 and $700,000 at September 30, 2006 and December 31, 2005, respectively. The trusts were organized by Alliance to facilitate the issuance of “trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. 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.

Table 13 above summarizes the Company’s recorded borrowings of $1.92 billion at September 30, 2006. Borrowings increased $538.4 million, or 39.0%, from the balance recorded at December 31, 2005, mainly in FHLB advances. This increase in FHLB advances was due to funding loan growth and held to maturity investment purchases, while managing interest rate risk and liquidity. At September 30, 2006, the majority of the Company’s outstanding FHLB advances were at fixed rates, while only $60.0 million had floating rates.

***Stockholders’ Equity***Total stockholders’ equity equaled $1.35 billion at September 30, 2006, $43.3 million higher than the balance at December 31, 2005. The increase consisted primarily of common stock issued for the Cornerstone acquisition and contingent shares issued for Trust Company of $35.8 million, net income of $37.9 million, stock option and restricted stock expense of $9.6 million, $2.7 million of released ESOP shares, and an increase of $1.8 million in other comprehensive income resulting from an after tax appreciation in the fair market value of investments available for sale. These increases were partially offset by decreases due to shares repurchased of $26.6 million and dividends of $18.0 million. For information regarding our compliance with applicable capital requirements, see “Liquidity and Capital Position” below. Book value per share amounted to $12.36 and $12.05 at September 30, 2006 and December 31, 2005, respectively.

**Asset and Liability Management and Management of Market and Interest Rate Risk**

***General***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 substantially all are investment grade or have government guarantees. 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. 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 several 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.

37

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The Company employs two approaches to interest rate risk measurement; gap analysis and income simulation analysis.

***Gap Analysis***The 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, 2006, 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 negative $290.1 million, or negative 4.03% 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 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 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 all 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 forward yield curve as of September 30, 2006 was utilized. This resulted in a yield curve that decreased approximately 50 basis points at the front end of the yield curve and remained flat at the long end of the yield curve. The overnight rate was modeled to decrease 50 basis points as compared to the September 30, 2006 level. This interest rate scenario most closely approximates management’s expectations for interest rate movements over the next twelve months.

As of September 30, 2006, the Company’s estimated exposure as a percentage of estimated net interest margin for the next twelve-month period as compared to the forecasted net interest margin in the base case scenario are as follows:

|                                                          |   | Percentage change in          |
|---------------------------------------------------------------|--------|-------------------------------|
|                                                          |   | estimated net interest margin |
|                                                          |   | over twelve months            |
|                                                               |
| 100 basis point instantaneous and sustained increase in rates |   |                          | 0.90 | % |
| 100 basis point instantaneous and sustained decrease in rates |   |                          | 0.05 | % |
|                                                               |

In the current rate environment, an instantaneous and sustained downward rate shock of 100 basis points is a realistic representation of the potential risk facing the Company due to declining rates. For an increase in rates, a 100 basis points instantaneous and sustained rate shock is also a relevant representation of potential risk given the current rate structure and the current state of the economy.

Based on the scenarios above, net interest income would be essentially unchanged in the 12-month period after an immediate decrease in rates, and would increase slightly after an immediate increase 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 certain assets and liabilities with similar maturities or periods to repricing react to changes in 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.

38

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***Liquidity and Capital Position***Liquidity 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 purchases of investments and residential mortgage loans while managing interest rate risk and liquidity. At September 30, 2006, total borrowings from the Federal Home Loan Bank amounted to $1.74 billion, exclusive of $14.5 million in purchase accounting adjustments, and the Company had the capacity to increase that total to $1.88 billion. Additional borrowing capacity would be available by pledging eligible 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, 2006 the Company’s repurchase agreement lines of credit totaled $125.0 million, all of which was available on that date.

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, 2006, cash and due from banks, short-term investments and debt securities maturing within one year amounted to $435.1 million, or 6.0% of total assets.

The Company 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.

At September 30, 2006, the Company had commitments to originate loans, unused outstanding lines of credit, standby letters of credit and undisbursed proceeds of loans totaling $789.5 million. The Company anticipates that it will have sufficient funds available to meet its current loan commitments. Certificates of deposit maturing within one year from September 30, 2006 are $1.48 billion.

At September 30, 2006, the Company’s Tier 1 leverage ratio, a primary measure of regulatory capital was $879.6 million, or 13.3%, which is above the threshold level of $330.1 million, or 5% to be considered “well-capitalized.” The Tier 1 risk-based capital ratio stood at 22.8% and the Total risk-based capital ratio stood at 23.8%. The Bank also exceeded all of its regulatory capital requirements with leverage capital of $666.0 million, or 10.1% of average assets, which is above the required level of $263.2 million or 4%, the Tier 1 risk-based capital ratio was 17.3% and the Total risk-based capital ratio was 18.3%. These ratios qualify the Bank as a “well capitalized” institution under federal capital guidelines.

**Item 3.****Quantitative and Qualitative Disclosures About Market Risk**

Quantitative 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”, on pages 23 through 39 under the caption “Asset and Liability Management and Management of Market and Interest Rate Risk”.

**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, 2006. 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 2006.

39

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In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

**PART II – OTHER INFORMATION**

**Item 1.****Legal Proceedings**We are not involved in any pending legal proceedings other than as described below and 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.

A conversion-related civil action was brought against the Company in June, 2004. This action was brought in U.S. District Court, New Haven, Connecticut. The plaintiffs are 10 entities who claim that their right to purchase stock in the Company’s conversion offering was improperly limited by the Company because of its allegedly wrongful determination that those entities were acting in concert with other entities whose subscription rights were also restricted, and because the Company improperly communicated that determination to the plaintiffs. Monetary damages are sought based on the number of shares they allege they should have been allowed to purchase multiplied by the stock’s initial appreciation following the conversion. The Company disputes the plaintiffs’ allegations and intends to defend the case vigorously. On November 3, 2005, the Court granted Summary Judgment in favor of the Company and denied the Summary Judgment motion of the plaintiffs. The plaintiffs appealed the decision of the District Court to the United States Court of Appeals for the Second Circuit. Both sides have briefed their positions and the Appeals Court will consider the appeal in its normal course of business.

**Item 1A.****Risk Factors**There have been no material changes in our risk factors from those disclosed in our 2005 Annual Report on Form 10-K.

**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, 2006.

| **Issuer Purchases of Equity Securities** |
|-------------------------------------------|

|                |   | (a) Total Numberof SharesPurchased | (b) AveragePrice Paid perShare (includescommission)                        | (c) Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs | (d) Maximum Number (orApproximate Dollar Value) ofShares that may Yet BePurchased Under the Plans orPrograms |
|---------------------|--------|------------------------------------|----------------------------------------------------------------------------|-----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
| Period              |   |                               |                                                                       |                                                                              |                                                                                                         |
| 07/01/06 - 07/31/06 |   | 0                                  | $            - | 0                                                                                 | 9,687,100 shares                                                                                             |
| 08/01/06 - 08/31/06 |   | 227,400                            | $13.9600                                                                   | 227,400                                                                           | 9,459,700 shares                                                                                             |
| 09/01/06 - 09/30/06 |   | 0                                  | $            - | 0                                                                                 | 9,459,700 shares                                                                                             |
| Total               |   | 227,400                            | $13.9600                                                                   | 227,400                                                                           |                                                                                                         |

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.

**Item 3.****Defaults Upon Senior Securities**None.

**Item 4.****Submission of Matters to a Vote of Security Holders**None.

40

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**Item 5.****Other Information**None.

**Item 6.****Exhibits**

|    |    |   |   |                                                                                                                                                                                                                                                                                                            |
|---------|---------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit |    |   |
| Number  |    |   |
|    |         |   |   |                                                                                                                                                                                                                                                                                                            |
|    | 3.1     |   |   | Amended and Restated Certificate of Incorporation of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 13, 2004.                                                                                           |
|    | 3.2     |   |   | Bylaws of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 13, 2004.                                                                                                                                      |
|    | 4.1     |   |   | See Exhibit 3.1, Amended and Restated Certificate of Incorporation and Exhibit 3.2, Bylaws of NewAlliance Bancshares, Inc.                                                                                                                                                                                      |
|    | 10.1    |   |   | NewAlliance Bank Deferred Compensation Plan. Incorporated herein by reference is Exhibit 10.2 filed with the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed September 30, 2003.                                                                                       |
|    | 10.2    |   |   | Fourth Amendment to NewAlliance Bank Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.2 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.                     |
|    | 10.2.1  |   |   | NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.3 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.                                    |
|    | 10.3    |   |   | NewAlliance Bancshares, Inc. Employee Stock Ownership Plan Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.4 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003. |
|    | 10.4    |   |   | The NewAlliance Bank 401(k) Plan Supplemental Executive Retirement Plan. (Amended and Restated Effective December 31, 2004) Incorporated herein by reference is Exhibit 10.4 filed with the Company’s Quarterly Report on Form 10-Q, filed November 9, 2005.                                               |
|    | 10.5    |   |   | NewAlliance Bank Executive Incentive Plan. Incorporated herein by reference is Exhibit 10.5 filed with the Company’s Quarterly Report on Form 10-Q, filed May 8, 2006.                                                                                                                                     |
|    | 10.6    |   |   | Employee Severance Plan. Incorporated herein by reference is Exhibit 10.8 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.                                                                           |
|    | 10.7.1  |   |   | Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Peyton R. Patterson, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.1 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                           |
|    | 10.7.2  |   |   | Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Merrill B. Blanksteen, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.2 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                         |
|    | 10.7.3  |   |   | Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Gail E.D. Brathwaite, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.3 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                          |
|    | 10.7.4  |   |   | Intentionally omitted.                                                                                                                                                                                                                                                                                          |
|    | 10.7.5  |   |   | Amended and Restated Employment Agreement between NewAlliance Bank and Diane L. Wishnafski, effective September 18, 2006 (filed herewith).                                                                                                                                                                      |
|    | 10.7.6  |   |   | Amended and Restated Employment Agreement between NewAlliance Bank and Brian S. Arsenault, effective June 27, 2006. Incorporated herein by reference is Exhibit 10.7.6 filed with the Company’s Quarterly Report on Form 10-Q, filed July 8, 2006.                                                         |
|    | 10.7.7  |   |   | Amended and Restated Employment Agreement between NewAlliance Bank and J. Edward Diamond, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.7 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                                                        |
|    | 10.7.8  |   |   | Amended and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.8 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                                                        |
|    | 10.7.9  |   |   | Form of Change In Control Agreement dated as of January 3, 2006 between NewAlliance Bank and Paul A. McCraven. Incorporated herein by reference is Exhibit 10.7.9 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.                                                              |
|    | 10.7.10 |   |   | Employment Agreement between NewAlliance Bank and Koon-Ping Chan, effective June 27, 2006. Incorporated herein by reference is Exhibit 10.7.10 filed with the Company’s Quarterly Report on Form 10-Q, filed July 8, 2006.                                                                                 |
|    | 10.8.1  |   |   | Form of Stock Option Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.8.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.                                                                                                                   |

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|   | 10.8.2 |   |   | Form of Stock Option Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.8.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.           |
|--------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.9.1 |   |   | Form of Restricted Stock Award Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.9.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.                    |
|   | 10.9.2 |   |   | Form of Restricted Stock Award Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.9.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005. |
|   | 10.10  |   |   | NewAlliance Bancshares, Inc. 2005 Long-Term Compensation Plan. Incorporated herein by reference is Exhibit 4.3 filed with the Company’s Registration Statement on Form S-8, filed November 4, 2005.                   |
|   | 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 21, 2005.                          |
|   | 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).                                                          |

42

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**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, 2006                                                |

43