UNITED STATESSECURITIES
 AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[ X ]  Quarterly Report Pursuant to
 Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period
 ended September 30, 2009.

OR

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

Commission File Number: 001-32007

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

|                                                                                   | DELAWARE                                                       |  | 52-2407114                           | 
|---------------------------------------------------------------------------------- | -------------------------------------------------------------- |  | ------------------------------------ | 
|                                                                                   |                                                                |  |                                      | 
|                                                                                   | (State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) | 
|                                                                                   |                                                                |  |                                      | 
|                                                                                   | 195 Church
 Street, New Haven, Connecticut                     |  | 06510                                | 
|                                                                                   |                                                                |  |                                      | 
|                                                                                   | (Address
 of principal executive offices)                      |  | (Zip Code)                           | 
|                                                                                   |                                                                |  |                                      | 
|(203) 789-2767                                                                    
|                                                                                  
|(Registrants telephone number, including area code)                              
|                                                                                   |                                                                |  |                                      | 
|                                                                                   |                                                                |  |                                      | 
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant
 has submitted electronically and posted on its corporate Web site, if any, every
 Interactive Data File required to be submitted and posted pursuant to Rule 405 of
 Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
 such shorter period that the registrant was requires to submit and post such files).[     ]  Yes  [     ] No

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

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

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

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

| | Common Stock (par value $.01) |  |  | 106,055,318                     | 
| | ----------------------------- |  |  | ------------------------------- | 
| |                               |  |  |                                 | 
| | Class                         |  |  | Outstanding at November 5, 2009 | 




TABLE OF CONTENTS

|Part I  FINANCIAL INFORMATION |  |                                                                                                       
|------------------------------ |  | ------------------------------------------------------------------------------------------------------
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|Item
 1.                       |  | Financial
 Statements (Unaudited)                                                                     
|                               |  |                                                                                                       
|                               |  | Consolidated Balance Sheets at September 30, 2009 and December 31, 2008                               
|                               |  |                                                                                                       
|                               |  | Consolidated Statements of Income
for the three and nine months ended September 30, 2009 and 2008     
|                               |  |                                                                                                       
|                               |  | Consolidated Statement of Changes in
Stockholders Equity for the nine months ended September 30, 2009
|                               |  |                                                                                                       
|                               |  | Consolidated Statements of Cash Flows
for the nine months ended September 30, 2009 and 2008           
|                               |  |                                                                                                       
|                               |  | Notes to Unaudited
 Consolidated Financial Statements                                                 
|                               |  |                                                                                                       
|Item
 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 
|                               |  |                                                                                                       
|Item
 3.                       |  | Quantitative
 and Qualitative Disclosures about Market Risk                                           
|                               |  |                                                                                                       
|Item
 4.                       |  | Controls and
 Procedures                                                                              
|                               |  |                                                                                                       
|Item
 4T.                      |  | Controls and
 Procedures                                                                              
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|Part II  OTHER INFORMATION    |  |                                                                                                       
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|Item
 1.                       |  | Legal Proceedings                                                                                     
|                               |  |                                                                                                       
|Item
 1A.                      |  | Risk Factors                                                                                          
|                               |  |                                                                                                       
|Item
 2.                       |  | Unregistered
 Sales of Equity Securities and Use of Proceeds                                          
|                               |  |                                                                                                       
|Item
 3.                       |  | Defaults Upon
 Senior Securities                                                                      
|                               |  |                                                                                                       
|Item
 4.                       |  | Submission
 of Matters to a Vote of Security Holders                                                  
|                               |  |                                                                                                       
|Item
 5.                       |  | Other Information                                                                                     
|                               |  |                                                                                                       
|Item
 6.                       |  | Exhibits                                                                                              
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|                               |  |                                                                                                       
|SIGNATURES                     |  |                                                                                                       

2




NewAlliance Bancshares, Inc. Consolidated
 Balance Sheets

|                                                                                                                              |  | September 30, |           | December 31,
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ------------
|(In thousands,
 except per share data) (Unaudited)                                                                            |  | 2009          |           | 2008        
|                                                                                                                             
|Assets                                                                                                                        |  |               |           |             
|Cash
 and due from banks                                                                                                      |  | $             | 106,539   |             
|Short
 term investments                                                                                                       |  |               | 40,000    |             
|                                                                                                                             
|Cash
 and cash equivalents                                                                                                    |  |               | 146,539   |             
|Investment
 securities available for sale (note 5)                                                                            |  |               | 2,391,260 |             
|Investment
 securities held to maturity (note 5)                                                                              |  |               | 263,103   |             
|Loans held for sale (includes $14,241 measured at fair value at September
 30, 2009)                                          |  |               | 14,749    |             
|Loans,
 net (note 6)                                                                                                          |  |               | 4,753,987 |             
|Federal
 Home Loan Bank of Boston stock                                                                                       |  |               | 120,821   |             
|Premises
 and equipment, net                                                                                                  |  |               | 57,396    |             
|Cash
 surrender value of bank owned life insurance                                                                            |  |               | 139,257   |             
|Goodwill
 (note 7)                                                                                                            |  |               | 527,167   |             
|Identifiable
 intangible assets (note 7)                                                                                      |  |               | 37,481    |             
|Other
 assets (note 8)                                                                                                        |  |               | 88,993    |             
|                                                                                                                             
|Total assets                                                                                                                  |  | $             | 8,540,753 |             
|                                                                                                                             
|Liabilities                                                                                                                   |  |               |           |             
|Deposits
 (note 9)                                                                                                            |  |               |           |             
|Non-interest
 bearing                                                                                                         |  | $             | 528,614   |             
|Savings,
 interest-bearing checking and money market                                                                          |  |               | 2,905,696 |             
|Time                                                                                                                          |  |               | 1,540,025 |             
|                                                                                                                             
|Total deposits                                                                                                                |  |               | 4,974,335 |             
|Borrowings
 (note 10)                                                                                                         |  |               | 2,041,530 |             
|Other
 liabilities                                                                                                            |  |               | 97,401    |             
|                                                                                                                             
|Total liabilities                                                                                                             |  |               | 7,113,266 |             
|Commitments
 and contingencies (note 14)                                                                                      |  |               |           |             
|                                                                                                                              |  |               |           |             
|Stockholders Equity                                                                                                          |  |               |           |             
|Preferred
 stock, $0.01 par value; authorized 38,000 shares; none issued                                                      |  |               | -         |             
|Common
 stock, $0.01 par value; authorized 190,000 shares; issued
 121,486 shares at September 30, 2009 and December 31, 2008 |  |               | 1,215     |             
|Additional
 paid-in capital                                                                                                   |  |               | 1,245,504 |             
|Unallocated
 common stock held by ESOP                                                                                        |  |               | (89,636   | )           
|Unearned
 restricted stock compensation                                                                                       |  |               | (13,992   | )           
|Treasury
 stock, at cost (14,847 shares at September 30, 2009 and 14,427 shares at December 31, 2008)                         |  |               | (205,164  | )           
|Retained
 earnings                                                                                                            |  |               | 481,839   |             
|Accumulated
 other comprehensive income (loss) (note 16)                                                                      |  |               | 7,721     |             
|                                                                                                                             
|Total stockholders equity                                                                                                    |  |               | 1,427,487 |             
|                                                                                                                             
|Total liabilities and stockholders equity                                                                                    |  | $             | 8,540,753 |             
|                                                                                                                             

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 per share data) (Unaudited)                             |  |                    | 2009   |                   |  |   | 2008   |   |  |   | 2009    |   |  |   | 2008    |  
|                                                                              
|Interest
 and dividend income                                                  |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Residential
 real estate loans                                                 |  | $                  | 31,983 |                   |  | $ | 35,202 |   |  | $ | 100,358 |   |  | $ | 102,992 |  
|Commercial
 real estate loans                                                  |  |                    | 17,791 |                   |  |   | 18,273 |   |  |   | 52,855  |   |  |   | 55,450  |  
|Commercial
 business loans                                                     |  |                    | 5,419  |                   |  |   | 7,021  |   |  |   | 16,658  |   |  |   | 21,205  |  
|Consumer
 loans                                                                |  |                    | 8,517  |                   |  |   | 9,718  |   |  |   | 25,821  |   |  |   | 29,551  |  
|Investment
 securities                                                         |  |                    | 28,495 |                   |  |   | 27,423 |   |  |   | 85,070  |   |  |   | 86,503  |  
|Federal
 funds sold and other short-term investments                           |  |                    | 63     |                   |  |   | 494    |   |  |   | 342     |   |  |   | 969     |  
|Federal
 Home Loan Bank of Boston stock                                        |  |                    | -      |                   |  |   | 911    |   |  |   | -       |   |  |   | 3,766   |  
|                                                                              
|Total
 interest and dividend income                                            |  |                    | 92,268 |                   |  |   | 99,042 |   |  |   | 281,104 |   |  |   | 300,436 |  
|                                                                              
|Interest
 expense                                                              |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Deposits                                                                       |  |                    | 18,930 |                   |  |   | 24,610 |   |  |   | 63,048  |   |  |   | 79,413  |  
|Borrowings                                                                     |  |                    | 21,576 |                   |  |   | 26,373 |   |  |   | 68,374  |   |  |   | 78,710  |  
|                                                                              
|Total
 interest expense                                                        |  |                    | 40,506 |                   |  |   | 50,983 |   |  |   | 131,422 |   |  |   | 158,123 |  
|                                                                              
|Net
 interest income before provision for loan losses                          |  |                    | 51,762 |                   |  |   | 48,059 |   |  |   | 149,682 |   |  |   | 142,313 |  
|                                                                               |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Provision
 for loan losses                                                     |  |                    | 5,433  |                   |  |   | 4,200  |   |  |   | 14,533  |   |  |   | 9,600   |  
|                                                                              
|Net
 interest income after provision for loan losses                           |  |                    | 46,329 |                   |  |   | 43,859 |   |  |   | 135,149 |   |  |   | 132,713 |  
|                                                                              
|Non-interest
 income                                                           |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Depositor
 service charges                                                     |  |                    | 7,270  |                   |  |   | 7,052  |   |  |   | 20,175  |   |  |   | 20,393  |  
|Loan
 and servicing income, net                                                |  |                    | 322    |                   |  |   | 325    |   |  |   | 498     |   |  |   | 971     |  
|Trust
 fees                                                                    |  |                    | 1,569  |                   |  |   | 1,635  |   |  |   | 4,219   |   |  |   | 4,984   |  
|Investment
 management, brokerage and insurance fees                           |  |                    | 1,700  |                   |  |   | 1,872  |   |  |   | 5,514   |   |  |   | 6,248   |  
|Bank
 owned life insurance                                                     |  |                    | 882    |                   |  |   | 1,164  |   |  |   | 2,652   |   |  |   | 3,984   |  
|Other-than-temporary
 impairment losses on securities                          |  |                    | -      |                   |  |   | (2,610 | ) |  |   | (2,522  | ) |  |   | (2,610  | )
|Less:
 Portion of loss recognized in other comprehensive income (before taxes) |  |                    | -      |                   |  |   | -      |   |  |   | 1,896   |   |  |   | -       |  
|                                                                              
|Net
 impairment losses on securities recognized in earnings                    |  |                    | -      |                   |  |   | (2,610 | ) |  |   | (626    | ) |  |   | (2,610  | )
|Net
 gain on sale of securities                                                |  |                    | 2,029  |                   |  |   | 2,395  |   |  |   | 6,139   |   |  |   | 3,620   |  
|                                                                              
|Net
 securities gain                                                           |  |                    | 2,029  |                   |  |   | (215   | ) |  |   | 5,513   |   |  |   | 1,010   |  
|Mortgage
 origination activity and loan sale income                            |  |                    | 1,268  |                   |  |   | 428    |   |  |   | 4,768   |   |  |   | 1,341   |  
|Other                                                                          |  |                    | 1,409  |                   |  |   | 1,144  |   |  |   | 2,664   |   |  |   | 4,660   |  
|                                                                              
|Total
 non-interest income                                                     |  |                    | 16,449 |                   |  |   | 13,405 |   |  |   | 46,003  |   |  |   | 43,591  |  
|                                                                              
|Non-interest
 expense                                                          |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Salaries
 and employee benefits (notes 11 & 12)                                |  |                    | 22,443 |                   |  |   | 22,354 |   |  |   | 65,281  |   |  |   | 68,978  |  
|Occupancy                                                                      |  |                    | 4,287  |                   |  |   | 4,415  |   |  |   | 13,686  |   |  |   | 13,629  |  
|Furniture
 and fixtures                                                        |  |                    | 1,419  |                   |  |   | 1,624  |   |  |   | 4,348   |   |  |   | 4,964   |  
|Outside
 services                                                              |  |                    | 4,779  |                   |  |   | 5,047  |   |  |   | 14,584  |   |  |   | 13,791  |  
|Advertising,
 public relations, and sponsorships                               |  |                    | 1,932  |                   |  |   | 1,667  |   |  |   | 4,202   |   |  |   | 5,412   |  
|Amortization
 of identifiable intangible assets                                |  |                    | 2,122  |                   |  |   | 2,364  |   |  |   | 6,379   |   |  |   | 7,092   |  
|Merger
 related charges                                                        |  |                    | 4      |                   |  |   | 99     |   |  |   | 27      |   |  |   | 177     |  
|FDIC
 insurance premiums                                                       |  |                    | 1,880  |                   |  |   | 178    |   |  |   | 8,717   |   |  |   | 544     |  
|Other                                                                          |  |                    | 3,376  |                   |  |   | 3,623  |   |  |   | 9,805   |   |  |   | 10,339  |  
|                                                                              
|Total
 non-interest expense                                                    |  |                    | 42,242 |                   |  |   | 41,371 |   |  |   | 127,029 |   |  |   | 124,926 |  
|                                                                              
|Income
 before income taxes                                                    |  |                    | 20,536 |                   |  |   | 15,893 |   |  |   | 54,123  |   |  |   | 51,378  |  
|Income tax
 provision (note 13)                                                |  |                    | 7,916  |                   |  |   | 4,957  |   |  |   | 19,805  |   |  |   | 15,726  |  
|                                                                              
|Net income                                                                     |  | $                  | 12,620 |                   |  | $ | 10,936 |   |  | $ | 34,318  |   |  | $ | 35,652  |  
|                                                                              
|Basic
 earnings per share (note 17)                                            |  | $                  | 0.13   |                   |  | $ | 0.11   |   |  | $ | 0.35    |   |  | $ | 0.36    |  
|Diluted
 earnings per share (note 17)                                          |  |                    | 0.13   |                   |  |   | 0.11   |   |  |   | 0.35    |   |  |   | 0.36    |  
|Weighted-average
 shares outstanding (note 17)                                 |  |                    |        |                   |  |   |        |   |  |   |         |   |  |   |         |  
|Basic                                                                          |  |                    | 99,507 |                   |  |   | 98,989 |   |  |   | 99,292  |   |  |   | 99,803  |  
|Diluted                                                                        |  |                    | 99,570 |                   |  |   | 99,146 |   |  |   | 99,298  |   |  |   | 99,856  |  
|Dividends
 per share                                                           |  | $                  | 0.07   |                   |  | $ | 0.07   |   |  | $ | 0.21    |   |  | $ | 0.205   |  

See accompanying notes to consolidated financial
 statements.

4




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, 2009                                                |  | 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 |   |  |   | Income (Loss) |   |  |   | Equity        |  
|                                                                                            
|Balance December
 31, 2008                                                                   |  | 107,059     |   |  | $ | 1,215     |  |  | $ | 1,245,679  |   |  | $ | (92,380     | ) |  | $ | (18,474      | ) |  | $ | (200,428 | ) |  | $ | 467,580  |   |  | $ | (21,976       | ) |  | $ | 1,381,216     |  
|Dividends
 declared ($0.21 per share)                                                        |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   | (21,109  | ) |  |   |               |   |  |   | (21,109       | )
|Allocation
 of ESOP shares, net of tax                                                       |  |             |   |  |   |           |  |  |   | (334       | ) |  |   | 2,744       |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   | 2,410         |  
|Treasury shares
 acquired (note 15)                                                          |  | (420        | ) |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   | (4,736   | ) |  |   |          |   |  |   |               |   |  |   | (4,736        | )
|Restricted
 stock expense                                                                    |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   | 4,482        |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   | 4,482         |  
|Stock option
 expense                                                                        |  |             |   |  |   |           |  |  |   | 243        |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   | 243           |  
|Book (over)
 tax benefit of stock-based compensation                                         |  |             |   |  |   |           |  |  |   | (84        | ) |  |   |             |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   | (84           | )
|Cumulative
 effect of new OTTI accounting guidance, net
 of $0.6 million tax effect (note 5) |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   | 1,050    |   |  |   | (1,050        | ) |  |   | -             |  
|Comprehensive
 income:                                                                       |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   |               |  
|Net
 income                                                                                  |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   | 34,318   |   |  |   |               |   |  |   | 34,318        |  
|Other
 comprehensive income, net of tax (note 16)                                            |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   | 30,747        |   |  |   | 30,747        |  
|                                                                                            
|Total
 comprehensive income                                                                  |  |             |   |  |   |           |  |  |   |            |   |  |   |             |   |  |   |              |   |  |   |          |   |  |   |          |   |  |   |               |   |  |   | 65,065        |  
|                                                                                            
|Balance September
 30, 2009                                                                  |  | 106,639     |   |  | $ | 1,215     |  |  | $ | 1,245,504  |   |  | $ | (89,636     | ) |  | $ | (13,992      | ) |  | $ | (205,164 | ) |  | $ | 481,839  |   |  | $ | 7,721         |   |  | $ | 1,427,487     |  
|                                                                                            

See accompanying notes to consolidated financial
 statements.

5




NewAlliance Bancshares,
 Inc.  Consolidated Statements of Cash Flows

|                                                                                  |  | Nine Months Ended
|--------------------------------------------------------------------------------- |  | -----------------
|                                                                                  |  | September 30,    
|                                                                                  |  |                  
|(In thousands)
 (Unaudited)                                                       |  | 2009             
|                                                                                 
|Cash flows
 from operating activities                                             |  |                  
|Net income                                                                        |  | $                
|Adjustments
 to reconcile net income to net cash provided by operating activities |  |                  
|Provision
 for loan losses                                                        |  |                  
|Loss
 (gain) on Other real estate owned                                           |  |                  
|Restricted
 stock compensation expense                                            |  |                  
|Stock
 option compensation expense                                                |  |                  
|ESOP
 expense                                                                     |  |                  
|Amortization
 of identifiable intangible assets                                   |  |                  
|Net
 amortization/accretion of fair market adjustments from net assets acquired   |  |                  
|Net
 amortization/accretion of investment securities                              |  |                  
|Change
 in deferred income taxes                                                  |  |                  
|Depreciation
 and amortization of premises and equipment                          |  |                  
|Net
 gain on sale of securities                                                   |  |                  
|Impairment
 losses on securities                                                  |  |                  
|Mortgage
 origination activity and loan sale income                               |  |                  
|Proceeds
 from sales of loans held for sale                                       |  |                  
|Loans
 originated for sale                                                        |  |                  
|Loss
 on sale of premises and equipment                                           |  |                  
|Net
 loss (gain) on limited partnerships                                          |  |                  
|Increase
 in cash surrender value of bank owned life insurance                    |  |                  
|Decrease
 in other assets                                                         |  |                  
|Increase
 (decrease) in other liabilities                                         |  |                  
|                                                                                 
|Net
 cash provided by operating activities                                        |  |                  
|                                                                                 
|Cash flows
 from investing activities                                             |  |                  
|Purchase
 of securities available for sale                                        |  |                  
|Purchase
 of securities held to maturity                                          |  |                  
|Proceeds
 from maturity, sales, calls and principal reductions of                 |  |                  
|securities
 available for sale                                                    |  |                  
|Proceeds
 from maturity, calls and principal reductions of                        |  |                  
|securities
 held to maturity                                                      |  |                  
|Proceeds
 from sales of fixed assets                                              |  |                  
|Net
 decrease (increase) in loans held for investment                             |  |                  
|Proceeds
 from sales of other real estate owned                                   |  |                  
|Proceeds
 from bank owned life insurance                                          |  |                  
|Purchase
 of premises and equipment                                               |  |                  
|                                                                                 
|Net
 cash used by investing activities                                            |  |                  
|                                                                                 
|Cash flows
 from financing activities                                             |  |                  
|Net
 increase in customer deposit balances                                        |  |                  
|Net
 decrease in short-term borrowings                                            |  |                  
|Proceeds
 from long-term borrowings                                               |  |                  
|Repayments
 of long-term borrowings                                               |  |                  
|Book
 over tax benefit of stock-based compensation                                |  |                  
|Acquisition
 of treasury shares                                                   |  |                  
|Dividends
 paid                                                                   |  |                  
|                                                                                 
|Net
 cash provided by financing activities                                        |  |                  
|                                                                                 
|Net
 (decrease) increase in cash and cash equivalents                             |  |                  
|                                                                                 
|Cash
 and equivalents, beginning of period                                        |  |                  
|                                                                                 
|Cash
 and equivalents, end of period                                              |  | $                
|                                                                                 
|Supplemental
 information                                                         |  |                  
|Cash
 paid for                                                                    |  |                  
|Interest
 on deposits and borrowings                                              |  | $                
|Income
 taxes paid, net                                                           |  |                  
|Noncash
 transactions                                                             |  |                  
|Loans
 transferred to other real estate owned                                     |  |                  
|                                                                                  |  |                  

See accompanying notes to consolidated financial
 statements.

6




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



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|1. |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Financial Statement Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |  | The consolidated
 financial statements of NewAlliance Bancshares, Inc. (the Company) have
 been prepared in conformity with accounting principles generally accepted in the
 United States of America. In the opinion of management, all adjustments (consisting
 of normal recurring accruals) considered necessary for a fair presentation have
 been included. All significant intercompany transactions and balances have been
 eliminated in consolidation. Amounts in prior period financial statements are reclassified
 whenever necessary to conform to the current year presentation. These consolidated
 financial statements should be read in conjunction with the audited consolidated
 financial statements and notes thereto included in the Companys Annual Report
 on Form 10-K as of and for the year ended December 31, 2008. 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,
 and estimates used to evaluate asset impairment including investment securities,
 income tax contingencies and deferred tax assets and liabilities and the recoverability
 of goodwill and other intangible assets. As of November 9, 2009, the date in which
 the financial statements were issued, management has determined that no subsequent
 events have occurred following the balance sheet date of September 30, 2009 which
 require recognition or disclosure in the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2. |  | Recent
 Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Accounting
 Standards Codification (Topic 105)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | In June 2009,
 the Financial Accounting Standards Board (FASB) issued Statement of
 Financial Accounting Standards (SFAS) No. 168, The FASB Accounting
 Standards CodificationTMand the Hierarchy of Generally Accepted Accounting
 Principles  a replacement of FASB Statement No. 162 (SFAS
 No. 168). The objective of SFAS No. 168 is to replace SFAS No. 162, The
 Hierarchy of Generally Accepted Accounting Principles and to establish
 the FASB Accounting Standards CodificationTM (Codification or FASB
 ASC) as the source of authoritative accounting principles recognized by the
 FASB to be applied by nongovernmental entities in the preparation of financial statements
 in conformity with U.S. generally accepted accounting principles (GAAP).
 The Codification supersedes all previous level (a) through (d) GAAP, aside from
 non-codified FASB statements and guidance issued by the Securities and Exchange
 Commission (SEC). The Codification did not change GAAP, but rather reorganized
 it into approximately 90 accounting topics within a consistent structure to simplify
 user access. Contents in each of these accounting topics are further organized by
 subtopic, section and paragraph. The Codification allows for the continued application
 of superseded accounting standards for transactions that have an ongoing effect
 in an entitys financial statements. Although the Codification does not include
 the superseded guidance, it shall be considered grandfathered and remain authoritative
 for those transactions after the effective date of this statement. The Codification
 was effective for financial statements issued for reporting periods that end after
 September 15, 2009. SFAS No. 168 was the final standard issued by the FASB in that
 form. Changes to the Codification are in the form of Accounting Standards Updates
 issued by the FASB. An Accounting Standards Update is not authoritative; rather,
 it is a document that communicates the specific amendments that change the Codification
 and provides background information about the guidance, including the basis for
 conclusions on changes made to the Codification. The adoption of SFAS No. 168 and
 the Codification did not have a material impact on the Companys consolidated
 financial statements but changed the referencing system for accounting standards
 from the legacy GAAP citations to codification topic numbers.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | In June 2009,
 the FASB issued FASB Accounting Standards Update (ASU) No. 2009-01,
Topic 105, Generally Accepted Accounting Principles. This ASU amends the
 Codification for the issuance of SFAS No. 168 in its entirety, including the accounting
 standards update instructions contained in Appendix B of the statement. SFAS No.
 168 is summarized above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Fair Value Measurement and Disclosure (Topic 820)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | In September
 2009, the FASB issued ASU No. 2009-12, Topic 820, Investments in Certain Entities
 That Calculate Net Asset Value per Share (or Its Equivalent), to provide guidance
 on measuring the fair value of certain alternative investments. This ASU amends
 FASB ASC 820, Fair Value Measurements and Disclosures, and offers
 investors a practical expedient for measuring the fair value of investments in certain
 entities that calculate net asset value per share. As there currently is diversity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

7




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| |  | in practice,
 this guidance addresses the issue of how to estimate the fair value of various investments
 in entities, including hedge funds, private equity funds, venture capital funds,
 offshore fund vehicles, funds of funds and real estate funds. The ASU also requires
 enhanced disclosures about the nature and risks of investments within its scope
 that are measured at fair value on a recurring or nonrecurring basis. The guidance
 is effective for the first reporting period (including interim periods) ending after
 December 15, 2009, although early adoption is permitted. The Company has not elected
 to early adopt the guidance and management believes that this guidance will not
 have a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In August
 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures  Measuring Liabilities at Fair Value. This update provides clarification
 on measuring liabilities at fair value when a quoted price in an active market is
 not available. In such circumstances, the ASU specifies that a valuation technique
 should be applied that uses either the quote for the liability when traded as an
 asset, the quoted prices for similar liabilities or similar liabilities when traded
 as assets, or another valuation technique consistent with existing fair value measurement
 guidance. The guidance also states that when estimating the fair value of a liability,
 a reporting entity is not required to include a separate input or adjustments to
 other inputs relating to the existence of a restriction that prevents the transfer
 of the liability. The guidance is effective for the first reporting period beginning
 after the date of issuance. Management anticipates the adoption of this guidance
 for the fourth quarter 2009 will not have a material impact on the Companys
 consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In April 2009,
 the FASB issued new guidance on Determining Fair Value When the Volume and Level
 of Activity for the Asset or Liability Have Significantly Decreased and Identifying
 Transactions That Are Not Orderly (FASB ASC 820-10). This guidance provides
 additional clarification for estimating fair value, in accordance with the fair
 value measurements and disclosures guidance, when the volume and level of activity
 for the asset or liability have significantly decreased and also includes guidance
 on identifying circumstances that indicate a transaction is not orderly for fair
 value measurements. This guidance was effective for interim and annual periods ending
 after June 15, 2009, with early adoption permitted for periods ending after March
 15, 2009. The Company did not elect early application and the adoption of this guidance
 did not have a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In February
 2008, the FASB issued guidance related to Fair Value Measurements and Disclosures (FASB ASC 820-10), which delayed the January 1, 2008 effective date for all
 nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after
 November 15, 2008, and interim periods within those fiscal years. The adoption of
 this guidance did not have a material effect on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Investments
  Debt and Equity Securities (Topic 320)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In April 2009,
 the FASB issued new guidance on the Recognition and Presentation of Other-Than-Temporary
 Impairments (FASB ASC 320-10), which amends FASB ASC 320, Investments  Debt and
Equity Securities, to make the other-than-temporary impairment (OTTI) guidance more operational and to improve the presentation of other-than-temporary
 impairments in the financial statements. This guidance replaced the existing requirement
 that the entitys management assert it has both the intent and ability to hold
 an impaired debt security until recovery with a requirement that management assert
 it does not have the intent to sell the security, and it is more likely than not
 it will not have to sell the security before recovery of its cost basis. When an
 other-than-temporary impairment exists under this stated assertion, the amount of
 impairment related to the credit loss component would be recognized in earnings
 while the remaining amount would be recognized in other comprehensive income. This
 guidance provides increased disclosure about the credit and noncredit components
 of impaired debt securities that are not expected to be sold and also requires increased
 and more frequent disclosures regarding expected cash flows, credit losses, and
 an aging of securities with unrealized losses. Although this amendment does not
 result in a change in the carrying amount of debt securities, it does require that
 the portion of an other-than-temporary impairment not related to a credit loss for
 a held-to-maturity security be recognized in a new category of other comprehensive
 income and be amortized over the remaining life of the debt security as an increase
 in the carrying value of the security. This new guidance does not amend existing
 recognition and measurement guidance for other-than-temporary impairments of equity
 securities. This guidance was effective for interim and annual periods ending after
 June 15, 2009, with early adoption permitted for periods ending after March 15,
 2009. The Company did not elect early application and the adoption resulted in a $1.0
 million cumulative effect adjustment, net of taxes, to increase retained earnings
 and decrease to accumulated other comprehensive income as of April 1, 2009 for the
 non-credit component of debt securities for which an other-than-temporary impairment
 was previously recognized. Refer to Note 5 of the Notes to Unaudited Consolidated
 Financial Statements for further information on the Companys adoption of this guidance.

8




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| |  | Financial Instruments (Topic 825)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In April 2009,
 the FASB issued new guidance regarding Interim Disclosures about Fair Value of
 Financial Instruments(FASB ASC 825-10). FASB ASC 825-10-50 requires disclosures
 about fair value of financial instruments, whether or not measured on the balance
 sheet at fair value, in interim financial statements as well as in annual financial
 statements. Prior to this guidance, fair values for these assets and liabilities
 were only disclosed annually. This guidance applies to all financial instruments
 within the scope of FASB ASC 825, Financial Instruments, and requires all
 entities to disclose the method(s) and significant assumptions used to estimate
 the fair value. This guidance was effective for interim periods ending after June
 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
 Disclosures for earlier periods presented for comparative purposes at initial adoption
 are not required. In periods after initial adoption, comparative disclosures are
 only required for periods ending after initial adoption. The adoption of this guidance
 did not have a material impact on the Companys consolidated financial statements.
 Refer to Note 3 of the Notes to Unaudited Consolidated Financial Statements for the required interim disclosures.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Transfers
 of Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In June 2009,
 the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets  an amendment
of FASB Statement No. 140 (SFAS No. 166). SFAS No. 166 has not yet been codified and, therefore, it will remain authoritative
 until integrated into the Codification. SFAS No. 166 will require entities to provide
 more information about sales of securitized financial assets and similar transactions,
 particularly if the seller retains some risk in the assets. SFAS No. 166 eliminates
 the concept of a qualifying special-purpose entity, changes the requirements for
 the derecognition of financial assets, and enhances the disclosure requirements
 for sellers of the assets. SFAS No. 166 will be effective for the fiscal year beginning
 after November 15, 2009. The Company anticipates that the adoption of SFAS No. 166
 will not have a material impact on the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In June 2009,
 the FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R), (SFAS No. 167). SFAS No. 167 has not yet been codified and,
 therefore, it will remain authoritative until integrated into the Codification.
 SFAS No. 167 amends Interpretation 46(R) to require an enterprise to perform an
 analysis to determine whether the enterprises variable interest or interests
 give it a controlling financial interest in a variable interest entity (which would
 result in the enterprise being deemed the primary beneficiary of that entity and,
 therefore, obligated to consolidate the variable interest entity in its financial
 statements); to require ongoing reassessments of whether an enterprise is the primary
 beneficiary of a variable interest entity; to revise guidance for determining whether
 an entity is a variable interest entity; and to require enhanced disclosures that
 will provide more transparent information about an enterprises involvement
 with a variable interest entity. SFAS No. 167 is effective for interim periods as
 of the beginning of the first annual reporting period beginning after November 15,
 2009. The Company anticipates that the adoption of SFAS No. 167 will not have a
 material impact on the financial statements.             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Subsequent
 Events (Topic 855)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In May 2009,
 the FASB issued new guidance on Subsequent Events, FASB ASC 855-10, which
 establishes general standards of accounting for and disclosures of events that occur
 after the balance sheet date but before the financial statements are issued or are
 available to be issued. In particular, the guidance sets forth (1) the period after
 the balance sheet date during which management of a reporting entity will evaluate
 events or transactions that may occur for potential recognition or disclosure in
 the financial statements; (2) the circumstances under which an entity will recognize
 events or transactions occurring after the balance sheet date in its financial statements;
 and (3) the disclosures that an entity will make about events or transactions that
 occurred after the balance sheet date. The adoption of this guidance did not have
 a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Compensation
  Retirement Benefits (Topic 715)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In December
 2008, the FASB revised the disclosure guidance for Postretirement Benefit Plan
 Assets (FASB ASC 715-20). This guidance provides for additional disclosures
 about plan assets of a defined benefit pension or other postretirement plan. Pursuant
 to the guidance, the added disclosures include: (1) how investment allocation decisions
 are made by management, (2) major categories of plan assets, and (3) significant
 concentrations of risk. Additionally, this requires an employer to disclose information
 about the valuation of plan assets similar to that required under FASB ASC 820, Fair Value Measurements and Disclosures. Those disclosures include: (1) the
 level within the fair value hierarchy in which fair value measurements of plan assets
 fall, (2) information about the inputs and valuation techniques used to measure
 the fair value of plan assets, and (3) a reconciliation of the beginning and ending
 balances of plan assets valued using significant unobservable inputs. The new                                                                                                                                                                                                                                                                                         

9




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

|   |  | disclosures
 are required to be included in financial statements for fiscal years ending after
 December 15, 2009. Management believes that this guidance will not have a material
 impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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|   |  | Derivatives
 and Hedging (Topic 815)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In March 2008,
 the FASB issued disclosure guidance pertaining to Derivatives and Hedging (FASB ASC 815-10). This guidance changes the disclosure requirements regarding derivative
 instruments and hedging activities and specifically requires (i) qualitative disclosures
 about objectives and strategies for using derivatives, (ii) quantitative disclosures
 about fair value amounts of, and gains and losses on, derivative instruments, and
 (iii) disclosures about credit risk-related contingent features in derivative agreements.
 The new guidance was effective for financial statements issued for fiscal years
 beginning after November 15, 2008, with early application encouraged. The adoption
 did not have a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | Intangibles
  Goodwill and Other (Topic 350)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In April 2008,
 the FASB issued guidance about the Determination of the Useful Life of Intangible
 Assets (FASB ASC 350-30) which amends the factors that should be considered
 in developing renewal or extension assumptions used to determine the useful life
 of a recognized intangible asset under FASB ASC 350, Intangibles  Goodwill
 and Other. The intent of this new guidance is to improve the consistency between
 the useful life of a recognized intangible asset under FASB ASC 350 and the period
 of expected cash flows used to measure the fair value of the asset under FASB ASC
 805, Business Combinations. This guidance is effective for financial statements
 issued for fiscal years beginning after December 15, 2008. The adoption did not
 have a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | Business
 Combinations (Topic 805)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | In December
 2007, the FASB issued revised guidance for Business Combinations. The revised
 Business Combination guidance (FASB ASC 805) retains the fundamental requirements
 that the acquisition method of accounting be used for all business combinations
 and for an acquirer to be identified for each business combination. The revised
 guidance requires, among other things, that acquisition-related transaction and
 restructuring costs will be expensed rather than treated as part of the cost of
 the acquisition; the acquiring entity in a business combination to recognize all
 the assets acquired and liabilities assumed in the transaction; establishes the
 acquisition-date fair value as the measurement objective for all assets acquired
 and liabilities assumed; and requires the acquirer to provide certain disclosures
 that will allow users of the financial statements to understand the nature and financial
 effect of the business combination. This guidance became effective on January 1,
 2009 and the adoption of this guidance applies to any future business combinations.
 When a business combination occurs, it is expected to have a significant effect
 on NewAlliances consolidated financial statements.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3. |  | Fair Value
 Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | Fair value
 estimates are made as of a specific point in time based on the characteristics of
 the financial instruments and relevant market information. In accordance with FASB
 ASC 820, the fair value estimates are measured within the fair value hierarchy.
 The hierarchy gives the highest priority to unadjusted quoted prices in active markets
 for identical assets or liabilities (level 1 measurements) and the lowest priority
 to unobservable inputs (level 3 measurements). The three levels of the fair value
 hierarchy are described below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|Basis of Fair Value Measurement
|-------------------------------
|                               
|                               
|                               
|                               
|                               
|                               

| |  | When available,
 quoted market prices are used. In other cases, fair values are based on estimates
 using present value or other valuation techniques. These techniques involve uncertainties
 and are significantly affected by the assumptions used and judgments made regarding
 risk characteristics of various financial instruments, discount rates, estimates
 of future cash flows, future expected loss experience and other factors. Changes
 in assumptions could significantly affect these estimates. Derived fair
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |  | value estimates
 cannot be substantiated by comparison to independent markets and, in certain cases,
 could not be realized in an immediate sale of the instrument.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Fair value
 estimates are based on existing financial instruments without attempting to estimate
 the value of anticipated future business and the value of assets and liabilities
 that are not financial instruments. Accordingly, the aggregate fair value amounts
 presented do not purport to represent the underlying market value of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Fair Value Option                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | FASB ASC 825-10
 allows for the irrevocable option to elect fair value accounting for the initial
 and subsequent measurement for certain financial assets and liabilities on a contract-by-contract
 basis that may otherwise not be required to be measured at fair value under other
 accounting standards. The Company elected the fair value option as of January 1,
 2009 for its portfolio of mortgage loans held for sale pursuant to forward loan
 sale commitments originated after January 1, 2009 in order to reduce certain timing
 differences and better match changes in fair values of the loans with changes in
 the value of the derivative forward loan sale contracts used to economically hedge
 them. As a result of the surge of refinances resulting from the drop in mortgage
 rates within the industry, the balance of loans held for sale and derivative contracts
 relating to those loans have increased significantly. The fair value option election
 relating to mortgage loans held for sale did not result in a transition adjustment
 to retained earnings and instead changes in the fair value have an impact on earnings
 as a component of noninterest income.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | As of September
 30, 2009, mortgage loans held for sale pursuant to forward loan sale commitments
 had a fair value of $14.2 million, which includes a positive fair value adjustment
 of $103,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Assets
 and Liabilities Measured at Fair Value on a Recurring Basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The following
 table details the financial instruments carried at fair value on a recurring basis
 as of September 30, 2009 and December 31, 2008 and indicates the fair value hierarchy
 of the valuation techniques utilized by the Company to determine the fair value:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |  |                                      |  | September 30, 2009
| |  | ------------------------------------ |  | ------------------
| |  |                                      |  |                   
| |  |                                      |  |                   
| |  |                                      |  |                   
| |  |                                      |  |                   
| |  |                                      |  |                   
| |  | (In thousands)                       |  |                   
| |  |                                     
| |  |                                      |  |                   
| |  | Securities
 Available for Sale       |  |                   
| |  | Marketable equity securities         |  | $                 
| |  | Bonds
 and obligations               |  |                   
| |  | Auction
 rate certificates           |  |                   
| |  | Trust
 preferred equity securities   |  |                   
| |  | Mortgage-backed
 securities          |  |                   
| |  |                                     
| |  | Total Securities
 Available for Sale |  | $                 
| |  | Mortgage Loans
 Held for Sale        |  |                   
| |  | Derivative
 Assets                   |  |                   
| |  | Derivative
 Liabilities              |  |                   
| |  |                                     

| |  |                                      |  | December 31, 2008
| |  | ------------------------------------ |  | -----------------
| |  |                                      |  |                  
| |  |                                      |  |                  
| |  |                                      |  |                  
| |  |                                      |  |                  
| |  |                                      |  |                  
| |  | (In thousands)                       |  |                  
| |  |                                     
| |  | Securities
 Available for Sale       |  |                  
| |  | Marketable equity securities         |  | $                
| |  | Bonds
 and obligations               |  |                  
| |  | Auction
 rate certificates           |  |                  
| |  | Trust
 preferred equity securities   |  |                  
| |  | Mortgage-backed
 securities          |  |                  
| |  |                                     
| |  | Total Securities
 Available for Sale |  | $                
| |  |                                     

11




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |  | The following
 table presents additional information about assets measured at fair value on a recurring
 basis for which the Company utilized Level 3 inputs to determine fair value.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                |  |                               |        |                           |  |   |        |   |  |   |        |   |  |   |        |  
| |  | ---------------------------------------------- |  | ----------------------------- | ------ | ------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
| |  |                                                |  | Securities Available for Sale
| |  |                                                |  |                              
| |  |                                                |  | For the Three Months Ended    |        | For the Nine Months Ended
| |  |                                                |  | September 30,                 |        | September 30,            
| |  |                                                |  |                               |        |                          
| |  | (In thousands)                                 |  |                               | 2009   |                           |  |   | 2008   |   |  |   | 2009   |   |  |   | 2008   |  
| |  |                                               
| |  | Balance at beginning of period                 |  | $                             | 27,701 |                           |  | $ | -      |   |  | $ | 26,626 |   |  | $ | -      |  
| |  | Transfer
 into Level 3                         |  |                               | -      |                           |  |   | 28,000 |   |  |   | -      |   |  |   | 28,000 |  
| |  | Total
 gains (losses) - (realized/unrealized): |  |                               |        |                           |  |   |        |   |  |   |        |   |  |   |        |  
| |  | Included
 in earnings                          |  |                               | -      |                           |  |   | -      |   |  |   | -      |   |  |   | -      |  
| |  | Included
 in other comprehensive income        |  |                               | 197    |                           |  |   | (2,323 | ) |  |   | 1,356  |   |  |   | (2,323 | )
| |  | Purchases,
 issuances, and settlements         |  |                               | -      |                           |  |   | -      |   |  |   | -      |   |  |   | -      |  
| |  | Discount
 accretion                            |  |                               | 4      |                           |  |   | -      |   |  |   | 11     |   |  |   | -      |  
| |  | Principal
 payments                            |  |                               | (181   | )                         |  |   | -      |   |  |   | (272   | ) |  |   | -      |  
| |  |                                               
| |  | Balance at
 end of period                      |  | $                             | 27,721 |                           |  | $ | 25,677 |   |  | $ | 27,721 |   |  | $ | 25,677 |  
| |  |                                               

| |  | The following
 is a description of the valuation methodologies used for instruments measured at
 fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Securities
 Available for Sale: Included in the available for sale category are both debt
 and equity securities. The Company utilizes Interactive Data Corp., a third-party,
 nationally-recognized pricing service (IDC) to estimate fair value measurements
 for 98.8% of its investment securities portfolio. The pricing service evaluates
 each asset class based on relevant market information considering observable data
 that may include dealer quotes, reported trades, market spreads, cash flows, the
 U.S. Treasury yield curve, the LIBOR swap yield curve, trade execution data, market
 prepayment speeds, credit information and the bonds terms and conditions,
 among other things, but these prices are not binding quotes. The fair value prices
 on all investment securities are reviewed for reasonableness by management through
 an extensive process. This review process includes an analysis of changes in the
 LIBOR / swap curve, the treasury curve, mortgage rates and credit spreads as well
 as a review of the securities inventory list which details issuer name, coupon and
 maturity date for unusual market price fluctuations. The review resulted in no adjustments
 to the IDC pricing. Also, management assessed the valuation techniques used by IDC
 based on a review of their pricing methodology to ensure proper hierarchy classifications.
 The Companys available for sale debt securities include auction rate certificates
 which were valued through means other than quoted market prices due to the Companys conclusion that the market for the securities was not active. The fair value
 for the auction rate securities are based on Level 3 inputs in accordance with FASB
 ASC 820.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | The major
 categories of securities available for sale are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |  | Marketable
 Equity Securities: Included within this category are exchange-traded securities,
 including common and preferred equity securities, measured at fair value based on
 quoted prices for identical securities in active markets and therefore meet the
 Level 1 criteria. Also included are auction rate preferred securities rated AAA,
 which are priced at par and are classified as Level 2 of the valuation hierarchy.                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Bonds and
 obligations: Included within this category are highly liquid government obligations
 that are measured at fair value based on quoted prices for identical securities
 in active markets and therefore are classified within Level 1 of the fair value
 hierarchy. Also included in this category are municipal obligations, corporate obligations
 and a mortgage mutual fund where the fair values are estimated by using pricing
 models (i.e. matrix pricing) with observable market inputs including recent transactions
 and/or benchmark yields or quoted prices of securities with similar characteristics
 and are therefore classified within Level 2 of the valuation hierarchy.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Auction Rate
 Certificates: The Company owns auction rate certificates which are pools of government
 guaranteed student loans issued by state student loan departments. Due to the lack
 of liquidity in the auction rate market, the Company obtained a price from the market
 maker that factored in credit risk and liquidity premiums to determine a current
 fair value market price. The auction rate certificates fall into the classification
 of Level 3 within the fair value hierarchy. These securities were not priced by
 the pricing service.                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Trust preferred
 equity securities: Included in this category are two pooled trust preferred securities
 and individual name trust preferred securities of financial companies.
 One of the pooled trust preferred securities is not priced by IDC and is classified
 within Level 3 of the valuation hierarchy while the remaining securities are at
 Level 2 and are                                                                                                                                                                                                                                                                                                                             

12




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |   | priced by
 IDC. The Company calculates the fair value of the Level 3 pooled trust preferred
 security based on a cash flow methodology that uses the Bloomberg AA rated bank
 yield curve to discount the cash flows. Additionally, the low level of the three
 month LIBOR rate, the general widening of credit spreads compared to when these
 securities were purchased and the reduced level of liquidity in the fixed income
 markets, were all factors in the determination of the current fair value market
 price. The fair value of the remaining trust preferred securities priced by IDC
 are based upon matrix pricing factoring in observable benchmark yields and issuer
 spreads and are, therefore, classified within Level 2 of the valuation hierarchy.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Mortgage-Backed
 Securities: The Company owns residential mortgage-backed securities. As there are
 no quoted market prices available, the fair values of mortgage backed securities
 are based upon matrix pricing factoring in observable benchmark yields and issuer
 spreads and are therefore classified within Level 2 of the valuation hierarchy.                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  | Mortgage
 Loans Held for Sale: Fair values were estimated utilizing quoted prices for
 similar assets in active markets. Any change in the valuation of mortgage loans
 held for sale is based upon the change in market interest rates between closing
 the loan and the measurement date. As the loans are sold to the secondary market,
 the market prices are obtained from Freddie Mac and represent a delivery price which
 reflects the underlying price Freddie Mac would pay the Company for an immediate
 sale on these mortgages.                                                                                                                                                                                                                                                                                                                                                    
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Derivatives:
 Derivative instruments related to loans held for sale are carried at fair value.
 Fair value is determined through quotes obtained from actively traded mortgage markets.
 Any change in fair value for rate lock commitments to the borrower is based upon
 the change in market interest rates between making the rate lock commitment and
 the measurement date and, for forward loan sale commitments to the investor, is
 based upon the change in market interest rates from entering into the forward loan
 sales contract and the measurement date. Both the rate lock commitments to the borrowers
 and the forward loan sale commitments to investors are undesignated derivatives
 pursuant to the requirements of FASB ASC 815-10, however, the Company has not designated
 them as hedging instruments. Accordingly, they are marked to fair value through
 earnings.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | At September
 30, 2009, the effects of fair value measurements for interest rate lock commitment
 derivatives and forward loan sale commitments were as follows (mortgage loans held
 for sale are shown for informational purposes only):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |  |                               |  | September 30, 2009
| |  | ----------------------------- |  | ------------------
| |  |                               |  |                   
| |  |                               |  |                   
| |  |                               |  |                   
| |  | (In thousands)                |  |                   
| |  |                              
| |  |                               |  |                   
| |  | Rate Lock Commitments         |  | $                 
| |  | Forward Sales
 Commitments    |  |                   
| |  | Mortgage Loans
 Held for Sale |  |                   
| |  |                              

| |  | The Company
 sells the majority of its fixed rate mortgage loans with original terms of 15 years
 or more on a servicing released basis and receives a servicing released premium
 upon sale. The servicing value has been included in the pricing of the rate lock
 commitments and loans held for sale. The Company estimates a fallout rate of approximately
 15% based upon historical averages in determining the fair value of rate lock commitments.
 Although the use of historical averages is based upon unobservable data, the Company
 believes that this input is insignificant to the valuation and, therefore, has concluded
 that the fair value measurements meet the Level 2 criteria. The collection of upfront
 fees from the borrower is the driver of the Companys low fallout rate. If
 this practice were to change, the fallout rate would most likely increase and the
 Company would reassess the significance of the fallout rate on the fair value measurement.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Prior to January
 1, 2009, the mortgage loans held for sale and the derivatives associated with those
 loans had balances of notional amounts and fair value adjustments that did not have
 a material impact on the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Assets
 and Liabilities Measured at Fair Value on a Nonrecurring Basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | The following
 tables detail the financial instruments carried at fair value on a nonrecurring
 basis as of September 30, 2009 and December 31, 2008 and indicate the fair value
 hierarchy of the valuation techniques utilized by the Company to determine the fair
 value:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

13




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |  |                          |  | September 30, 2009
| |  | ------------------------ |  | ------------------
| |  |                          |  |                   
| |  |                          |  |                   
| |  |                          |  |                   
| |  |                          |  |                   
| |  |                          |  |                   
| |  | (In thousands)           |  |                   
| |  |                         
| |  |                          |  |                   
| |  | Loan Servicing Rights    |  | $                 
| |  | Other Real
 Estate Owned |  |                   
| |  | Impaired Loans           |  |                   
| |  |                         

| |  |                       |  | December 31, 2008
| |  | --------------------- |  | -----------------
| |  |                       |  |                  
| |  |                       |  |                  
| |  |                       |  |                  
| |  |                       |  |                  
| |  |                       |  |                  
| |  | (In thousands)        |  |                  
| |  |                      
| |  | Loan Servicing Rights |  | $                
| |  | Impaired Loans        |  |                  
| |  |                      

| |  | The following
 is a description of the valuation methodologies used for instruments measured at
 fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Loan Servicing
 Rights: A loan servicing right asset represents the amount by which the present
 value of the estimated future net cash flows to be received from servicing loans
 are expected to more than adequately compensate the Company for performing the
 servicing. The fair value of servicing rights is estimated using a present value
 cash flow model. The most important assumptions used in the valuation model are
 the anticipated rate of the loan prepayments and discount rates. Adjustments are
 only recorded when the discounted cash flows derived from the valuation model are
 less than the carrying value of the asset. As such, measurement at fair value is
 on a nonrecurring basis. Although some assumptions in determining fair value are
 based on standards used by market participants, some are based on unobservable inputs
 and therefore are classified in Level 3 of the valuation hierarchy.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Other Real
 Estate Owned: The Company classifies property acquired through foreclosure or
 acceptance of deed-in-lieu of foreclosure as other real estate owned in its financial
 statements. Upon foreclosure, the property securing the loan is written down to
 fair value. The writedown is based upon differences between the appraised value
 and the book value. Appraisals are based upon observable market data such as comparable
 sale within the real estate market, however assumptions made in determining comparability
 are unobservable and therefore these assets are classified as Level 3 within the
 valuation hierarchy.                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Impaired
 Loans: Impaired loans for which the Company expects to receive less than the
 contracted balance are recorded at the lower of cost or fair value. Consequently,
 measurement at fair value is on a nonrecurring basis. These loans are written down
 through a specific reserve within the Banks total loan loss reserve allowance.
 The fair value of these assets are classified within Level 3 of the valuation hierarchy
 and are estimated based on collateral values supported by appraisals.                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Disclosures
 about Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The following
 methods and assumptions were used by management to estimate the fair value of each
 class of financial instruments for which it is practicable to estimate that value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Cash and
 cash equivalents: Carrying value is assumed to represent fair value for cash
 and due from banks and short-term investments, which have original maturities of
 90 days or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Investment
 securities: Refer to the above discussion on securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Federal
 Home Loan Bank of Boston stock: FHLB Boston stock is a non-marketable equity
 security which is assumed to have a fair value equal to its carrying value due to
 the fact that it can only be redeemed back to the FHLB Boston at par value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Loans held
 for sale: The fair value of residential mortgage loans held for sale is estimated
 using quoted market prices provided by government-sponsored entities as described
 above. The fair value of SBA loans is estimated using quoted market prices from
 a secondary market broker.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

14




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |  | Accrued
 income receivable: Carrying value is assumed to represent fair value.                                                                                                                                                                                                                                                                                                                                                                  
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Loans:
 The fair value of the net loan portfolio is determined by discounting the estimated
 future cash flows using the prevailing interest rates and appropriate credit and
 prepayment risk adjustments as of period-end at which similar loans would be made
 to borrowers with similar credit ratings and for the same remaining maturities.
 The fair value of nonperforming loans is estimated using the Banks prior credit
 experience.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Derivative
 Assets: Refer to the above discussion on derivatives.                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Deposits: The fair value of demand, non-interest bearing checking, savings and certain
 money market deposits is determined as the amount payable on demand at the reporting
 date. The fair value of time deposits is estimated by discounting the estimated
 future cash flows using rates offered for deposits of similar remaining maturities
 as of period-end.                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Borrowed
 Funds: The fair value of borrowed funds is estimated by discounting the future
 cash flows using market rates for similar borrowings.                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Derivative
 Liabilities: Refer to the above discussion on derivatives.                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The following
 are the carrying amounts and estimated fair values of the Companys financial
 assets and liabilities as of September 30, 2009:                                                                                                                                                                                                                                                                                                  

| |  |                                                                                |  | September 30, 2009
| |  | ------------------------------------------------------------------------------ |  | ------------------
| |  |                                                                                |  |                   
| |  |                                                                                |  |                   
| |  | (In thousands)                                                                 |  |                   
| |  |                                                                               
| |  | Financial
 Assets                                                              |  |                   
| |  | Cash and due from banks                                                        |  | $                 
| |  | Short-term
 investments                                                        |  |                   
| |  | Investment
 securities                                                         |  |                   
| |  | Loans
 held for sale                                                           |  |                   
| |  | Loans,
 net                                                                    |  |                   
| |  | Federal
 Home Loan Bank of Boston stock                                        |  |                   
| |  | Accrued
 income receivable                                                     |  |                   
| |  | Derivative
 assets                                                             |  |                   
| |  | Financial
 Liabilities                                                         |  |                   
| |  | Interest
 and non-interest bearing checking, savings and money market accounts |  | $                 
| |  | Time
 deposits                                                                 |  |                   
| |  | Borrowed
 funds                                                                |  |                   
| |  | Derivative
 liabilities                                                        |  |                   
| |  |                                                                               

|4. |  | Derivative
 Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | In the ordinary
 course of business, the Company uses various derivative financial instruments to
 service the financial needs of customers and to reduce its exposure to fluctuations
 in interest rates. The Company considers its strategic use of derivatives to be
 a prudent method of managing interest-rate sensitivity, as it prevents earnings
 from being exposed to undue risk posed by changes in interest rates. The Company
 accounts for derivatives in accordance with FASB ASC 815, Derivatives and Hedging,
 which requires that all derivative instruments be recorded on the statement
 of condition at their fair values. The Company does not enter into derivative transactions
 for speculative purposes, does not have any derivatives designated as hedging instruments,
 nor is party to a master netting agreement as of September 30, 2009.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | Loan Commitments
 and Forward Loan Sale Commitments: The Company enters into interest rate lock
 commitments with borrowers, to finance residential mortgage loans. Primarily to
 mitigate the interest rate risk on these commitments, the Company also enters into
 mandatory and best effort forward loan sale delivery commitments
 with investors. The interest rate lock commitments and the forward loan delivery
 commitments meet the definition of a derivative, however, the Company has not designated
 them as hedging instruments. Upon closing the loan, the loan commitment expires
 and the Company records                                                                                                                                                                                                                                         

15




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements

---

| |  | a loan held
 for sale subject to the same forward loan sale commitment. Prior to January 1, 2009,
 the Company accounted for loans held for sale at the lower or cost or fair value
 in accordance with accounting guidance for certain mortgage banking activities.
 Fluctuations in the fair value of loan commitments, loans held for sale, and forward
 loan sale commitments generally move in opposite directions, and the net impact
 of the changes in these valuations on net income is generally inconsequential to
 the financial statements.                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | The decrease
 in mortgage rates at the end of 2008 through September 30, 2009 has resulted in
 a large increase in mortgage loan refinances and hence, the Companys committed
 loans and forward loan sale commitments have significantly increased. The Company
 has elected the fair value option for loans held for sale originated after January
 1, 2009 and therefore, those loans held for sale will be recorded in the statement
 of condition at fair value with any gains and losses recorded in earnings. See Footnote
 3, Fair Value Measurements, for additional information.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | The following
 table summarizes the Companys derivative positions at and for the nine months
 ended September 30, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |  |                                                                                                                                        |  | Notional
 or      |  | Fair Value     |  
| |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -------------- | -
| |  | (In thousands)                                                                                                                         |  | Principal
 Amount |  | Adjustment (1) |  
| |  |                                                                                                                                       
| |  | Interest Rate Lock Commitments                                                                                                         |  | 25,330            |  | 345            |  
| |  | Forward Sales
 Commitments                                                                                                             |  | 37,590            |  | (145           | )
| |  |                                                                                                                                       
| |  | (1) An immaterial portion of these amounts was attributable to changes in instrument-specific
 credit risk.                           
| |  |                                                                                                                                        |  |                   |  |                |  
| |  | The following two tables present the fair values of the Companys derivative
 instruments and their effect on the Statement of Income:
| |  |                                                                                                                                        |  |                   |  |                |  
| |  | Fair Values
 of Derivative Instruments                                                                                                 |  |                   |  |                |  

| |  |                                      |  | Asset Derivatives  |                | Liability Derivatives
| |  | ------------------------------------ |  | ------------------ | -------------- | ---------------------
| |  |                                      |  |                    |                |                      
| |  |                                      |  | September 30, 2009
| |  |                                      |  |                   
| |  |                                      |  |                    | Balance
 Sheet |                      
| |  | (In thousands)                       |  |                    | Location       |                      
| |  |                                     
| |  | Derivatives
 not designated as       |  |                    |                |                      
| |  | hedging
 instruments                 |  |                    |                |                      
| |  | Interest rate contracts              |  |                    | Other Assets   |                      
| |  |                                     
| |  | Total derivatives
 not designated as |  |                    |                |                      
| |  | hedging
 instruments                 |  |                    |                |                      
| |  |                                     

| |  | Effect of Derivative Instruments on the Statement of Income
| |  | -----------------------------------------------------------
| |  |                                                            
| |  |                                                            
| |  |                                                            
| |  |                                                            
| |  |                                                            
| |  |                                                            
| |  | (In thousands)                                             
| |  |                                                            
| |  | Derivatives not designated as                              
| |  | hedging instruments                                        
| |  | Interest rate contracts                                    
| |  |                                                            
| |  | Total derivatives
 not designated as                       
| |  | hedging
 instruments                                       
| |  |                                                            

16




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

|5. |  | Investment Securities                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                   
|   |  | The following
 table presents the amortized cost, gross unrealized gains, gross unrealized losses
 and estimated fair values of investment securities at September 30, 2009 and December 31, 2008.

| |                                                   |  | September 30, 2009 |           | December 31, 2008
| | ------------------------------------------------- |  | ------------------ | --------- | -----------------
| |                                                   |  |                    |           |                  
| |                                                   |  |                    |           |                  
| |                                                   |  | Amortized          |           | unrealized       
| | (In thousands)                                    |  | cost               |           | gains            
| |                                                  
| | Available
 for sale                               |  |                    |           |                  
| | U.S. Treasury obligations                         |  | $                  | 596       |                  
| | U.S.
 Government sponsored enterprise obligations |  |                    | 193,515   |                  
| | Corporate
 obligations                            |  |                    | 8,149     |                  
| | Other
 bonds and obligations                      |  |                    | 16,329    |                  
| | Auction
 rate certificates                        |  |                    | 27,800    |                  
| | Marketable
 equity securities                     |  |                    | 8,560     |                  
| | Trust
 preferred equity securities                |  |                    | 49,328    |                  
| | Private
 label mortgage-backed securities         |  |                    | 25,871    |                  
| | Mortgage-backed
 securities                       |  |                    | 2,013,355 |                  
| |                                                  
| | Total available for sale                          |  |                    | 2,343,503 |                  
| |                                                  
| | Held to
 maturity                                 |  |                    |           |                  
| | Mortgage-backed
 securities                       |  |                    | 252,118   |                  
| | Other
 bonds                                      |  |                    | 10,985    |                  
| |                                                  
| | Total
 held to maturity                           |  |                    | 263,103   |                  
| |                                                  
| | Total
 securities                                 |  | $                  | 2,606,606 |                  
| |                                                  

| |  | The securities
 portfolio is reviewed on a monthly basis for the presence of other-than-temporary
 impairment (OTTI). During the second quarter new OTTI guidance issued
 by the FASB was adopted for debt securities that requires credit related OTTI be
 recognized in earnings while non-credit related OTTI be recognized in other comprehensive
 income (OCI) if there is no intent to sell or will not be required to
 sell. If an equity security is deemed other-than-temporarily impaired, the full
 impairment is considered to be credit-related and a charge to earnings would be
 recorded. The new guidance also required that previously recorded impairment charges
 which did not relate to a credit loss should be reclassified from retained earnings
 to accumulated other comprehensive income (AOCI). For the quarter ended
 June 30, 2009, the Company reclassified the non-credit related portion of a previously
 recorded OTTI loss and recorded a current OTTI loss in accordance with this FASB
 guidance, both of which are described below.                     
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | A credit related
 OTTI loss in the amount of $626,000 was recorded against the Companys position
 in an adjustable rate mortgage mutual fund that holds positions in non-agency mortgage-backed
 securities. During the second quarter of 2009, the fund experienced its first realized
 loss on a mortgage investment. Management determined that the dollar amount of securities
 carrying a rating of CCC or lower had increased since the March 31, 2009 quarter-end.
 This decrease in the credit quality of the securities coupled with the loss recognized
 by the fund, resulted in managements determination that the fund was other-than-temporarily
impaired. The non-credit related OTTI was $1.9 million and was recognized
 in OCI. During the third quarter, there were no further downgrades to underlying
 securities to a rating of CCC or below. The fund has a current book value of $8.3
 million and is not expected to be sold and management has determined that there
 are no additional OTTI charges that need to be recognized in the quarter ended September
 30, 2009.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | During 2008,
 one of the individual name trust preferred securities was deemed to
 be other-than-temporarily impaired and a charge of $1.6 million was recorded in the
 third quarter. Upon the adoption of the OTTI guidance discussed above, the Company
 recorded a cumulative effect adjustment that increased retained earnings and decreased
 AOCI by $1.6 million, or $1.0 million, net of tax. Additionally, the amortized cost
 for this security increased by $1.6 million as the entire impairment charge recorded
 in 2008 was non-credit related. At September 30, 2009 this security had an amortized
 cost of $4.7 million and an unrealized loss of $1.4 million.                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | The following
 tables present 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, 2009 and December 31, 2008. Of the securities
 summarized, 12 issues have unrealized losses for less than twelve months and 38
 have unrealized losses for twelve months or more at September 30, 2009. This compares
 to a total of 145 issues that had an unrealized loss at December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

17




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| |                                                   |  | September 30, 2009
| | ------------------------------------------------- |  | ------------------
| |                                                   |  |                   
| |                                                   |  | Less Than One Year
| |                                                   |  |                   
| |                                                   |  | Fair              
| | (In thousands)                                    |  | value             
|
| | U. S. Government sponsored enterprise obligations |  | $                 
| | Corporate obligations                             |  |                   
| | Other bonds
 and obligations                      |  |                   
| | Auction rate
 certificates                        |  |                   
| | Marketable
 equity securities                     |  |                   
| | Trust preferred
 equity securities                |  |                   
| | Private label
 mortgage-backed securities         |  |                   
| | Mortgage-backed
 securities                       |  |                   
|
| | Total securities with unrealized losses           |  | $                 
|

| |                                                   |  | December 31, 2008 
| | ------------------------------------------------- |  | ------------------
| |                                                   |  |                   
| |                                                   |  | Less Than One Year
| |                                                   |  |                   
| |                                                   |  | Fair              
| | (In thousands)                                    |  | value             
| |                                                  
| | U. S. Government sponsored enterprise obligations |  | $                 
| | Corporate
 obligations                            |  |                   
| | Other bonds
 and obligations                      |  |                   
| | Auction rate
 certificates                        |  |                   
| | Marketable
 equity securities                     |  |                   
| | Trust preferred
 equity securities                |  |                   
| | Private label
 mortgage-backed securities         |  |                   
| | Mortgage-backed
 securities                       |  |                   
| |                                                  
| | Total securities with unrealized losses           |  | $                 
| |                                                  

| |  | Management
 believes that no individual unrealized loss as of September 30, 2009 represents
 an other-than-temporary impairment, based on its detailed monthly review of the
 securities portfolio. Among other things, the other-than-temporary impairment review
 of the investment securities portfolio focuses on the combined factors of percentage
 and length of time by which an issue is below book value as well as consideration
 of issuer specific (present value of cash flows expected to be collected, issuer
 rating changes and trends, credit worthiness and review of underlying collateral),
 broad market details and the Companys intent to sell the security or if it
 is more likely than not that the Company will be required to sell the debt security
 before recovering its cost. The Company also considers whether the depreciation
 is due to interest rates or credit risk. The following paragraphs outline the Companys position related to unrealized losses in its investment securities portfolio
 at September 30, 2009.                                                                                                                                                                                                                  
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The unrealized
 loss on mortgage-backed securities issued by private institutions is primarily concentrated
 in one BBB rated private-label mortgage-backed security which is substantially paid
 down, well seasoned and of an earlier vintage that has not been significantly affected
 by high delinquency levels or vulnerable to lower collateral coverage as seen in
 later issued pools. Widening in non-agency mortgage spreads is the primary factor
 for the unrealized losses reported on private label mortgage-backed securities.
 None of the securities are backed by subprime mortgage loans and none have suffered
 losses. One security was downgraded to BBB during the quarter and the remaining
 securities are rated AAA. All are still paying principal and interest and are expected
 to continue to pay their contractual cash flows. Managements review of the
 above factors and issuer specific data concluded that these private-label mortgage-backed
 securities are not other-than-temporarily impaired.                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The unrealized
 losses on other bonds and obligations primarily relates to the non-credit related
 OTTI loss on a position in an adjustable rate mortgage mutual fund that holds positions
 in non-agency mortgage-backed securities that are facing negative mark to market
 pressures due to widening spreads in non-agency mortgage products. Although the
 fund has experienced declines in credit ratings since the beginning of the year,
 it was not due to customer redemptions or forced selling of the investments. The
 fund recorded its first loss which factored into managements determination
 that the fund was other-than-temporarily impaired. As discussed above, a credit
 related OTTI loss of $626,000 was recorded through earnings in the second quarter
 of 2009. The fund carries a market value to book value ratio of 79.3% - a slight
 increase from June 30, 2009, a weighted average underlying investment credit rating
 of A+ and it continues to pay normal monthly dividends. There is no intent to sell
 nor is it more likely than not that the Company will be required to sell these securities
 and has therefore, concluded that there is no additional OTTI charges that need
 to be recognized in the quarter ended September 30, 2009.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The unrealized
 losses on auction rate certificates relate to certificates issued by an investment
 banking firm and are pools of government-guaranteed student loans that are issued
 by state student loan departments. In the first half of 2008, the auction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

18




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| |  | process for
 auction rate certificates began to freeze resulting from the problems in the credit
 markets. These securities are currently rated AAA and are still paying their contractual
 cash flows and are expected to continue to pay their contractual cash flows. Management
 has concluded that no other-than-temporary impairment exists as of September 30,
 2009. In 2008, the underwriter entered into a settlement agreement with several
 state regulatory agencies, whereby they have agreed to repurchase these certificates
 from both their retail and institutional customers at par. The institutional buy-back
 of these securities is scheduled on or around June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | Trust preferred
 securities are comprised of two pooled trust preferreds with an amortized cost of $6.7
 million, of which both are rated BB. The remaining $42.6 million are comprised of
 twelve individual names issues with the following ratings: $6.0 million
 rated A+ to A-, $14.5 million rated BBB+ to BBB and $22.1 million rated B to BB+.
 The unrealized losses reported for trust preferred equity securities relate to the
 financial and liquidity stresses in the fixed income market and not to any credit
 impairment of the issuers as the present value of cash flows expected to be collected
 is not less than the amortized cost basis of the securities. Although the ratings
 on some issues have been reduced since December 31, 2008, all are currently paying
 the contractual principal and interest payments. A detailed review of the two pooled
 trust preferreds and the individual names trust preferred equity securities
 was completed. This review included an analysis of collateral reports, stress default
 levels and financial ratios of the underlying issuers and management concluded that
 there was no other-than-temporary impairment at the end of the period.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | The Company
 has no intent to sell nor is it more likely than not that the Company will be required
 to sell any of the securities contained in the table for a period of time necessary
 to recover the unrealized losses, which may be until maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | The following
 table presents the changes in the credit loss component of the amortized cost of
 debt securities available for sale that have been written down for other-than-temporary
 impairment loss and recognized in earnings. The credit loss component represents
 the difference between the present value of expected future cash flows and the amortized
 cost basis of the security prior to considering credit losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                                                                              |  | Three Months Ended |     | Nine Months Ended
| | -------------------------------------------------------------------------------------------- |  | ------------------ | --- | -----------------
| |                                                                                              |  | September 30,      |     | September 30,    
| |                                                                                              |  |                    |     |                  
| | (In thousands)                                                                               |  | 2009               |     |                  
| |                                                                                             
| | Balance, beginning of period                                                                 |  | $                  | 626 |                  
| | Additions:                                                                                   |  |                    |     |                  
| | Initital
 credit impairments which were not previously recognized as a component of earnings |  |                    | -   |                  
| | Subsequent
 credit impairments                                                               |  |                    | -   |                  
| | Reductions:                                                                                  |  |                    |     |                  
| | Securities
 sold                                                                             |  |                    | -   |                  
| |                                                                                             
| | Balance, end
 of period                                                                      |  | $                  | 626 |                  
| |                                                                                             

| |  | As of September
 30, 2009, the amortized cost and fair values of debt securities and short-term obligations,
 by contractual maturity, are shown below. Expected maturities may differ from contracted
 maturities because issuers may have the right to call or prepay obligations with
 or without call or prepayment penalties.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                         |  | Available for Sale |           | Held to Maturity
| | --------------------------------------- |  | ------------------ | --------- | ----------------
| |                                         |  |                    |           |                 
| | (In thousands)                          |  | Amortized cost     |           | Fair value      
| |                                        
| | September
 30, 2009                     |  |                    |           |                 
| | Due in one year or less                 |  | $                  | 95,243    |                 
| | Due
 after one year through five years  |  |                    | 81,981    |                 
| | Due
 after five years through ten years |  |                    | 58,219    |                 
| | Due
 after ten years                    |  |                    | 60,274    |                 
|
| | Mortgage-backed
 securities             |  |                    | 2,039,226 |                 
| |                                        
| | Total
 debt securities                  |  | $                  | 2,334,943 |                 
| |                                        

| | Securities
 with a fair value of $776.4 million and $1.12 billion at September 30, 2009 and December
 31, 2008, respectively, were pledged to secure public deposits, repurchase agreements
 and Federal Home Loan Bank of Boston (FHLB) borrowings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The following tables present information
 related to realized gains and losses on sales of securities available for sale during
 the three and nine months ended September 30, 2009 and 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                 |  | Debt Securities                  |       | Equity Securities
| | --------------- |  | -------------------------------- | ----- | -----------------
| |                 |  |                                  |       |                  
| |                 |  | Three Months Ended September 30,
| |                 |  |                                 
| | (In thousands)  |  |                                  | 2009  |                  
| |                
| | Realized gains  |  | $                                | 2,050 |                  
| | Realized losses |  |                                  | (21   | )                
| |                

| |                 |  | Debt Securities                 |       | Equity Securities
| | --------------- |  | ------------------------------- | ----- | -----------------
| |                 |  |                                 |       |                  
| |                 |  | Nine Months Ended September 30,
| |                 |  |                                
| | (In thousands)  |  |                                 | 2009  |                  
| |                
| | Realized gains  |  | $                               | 6,192 |                  
| | Realized losses |  |                                 | (53   | )                
| |                

|6. |  | Loans                                                          
|-- |  | ---------------------------------------------------------------
|   |  |                                                                
|   |  | The composition
 of the Companys loan portfolio is as follows:

| |                                         |  | September 30, |           |   | December 31, |  
| | --------------------------------------- |  | ------------- | --------- | - | ------------ | -
| | (In thousands)                          |  | 2009          |           |   | 2008         |  
| |                                        
| | Residential real estate                 |  | $             | 2,413,181 |   |              | $
| | Commercial
 real estate                 |  |               | 1,081,016 |   |              |  
| | Construction                            |  |               |           |   |              |  
| | Residential                             |  |               | 11,781    |   |              |  
| | Commercial                              |  |               | 141,964   |   |              |  
| | Commercial
 business                    |  |               | 422,814   |   |              |  
| | Consumer                                |  |               |           |   |              |  
| | Home
 equity and equity lines of credit |  |               | 717,632   |   |              |  
| | Other                                   |  |               | 17,319    |   |              |  
| |                                        
| | Total
 consumer                         |  |               | 734,951   |   |              |  
| |                                        
| | Total
 loans                            |  |               | 4,805,707 |   |              |  
| | Allowance
 for loan losses              |  |               | (51,720   | ) |              |  
| |                                        
| | Total
 loans, net                       |  | $             | 4,753,987 |   |              | $
| |                                        

| |  | At September
 30, 2009 and December 31, 2008, the Companys residential real estate loan,
 residential construction loan, home equity loan and equity lines of credit portfolios
 are entirely collateralized by one to four family homes and condominiums, the majority
 of which are located in Connecticut and Massachusetts. The commercial real estate
 loan and commercial construction portfolios are collateralized primarily by multi-family,
 commercial and industrial properties located predominately in Connecticut and Massachusetts.
 A variety of different assets, including accounts receivable, inventory and property,
 and plant and equipment, collateralize the majority of the commercial business loan
 portfolio. The Company does not originate or directly invest in subprime loans.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20




NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The following table provides a summary of activity in the allowance for loan losses.
| | ------------------------------------------------------------------------------------
| |                                                                                     
| |                                                                                     
| |                                                                                     
| |                                                                                     
| |                                                                                     
| | (In thousands)                                                                      
| |                                                                                     
| | Balance at beginning of period                                                      
| | Provisions
 charged to operations                                                   
| | Charge-offs                                                                         
| | Residential
 real estate loans                                                      
| | Commercial
 real estate loans                                                       
| | Commercial
 construction loans                                                      
| | Commercial
 business loans                                                          
| | Consumer
 loans                                                                     
| |                                                                                     
| | Total
 charge-offs                                                                  
| |                                                                                     
| | Recoveries                                                                          
| | Residential
 real estate loans                                                      
| | Commercial
 real estate loans                                                       
| | Commercial
 construction loans                                                      
| | Commercial
 business loans                                                          
| | Consumer
 loans                                                                     
| |                                                                                     
| | Total
 recoveries                                                                   
| |                                                                                     
| | Net charge-offs                                                                     
| |                                                                                     
| | Balance at
 end of period                                                           
| |                                                                                     

| | Nonperforming
 Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Nonperforming
 assets include loans for which the Company does not accrue interest (nonaccrual
 loans), loans 90 days past due and still accruing interest, renegotiated loans due
 to a weakening in the financial condition of the borrower and other real estate
 owned. There were no accruing loans included in the Companys nonperforming
 assets as of September 30, 2009 and December 31, 2008. As of September 30, 2009
 and December 31, 2008, nonperforming assets were:

| |                                                                      |  | September 30, |        |  | December 31,
| | -------------------------------------------------------------------- |  | ------------- | ------ |  | ------------
| | (In thousands)                                                       |  | 2009          |        |  | 2008        
| |                                                                     
| | Nonaccrual loans                                                     |  | $             | 49,091 |  |             
| | Other real
 estate owned                                             |  |               | 2,702  |  |             
| |                                                                     
| | Total
 nonperforming assets                                          |  | $             | 51,793 |  |             
| |                                                                     
| | Troubled debt
 restructured loans included in nonaccrual loans above |  | $             | 3,466  |  |             
| |                                                                     

|7. | Goodwill
 and Identifiable Intangible Assets                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                            
|   | The changes
 in the carrying amount of goodwill and identifiable intangible assets for the nine
 months ended September 30, 2009 are summarized as follows:

| |                                                      |  |          |         |  |              |               |        |   |        |              | Total
| | ---------------------------------------------------- |  | -------- | ------- |  | ------------ | ------------- | ------ | - | ------ | ------------ | -----
| |                                                      |  |          |         |  |              | Core Deposits |        |   |        | Identifiable
| |                                                      |  |          |         |  |              | and Customer  |        |   |        | Intangible  
| | (In thousands)                                       |  | Goodwill |         |  | Relationship |               |        |   | Assets
| |                                                     
| | Balance, December 31, 2008                           |  | $        | 527,167 |  |              | $             | 43,860 |   |        |              | $    
| | Amortization
 expense                                |  |          | -       |  |              |               | (6,379 | ) |        |              |      
| |                                                     
| | Balance, September
 30, 2009                         |  | $        | 527,167 |  |              | $             | 37,481 |   |        |              | $    
| |                                                     
| |                                                      |  |          |         |  |              |               |        |   |        |              |      
| | Estimated
 amortization expense for the year ending: |  |          |         |  |              |               |        |   |        |              |      
| | Remaining
 2009                                      |  |          |         |  |              |               | 2,122  |   |        |              |      
| | 2010                                                 |  |          |         |  |              |               | 7,811  |   |        |              |      
| | 2011                                                 |  |          |         |  |              |               | 7,556  |   |        |              |      
| | 2012                                                 |  |          |         |  |              |               | 7,556  |   |        |              |      
| | 2013                                                 |  |          |         |  |              |               | 7,461  |   |        |              |      
| | Thereafter                                           |  |          |         |  |              |               | 4,975  |   |        |              |      
| |                                                     

21





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The components of identifiable intangible assets are core deposit and customer relationships
 and had the following balances at September 30, 2009:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                    
| |                                                                                                                                                    
| |                                                                                                                                                    
| | (In thousands)                                                                                                                                     
| |                                                                                                                                                    
| | Core deposit and customer relationships                                                                                                            

|8.  | Other Assets                                                    |  |               |           |  |              |   |          
|--- | --------------------------------------------------------------- |  | ------------- | --------- |  | ------------ | - | ---------
|    |                                                                 |  |               |           |  |              |   |          
|    | Selected components of other assets are as follows:            
|    |                                                                 |  |               |           |  |              |   |          
|    |                                                                 |  | September 30, |           |  | December 31,
|    | (In thousands)                                                  |  | 2009          |           |  | 2008        
|    |                                                                
|    | Deferred tax asset, net                                         |  | $             | 15,727    |  |              | $ | 30,339   
|    | Accrued interest
 receivable                                    |  |               | 34,406    |  |              |   | 35,285   
|    | Investments
 in limited partnerships and other investments      |  |               | 8,182     |  |              |   | 9,171    
|    | Receivables
 arising from securities transactions               |  |               | 13,348    |  |              |   | 9,892    
|    | All other                                                       |  |               | 17,330    |  |              |   | 16,986   
|    |                                                                
|    | Total
 other assets                                             |  | $             | 88,993    |  |              | $ | 101,673  
|    |                                                                
|    |                                                                 |  |               |           |  |              |   |          
|9.  | Deposits                                                        |  |               |           |  |              |   |          
|    |                                                                 |  |               |           |  |              |   |          
|    | A summary of deposits by account type is as follows:           
|    |                                                                 |  |               |           |  |              |   |          
|    |                                                                 |  | September 30, |           |  | December 31,
|    | (In thousands)                                                  |  | 2009          |           |  | 2008        
|    |                                                                
|    | Savings                                                         |  | $             | 1,841,605 |  |              | $ | 1,463,341
|    | Money market                                                    |  |               | 696,464   |  |              |   | 346,522  
|    | NOW                                                             |  |               | 367,627   |  |              |   | 368,730  
|    | Demand                                                          |  |               | 528,614   |  |              |   | 494,978  
|    | Time                                                            |  |               | 1,540,025 |  |              |   | 1,774,259
|    |                                                                
|    | Total
 deposits                                                 |  | $             | 4,974,335 |  |              | $ | 4,447,830
|    |                                                                
|    |                                                                 |  |               |           |  |              |   |          
|10. | Borrowings                                                      |  |               |           |  |              |   |          
|    |                                                                 |  |               |           |  |              |   |          
|    | The following is a summary of the Companys borrowed funds:    
|    |                                                                 |  |               |           |  |              |   |          
|    |                                                                 |  | September 30, |           |  | December 31,
|    | (In thousands)                                                  |  | 2009          |           |  | 2008        
|    |                                                                
|    | FHLB advances
 (1)                                              |  | $             | 1,885,389 |  |              | $ | 2,190,914
|    | Repurchase
 agreements                                          |  |               | 133,802   |  |              |   | 159,530  
|    | Mortgage loans
 payable                                         |  |               | 1,204     |  |              |   | 1,317    
|    | Junior subordinated
 debentures issued to affiliated trusts (2) |  |               | 21,135    |  |              |   | 24,735   
|    |                                                                
|    | Total
 borrowings                                               |  | $             | 2,041,530 |  |              | $ | 2,376,496
|    |                                                                

| | (1) | Includes
 fair value adjustments on acquired borrowings, in accordance with purchase accounting
 standards of $3.7 million and $5.8 million at September 30, 2009 and December 31,
 2008, respectively. The acquisition fair value adjustments (premiums) are being
 amortized as an adjustment to interest expense on borrowings over their remaining
 terms using the level yield method.                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | Includes
 fair value adjustments on acquired borrowings, in accordance with purchase accounting
 standards of $0 and $100,000 at September 30, 2009 and December 31, 2008, respectively.
 The trusts were organized to facilitate the issuance of trust preferred securities.
 The Company acquired these subsidiaries when it acquired Alliance Bancorp of New
 England, Inc. and Westbank Corporation, Inc. The affiliated trusts are wholly-owned
 subsidiaries of the Company and the payments of these securities are irrevocably
 and unconditionally guaranteed by the Company.

| | Federal
 Home Loan Bank of Boston (FHLB) advances are secured by the Companys investment in FHLB stock, a blanket security agreement and other eligible
 investment securities. This agreement requires the Bank to maintain as collateral
 certain qualifying assets, principally mortgage loans. Investment securities currently
 maintained as collateral are all U.S. Agency
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

|    | hybrid
 adjustable rate mortgage-backed securities. At September 30, 2009 and December 31,
 2008, the Bank was in compliance with the FHLB collateral requirements. At September
 30, 2009, the Company could immediately borrow an additional $298.9 million from
 the FHLB, inclusive of a line of credit of approximately $20.0 million. Additional
 borrowing capacity of approximately $1.39 billion 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 $94.9
 million as of September 30, 2009, all of which was available on that date. Repurchase
 agreement lines of credit with three large broker-dealers totaled $100.0 million
 at September 30, 2009, with availability of $75.0 million. At September 30, 2009,
 all of the Companys $1.88 billion outstanding FHLB advances were at fixed rates
 ranging from 1.82% to 8.17%. The weighted average rate for all FHLB advances at
 September 30, 2009 was 4.27%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|11. | Pension
 and Other Postretirement Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company
 provides various defined benefit and other postretirement benefit plans (postretirement
 health and life insurance benefits) to substantially all employees hired prior to
 January 1, 2008. The Company also has supplemental retirement plans (the Supplemental
 Plans) that provide benefits for certain key executive officers. Benefits
 under the supplemental plans are based on a predetermined formula and are reduced
 by other benefits. The liability arising from these plans is being accrued over
 the participants remaining periods of service so that at the expected retirement
 dates, the present value of the annual payments will have been expensed. Due to
 the retirement of an executive officer, the Company expects to record additional
 expense of approximately $1.2 million for the supplemental executive retirement plans
 in the fourth quarter of 2009.                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The following
 table presents the amount of net periodic pension cost for the three months ended
 September 30, 2009 and 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  | Supplemental |      |                      |                      |      |     |  |      |  
| | ------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | - | ---------------- | - | -------- | -------- | ---- |  | ------------ | ---- | -------------------- | -------------------- | ---- | --- |  | ---- | -
| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  | Executive    |      | Other Postretirement
| |                                                                                                                                |  | Qualified Pension |        |   | Retirement Plans |   | Benefits
| |                                                                                                                                |  |                   |        |   |                  |   |         
| | (In thousands)                                                                                                                 |  | 2009              |        |   | 2008             |   |          |          | 2009 |  |              | 2008 |                      |                      | 2009 |     |  | 2008 |  
| |                                                                                                                               
| | Service cost - benefits earned during the period                                                                               |  | $                 | 809    |   |                  | $ | 787      |          |      |  | $            | 112  |                      |                      | $    | 134 |  |      | $
| | Interest cost
 on projected benefit obligation                                                                                 |  |                   | 1,430  |   |                  |   | 1,363    |          |      |  |              | 194  |                      |                      |      | 177 |  |      |  
| | Expected return
 on plan assets                                                                                                |  |                   | (1,741 | ) |                  |   | (1,798   | )        |      |  |              | -    |                      |                      |      | -   |  |      |  
| | Amortization:                                                                                                                  |  |                   |        |   |                  |   |          |          |      |  |              | -    |                      |                      |      |     |  |      |  
| | Transition                                                                                                                     |  |                   | -      |   |                  |   | -        |          |      |  |              | -    |                      |                      |      | -   |  |      |  
| | Prior
 service cost                                                                                                            |  |                   | 13     |   |                  |   | 13       |          |      |  |              | 2    |                      |                      |      | 2   |  |      |  
| | Loss
 (gain)                                                                                                                   |  |                   | 204    |   |                  |   | -        |          |      |  |              | -    |                      |                      |      | -   |  |      |  
| |                                                                                                                               
| | Net
 periodic benefit cost                                                                                                     |  | $                 | 715    |   |                  | $ | 365      |          |      |  | $            | 308  |                      |                      | $    | 313 |  |      | $
| |                                                                                                                               
| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  |              |      |                      |                      |      |     |  |      |  
| | The following table represents the amount of net periodic pension cost for the nine
 months ended September 30, 2009 and 2008.
| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  |              |      |                      |                      |      |     |  |      |  
| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  | Supplemental |      |                      |                      |      |     |  |      |  
| |                                                                                                                                |  |                   |        |   |                  |   |          |          |      |  | Executive    |      |                      | Other Postretirement
| |                                                                                                                                |  | Qualified Pension |        |   | Retirement Plans |   |          | Benefits
| |                                                                                                                                |  |                   |        |   |                  |   |          |         
| | (In thousands)                                                                                                                 |  | 2009              |        |   | 2008             |   |          |          | 2009 |  |              | 2008 |                      |                      | 2009 |     |  | 2008 |  
| |                                                                                                                               
| | Service cost
 - benefits earned during the period                                                                              |  | $                 | 2,426  |   |                  | $ | 2,362    |          |      |  | $            | 338  |                      |                      | $    | 403 |  |      | $
| | Interest cost
 on projected benefit obligation                                                                                 |  |                   | 4,291  |   |                  |   | 4,089    |          |      |  |              | 583  |                      |                      |      | 530 |  |      |  
| | Expected return
 on plan assets                                                                                                |  |                   | (5,224 | ) |                  |   | (5,393   | )        |      |  |              | -    |                      |                      |      | -   |  |      |  
| | Amortization:                                                                                                                  |  |                   |        |   |                  |   |          |          |      |  |              |      |                      |                      |      |     |  |      |  
| | Transition                                                                                                                     |  |                   | -      |   |                  |   | -        |          |      |  |              | -    |                      |                      |      | -   |  |      |  
| | Prior
 service cost                                                                                                            |  |                   | 40     |   |                  |   | 38       |          |      |  |              | 5    |                      |                      |      | 5   |  |      |  
| | Loss
 (gain)                                                                                                                   |  |                   | 612    |   |                  |   | -        |          |      |  |              | (1   | )                    |                      |      | -   |  |      |  
| |                                                                                                                               
| | Net
 periodic benefit cost                                                                                                     |  | $                 | 2,145  |   |                  | $ | 1,096    |          |      |  | $            | 925  |                      |                      | $    | 938 |  |      | $
| |                                                                                                                               

| | In connection
 with its conversion to a state-chartered stock bank, the Company established an
 employee stock ownership plan (ESOP) to provide substantially all employees
 of the Company the opportunity to become stockholders. The ESOP borrowed $109.7
 million of a $112.0 million line of credit from the Company and used the funds to
 purchase 7,454,562 shares of common stock in the open market subsequent to the subscription
 offering. The loan will be repaid principally from the Banks discretionary
 contributions to the ESOP over a remaining period of 25 years. The unallocated ESOP
 shares are pledged as collateral on the loan.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | At September
 30, 2009, the loan had an outstanding balance of $98.1 million and an interest rate
 of 4.0%. The Company accounts for its ESOP in accordance with FASB ASC 718-40,
Compensation  Stock Compensation. Under this guidance,                                                                                                                                                                                                                                                                                                                                                                                                                      

23





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | unearned
 ESOP shares are not considered outstanding and are shown as a reduction of stockholders equity as unearned compensation. The Company will recognize compensation cost
 equal to the fair value of the ESOP shares during the periods in which they are
 committed to be released. To the extent that the fair value of the Companys
 ESOP shares differs from the cost of such shares, this difference will be credited
 or debited to equity. The Company will receive a tax deduction equal to the cost
 of the shares released to the extent of the principal paydown on the loan by the
 ESOP. As the loan is internally leveraged, the loan receivable from the ESOP to
 the Company is not reported as an asset nor is the debt of the ESOP shown as a liability
 in the Companys financial statements. Dividends on unallocated shares are
 used to pay the ESOP debt. The ESOP compensation expense for the three and nine
 months ended September 30, 2009 was approximately $733,000 and $2.2 million respectively.
 For the three and nine months ended September 30, 2008, the ESOP compensation expense
 was approximately $848,000 and $2.4 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, 2009 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                                                       
| | ----------------------------------------------------------------------
| | Shares released
 for allocation                                       
| | Unreleased
 shares                                                    
| |                                                                       
| | Total
 ESOP shares                                                    
| |                                                                       
| | Market value of unreleased shares at September 30, 2009 (in thousands)

|12. | Stock-Based
 Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company
 provides compensation benefits to employees and non-employee directors under its
 2005 Long-Term Compensation Plan (the LTCP) which was approved by shareholders.
 The Company accounts for stock-based compensation using the fair value recognition
 provisions of FASB ASC 718, Compensation - Stock Compensation. Pursuant to
 this guidance, 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 or over the requisite service period for awards expected to vest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The LTCP
 allows for the issuance of up to 11.4 million Options or Stock Appreciation Rights
 and up to 4.6 million Stock Awards or Performance Awards. During the nine months
 ended September 30, 2009, a mix of stock options, restricted stock and performance-based
 restricted shares were awarded to employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Option
 Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Options
 awarded to date are for a term of ten years and total approximately 9.5 million
 shares. Substantially all of these options were awarded on the original award date
 of June 17, 2005 and these 2005 option awards had the following vesting schedule:
 40% vested at year-end 2005 and 20% vested at year-end 2006, 2007 and 2008, respectively.
 Subsequent awards have vesting periods of either three or four years. The Company
 assumed a 4.1% average forfeiture rate on options granted subsequent to June 17,
 2005 as the majority of the options were awarded to senior level management. Compensation
 expense recorded on options for the three and nine months ended September 30, 2009
 was $111,000 and $243,000, respectively, or after tax expense of approximately $72,000
 and $157,000, respectively. Compensation expense for the three and nine months ended
 September 30, 2008 was $1.0 million and $3.2 million, respectively, or after tax expense
 of approximately $671,000 and $2.1 million, respectively, was recorded. Under the
 terms of the LTCP, additional awards are likely to be granted, which will increase
 the amount of expense in future periods.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Options
 to purchase 418,279 shares were granted to employees during the nine months ended
 September 30, 2009 and options to purchase 87,462 shares were granted during the
 nine months ended September 30, 2008. Using the Black-Scholes option pricing model,
 the weighted-average grant date fair value was $2.37 and $2.05 per share for the options
 which were granted in 2009 and 2008, respectively. The weighted-average related
 assumptions for the nine months ended September 30, 2009 and 2008 are presented
 in the following table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                          |  | 2009       |   |  |  | 2008       |  
| | ------------------------ |  | ---------- | - |  |  | ---------- | -
| |                         
| | Risk-free interest rate  |  | 2.64       | % |  |  | 2.91       | %
| | Expected dividend
 yield |  | 2.15       | % |  |  | 2.13       | %
| | Expected volatility      |  | 19.32      | % |  |  | 16.29      | %
| | Expected life
 (years)   |  | 6.25 years |   |  |  | 6.23 years |  
| |                         

| |  | The risk-free
 interest rate was determined using the U.S. Treasury yield curve in effect at the
 time of the grant.
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | The dividend
 yield is calculated on the current dividend and strike price at the time of the
 grant.               

24





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| |  | The expected
 volatility assumption is based on the Companys stock price history, which
 for 2009 was 60 months and for 2008 was 48 months.                                                 
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The expected
 life for options granted during the nine months ended September 30, 2009 and 2008
 was determined by applying the simplified method as allowed by current accounting
 guidance.

| | A summary of option activity as of September 30, 2009 and changes during the period
 ended is presented below.
| | --------------------------------------------------------------------------------------------------------------
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| |                                                                                                               
| | Options outstanding at beginning of year                                                                      
| | Granted                                                                                                       
| | Exercised                                                                                                     
| | Forfeited/cancelled                                                                                           
| | Expired                                                                                                       
| |                                                                                                               
| | Options outstanding
 at September 30, 2009                                                                    
| |                                                                                                               
| | Options exercisable
 at September 30, 2009                                                                    
| |                                                                                                               

| | The following table summarizes the nonvested options during the nine months ended
 September 30, 2009.
| | ------------------------------------------------------------------------------------------------------
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| |                                                                                                       
| | Nonvested at January 1, 2009                                                                          
| | Granted                                                                                               
| | Vested                                                                                                
| | Forfeited
 / Cancelled                                                                                
| |                                                                                                       
| | Nonvested
 at September 30, 2009                                                                      
| |                                                                                                       

| | Restricted
 Stock and Performance-Based Restricted Stock Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To date,
 approximately 3.7 million shares of restricted stock have been awarded under the
 LTCP. The majority of these shares were awarded in 2005 and these 2005 awards have
 a vesting schedule of 15% per year for six years and 10% in the seventh year. Subsequent
 awards have vesting schedules of three years, four years, or cliff vest after three
 years. During the nine months ended September 30, 2009, in addition to restricted
 stock awards, the Company also granted performance-based restricted awards. The
 vesting for these newly issued performance-based awards is conditional upon fulfillment
 of a market condition and on meeting a service period. Of the 191,491 shares of
 restricted stock awarded during the nine months ended September 30, 2009, 65,149
 shares were performance-based.                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Performance-based
 restricted stock shares were awarded to executive management and other key members
 of senior management. The actual number of performance shares to be earned will
 be based on performance criteria over a three-year performance period beginning
 May 29, 2009 and ending May 31, 2012. Performance shares vest based on total shareholder
 return (TSR) (defined as share price appreciation from the beginning
 of the performance period to the end of the performance period, plus the total dividends
 paid on the common stock during the period) for the group of banks and thrifts listed
 on the SNL Thrift Index versus the Companys TSR (the TSR Percentage). The performance shares, if earned, will vest on May 31, 2012. A Monte Carlo
 simulation model was used to provide a grant date fair value for the performance-based
 shares. Expense for the performance-based awards is recognized over the service
 period similar to the recognition of the expense associated with the other restricted
 stock awards that only have a service condition.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Total restricted stock compensation
 expense for the three months ended September 30, 2009 and 2008 was approximately $1.6
 million and $1.7 million or after tax expense of approximately $1.2 million and $1.1
 million, respectively. For the nine months ended September 30, 2009 and 2008, compensation
 expense was $4.5 million and $5.3 million or after tax expense of approximately $3.4
 million and $3.5 million was recorded. The Company anticipates that it will record
 expense of approximately $6.1 million, $6.3 million, $4.5 million and $407,000 in calendar
 years 2009 through 2012, respectively. Under the terms of the LTCP, additional awards
 are likely to be granted, which will increase the amount of expense recognized in
 future periods.                                                                                                                                                                                                                                                                                                                     

25





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The following table summarizes the nonvested restricted stock and performance-based
 restricted stock awards during the nine months ended September 30, 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                              
| |                                                                                                                                                              
| |                                                                                                                                                              
| |                                                                                                                                                              
| |                                                                                                                                                              
| |                                                                                                                                                              
| | Nonvested at January 1, 2009                                                                                                                                 
| | Granted                                                                                                                                                      
| | Vested                                                                                                                                                       
| | Forfeited
 / Cancelled                                                                                                                                       
| |                                                                                                                                                              
| | Nonvested
 at September 30, 2009                                                                                                                             
| |                                                                                                                                                              

|13. | Income
 Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company
 had transactions in which the related tax effect was recorded directly to stockholders equity or goodwill instead of operations. Transactions in which the tax effect
 was recorded directly to stockholders equity included the tax effects of unrealized
 gains and losses on available for sale securities and excess tax benefits related
 to stock awards. Deferred taxes charged to goodwill were in connection with prior
 acquisitions. The Company had a net deferred tax asset of $15.7 million and $30.3
 million at September 30, 2009 and December 31, 2008, respectively. The decrease
 in the deferred tax asset was primarily due to changes in the unrealized gain on
 available for sale securities.                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | As of September
 30, 2009 and December 31, 2008, the Company has a valuation allowance of $9.3 million
 and $9.0 million, respectively, against charitable contribution carryforwards that
 are expected to expire in 2009 unused. The increase in the valuation allowance for
 the nine months ended September 30, 2009 was $300,000. Management estimates that
 a total $400,000 increase in the valuation allowance is needed in 2009. As the increase
 in the valuation allowance results from changes in judgment concerning current years estimated income, the $400,000 increase is treated as an adjustment to the
 annual effective tax rate. Therefore management expects that the valuation allowance
 will increase by $100,000 over the remainder of the year.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | As of September
 30, 2009 and December 31, 2008, the Company has a valuation allowance of $1.1 million
 and $815,000, respectively, against capital loss carryforwards. Management estimates
 that a total $287,000 increase in the valuation allowance is needed in 2009. The
 increase in the valuation allowance that resulted from a current year loss item
 was $223,000. The increase is treated as an adjustment to the annual effective tax
 rate and therefore will be recognized ratably over the remainder of the year. The
 remainder of the increase, $64,000, relates to a change in estimate related to the
 prior year and is treated discretely in the third quarter.                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The components
 of income tax expense are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                                 |  | Three Months Ended |        | Nine Months Ended
| | ----------------------------------------------- |  | ------------------ | ------ | -----------------
| |                                                 |  | September 30,      |        | September 30,    
| |                                                 |  |                    |        |                  
| | (In thousands)                                  |  | 2009               |        |                  
| |                                                
| | Current tax
 expense                            |  |                    |        |                  
| | Federal                                         |  | $                  | 9,877  |                  
| | State                                           |  |                    | 191    |                  
| |                                                
| | Total
 current                                  |  |                    | 10,068 |                  
| |                                                
| | Deferred tax
 expense, net of valuation reserve |  |                    |        |                  
| | Federal                                         |  |                    | (2,152 | )                
| | State                                           |  |                    | -      |                  
| |                                                
| | Total
 deferred                                 |  |                    | (2,152 | )                
| |                                                
| | Total
 income tax expense                       |  | $                  | 7,916  |                  
| |                                                

26





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The allocation
 of changes in net deferred tax assets 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)                                                        |  | 2009               |        |   | 2008             
| |                                                                      
| | Deferred tax
 asset allocated to:                                     |  |                    |        |   |                  
| | Stockholders equity, tax effect of net unrealized gain on investment |  |                    |        |   |                  
| | securities available for sale, net of valuation allowance             |  | $                  | 7,425  |   |                  
| | Stockholders equity, tax impact of new split dollar life             |  |                    |        |   |                  
| | insurance
 accounting pronouncement                                   |  |                    | -      |   |                  
| | Reclass
 as a result of adoption of new OTTI accounting pronouncement |  |                    | -      |   |                  
| | Goodwill                                                              |  |                    | -      |   |                  
| | Income                                                                |  |                    | (2,152 | ) |                  
| |                                                                      
| | Total
 change in deferred tax assets, net                             |  | $                  | 5,273  |   |                  
| |                                                                      

| | The Company accounts for uncertainty in income taxes in accordance with FASB ASC
 740-10. A reconciliation of the beginning and ending amount of unrecognized tax
 benefits is as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                           
| |                                                                                                                                                                                           
| | (In thousands)                                                                                                                                                                            
| |                                                                                                                                                                                           
| | Balance, beginning of period                                                                                                                                                              
| | Additions
 for tax positions of current year                                                                                                                                              
| | Additions
 for tax positions of prior year                                                                                                                                                
| | Reductions
 for tax positions of prior year                                                                                                                                               
| |                                                                                                                                                                                           
| | Balance, end
 of period                                                                                                                                                                   
| |                                                                                                                                                                                           

|    | Included
 in the balance at September 30, 2009 are $400,000 of tax positions for which the
 ultimate deductibility is highly uncertain and for which the disallowance of the
 tax position would affect the annual effective tax rate. The Company anticipates
 that $140,000 of the unrecognized tax benefits will reverse in the next twelve months
 due to statute expirations. The Company recognizes interest and penalties accrued
 related to unrecognized tax benefits as a component of income tax expense. As of
 September 30, 2009, the Company has accrued approximately $71,000 in interest and
 penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company
 is generally no longer subject to federal, state or local income tax examinations
 by tax authorities for the years before 2005. In the third quarter of 2008, the
 IRS commenced an examination of the 2006 and 2007 tax years for Westbank. In the
 second quarter of 2009, the IRS commenced an examination of the 2006 and 2007 tax
 years for the Company. As of September 30, 2009, the IRS has not proposed any significant
 adjustments to Westbanks or the Companys tax returns for these tax years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|14. | Commitments
 and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company
 is party to financial instruments with off-balance sheet risk in the normal course
 of business to meet the financing needs of its customers. These financial instruments
 consist primarily of commitments to extend credit and standby letters of credit.
 Commitments to extend credit are agreements to lend to customers as long as there
 is no violation of any terms or covenants established in the contract. Commitments
 generally have fixed expiration dates or other termination clauses that may require
 payment of a fee. The Company monitors customer compliance with commitment terms.
 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.

27





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

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

|    | Other Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | As of September
 30, 2009 and December 31, 2008, the Company was contractually committed under limited
 partnership agreements to make additional partnership investments of approximately $1.5
 million which constitutes the Companys maximum potential obligation to these
 partnerships. The Company is obligated to make additional investments in response
 to formal written requests, rather than a funding schedule. Funding requests are
 submitted when the partnerships plan to make additional investments.                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | We are
 not involved in any pending legal proceedings other than routine legal proceedings
 occurring in the ordinary course of business. We believe that those routine proceedings
 involve, in the aggregate, amounts which are immaterial to the financial condition
 and results of operations of NewAlliance Bancshares, Inc.                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|15. | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | At September
 30, 2009 and December 31, 2008, stockholders equity amounted to $1.43 billion
 and $1.38 billion, respectively, representing 16.7% and 16.6% of total assets, respectively.
 The Company paid cash dividends totaling $0.21 per share on common stock during the
 nine months ended September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company
 and the Bank are subject to dividend restrictions imposed by various regulators.
 Connecticut banking laws limit the amount of annual dividends that the Bank may
 pay to the Company to an amount that approximates the Banks net income retained
 for the current year plus net income retained for the two previous years. In addition,
 the Bank may not declare or pay dividends on, and the Company may not repurchase
 any of its shares of its common stock if the effect thereof would cause stockholders equity to be reduced below applicable regulatory capital maintenance requirements
 or if such declaration, payment or repurchase would otherwise violate regulatory
 requirements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Treasury
 Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Share Repurchase
 Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On January
 31, 2006, the Companys Board of Directors authorized a repurchase plan of
 up to an additional 10.0 million shares or approximately 10% of the then outstanding
 Company common stock. Under this plan the Company has repurchased 7.1 million shares
 of common stock at a weighted average price of $13.11 per share as of September 30,
 2009. During 2009, approximately 313,200 shares were repurchased. There is no set
 expiration date for this repurchase plan.                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Upon vesting
 of shares under the Companys benefit plans, plan participants may choose to
 have the Company withhold a number of shares necessary to satisfy tax withholding
 requirements. The withheld shares are classified as treasury shares by the Company.
 For the nine months ended September 30, 2009, approximately 106,500 shares were
 returned to the Company for this purpose.                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Regulatory
 Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Capital
 guidelines of the Federal Reserve Board and the Federal Deposit Insurance Corporation
 (FDIC) require the Company and its banking subsidiary to maintain certain
 minimum ratios, as set forth below. At September 30, 2009, 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.                                                                                                                                                                                                                                                                 

28





NewAlliance Bancshares, Inc.Notes to Unaudited Consolidated Financial Statements



---

| | The following table provides information on the capital ratios.
| | ---------------------------------------------------------------
| |                                                                
| |                                                                
| |                                                                
| |                                                                
| |                                                                
| |                                                                
| | (Dollars in
 thousands)                                        
| |                                                                
| | NewAlliance
 Bank                                              
| | September
 30, 2009                                            
| | Tier 1 Capital (to Average Assets)                             
| | Tier
 1 Capital (to Risk Weighted Assets)                      
| | Total
 Capital (to Risk Weighted Assets)                       
| | December
 31, 2008                                             
| | Tier
 1 Capital (to Average Assets)                            
| | Tier
 1 Capital (to Risk Weighted Assets)                      
| | Total
 Capital (to Risk Weighted Assets)                       
| | NewAlliance
 Bancshares, Inc.                                  
| | September
 30, 2009                                            
| | Tier
 1 Capital (to Average Assets)                            
| | Tier
 1 Capital (to Risk Weighted Assets)                      
| | Total
 Capital (to Risk Weighted Assets)                       
| | December
 31, 2008                                             
| | Tier
 1 Capital (to Average Assets)                            
| | Tier
 1 Capital (to Risk Weighted Assets)                      
| | Total
 Capital (to Risk Weighted Assets)                       
| |                                                                

|16. | Other Comprehensive
 Income                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                         
|    | The following
 table presents the components of other comprehensive income and the related tax
 effects for the three and nine months ended September 30, 2009 and 2008.

| |                                                                                |  | Three Months Ended |        |   | Nine Months Ended
| | ------------------------------------------------------------------------------ |  | ------------------ | ------ | - | -----------------
| |                                                                                |  | September 30,      |        |   | September 30,    
| |                                                                                |  |                    |        |   |                  
| | (In thousands)                                                                 |  | 2009               |        |   | 2008             
| |                                                                               
| | Net income                                                                     |  | $                  | 12,620 |   |                  
| | Other comprehensive
 income, before tax                                        |  |                    |        |   |                  
| | Unrealized
 gains on securities                                                |  |                    |        |   |                  
| | Unrealized
 holding gains (losses), arising during the period                  |  |                    | 23,233 |   |                  
| | Reclassification
 adjustment for (gains) losses, included in net income        |  |                    | (2,029 | ) |                  
| | Non-credit
 unrealized loss on other-than-temporarily impaired debt securities |  |                    | -      |   |                  
| |                                                                               
| | Other comprehensive
 income (loss), before tax                                 |  |                    | 21,204 |   |                  
| | Income tax
 (expense) benefit, net of valuation allowance                      |  |                    | (7,425 | ) |                  
| |                                                                               
| | Other comprehensive
 income (loss), net of tax                                 |  |                    | 13,779 |   |                  
| |                                                                               
| | Comprehensive
 income                                                          |  | $                  | 26,399 |   |                  
| |                                                                               

|17. | Earnings
 Per Share                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                              
|    | The calculation
 of basic and diluted earnings per share for the three and nine months ended September
 30, 2009 and 2008 is presented below.

| |                                                               |  | Three Months Ended |        |      | Nine Months Ended
| | ------------------------------------------------------------- |  | ------------------ | ------ | ---- | -----------------
| |                                                               |  | September 30,      |        |      | September 30,    
| |                                                               |  |                    |        |      |                  
| | (In thousands,
 except per share data)                        |  | 2009               |        | 2008 |                  
| |                                                              
| | Net income                                                    |  | $                  | 12,620 |      | $                
| | Average common
 shares outstanding for basic EPS              |  |                    | 99,507 |      |                  
| | Effect of
 dilutive stock options and unvested stock awards   |  |                    | 63     |      |                  
| |                                                              
| | Average common
 and common-equivalent shares for dilutive EPS |  |                    | 99,570 |      |                  
| | Net income
 per common share:                                 |  |                    |        |      |                  
| | Basic                                                         |  | $                  | 0.13   |      | $                
| | Diluted                                                       |  |                    | 0.13   |      |                  
| |                                                              

29





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 are based on
 certain assumptions and describe future plans, strategies, and expectations of management
 and are generally identified by use of the word plan, believe, expect, intend, anticipate, estimate, project, or similar expressions. Managements ability to
 predict results or the actual effects of its plans or strategies is inherently uncertain.
 Accordingly, actual results may differ materially from anticipated results.

Factors that could have a material adverse
 effect on the operations of NewAlliance Bancshares, Inc. (NewAlliance
 or the Company) and its subsidiaries include, but are not limited to:

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

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

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

The following Managements Discussion
 and Analysis of Financial Condition and Results of Operations (MD&A)
 is intended to help the reader understand NewAlliance Bancshares, Inc., our operations
 and our present business environment. We believe transparency and clarity are the
 primary goals of successful financial reporting. We remain committed to increasing
 the transparency of our financial reporting, providing our stockholders with informative
 financial disclosures and presenting an accurate view of our financial disclosures,
 financial position and operating results.

MD&A is provided as a supplement toand
 should be read in conjunction withour Consolidated Financial Statements
 (unaudited) and the accompanying notes thereto contained in Part I, Item 1, of this
 report as well as our Annual Report on Form 10-K for the year ended December 31,
 2008. The following sections are included in MD&A:

|  |                                                                                                                                                           | Our Business
  a general description of our business, our objectives and regulatory
 considerations.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                                                                          
|  | Critical
 Accounting Estimates  a discussion of accounting estimates that require
 critical judgments and estimates.                                    
|   |                                                                                                                                                          
|  | Recent
 Accounting Changes  a discussion of recently adopted accounting pronouncements
 or changes.                                                     
|   |                                                                                                                                                          
|  | Operating
 Results  an analysis of our Companys consolidated results of operations
 for the periods presented in our Consolidated Financial Statements.
|   |                                                                                                                                                          
|30




| |  | Financial
 Condition and Management of Market and Interest Rate Risk  an overview
 of financial condition and market and interest rate risk.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

Our Business

General

By assets, NewAlliance is the third largest
 banking institution headquartered in Connecticut and the fourth largest based in
 New England with consolidated assets of $8.54 billion and stockholders equity
 of $1.43 billion at September 30, 2009. Its business philosophy is to operate as
 a community bank with local decision-making authority. NewAlliance delivers financial
 services to individuals, families and businesses throughout Connecticut and Western
 Massachusetts through its 87 banking offices, 104 ATMs and internet website (www.newalliancebank.com).
 NewAlliance common stock is traded on the New York Stock Exchange under the symbol
 NAL.

The Companys results of operations
 depend primarily on net interest income, which is the difference between the income
 earned on its loan and securities portfolios and its cost of funds, consisting of
 the interest paid on deposits and borrowings. Results of operations are also affected
 by the Companys provision for loan losses, income and expenses pertaining
 to other real estate owned, gains and losses from sales of loans and securities
 and non-interest income and expenses. Non-interest income primarily consists of
 fee income from depositors and wealth management services and bank owned life insurance
 (BOLI). Non-interest expenses consist principally of compensation and
 employee benefits, occupancy, data processing, amortization of acquisition related
 intangible assets, marketing, professional services and other operating expenses.

Results of operations are also significantly
 affected by general economic and competitive conditions and changes in interest
 rates as well as government policies and actions of regulatory authorities. Future
 changes in applicable laws, regulations or government policies may materially affect
 the Company.

Our Objectives

NewAlliance seeks to continually deliver
 superior value to its customers, stockholders, employees and communities through
 achievement of its core operating objectives which are to:

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

Significant
 factors management reviews to evaluate achievement of the Companys operating
 objectives and its operating results and financial condition include, but are not
 limited to: net income and earnings per share, performance of acquisitions and integration
 activities, return on equity and assets, net interest margin, non-interest income,
 operating expenses related to total assets and efficiency ratio, asset quality,
 loan and deposit growth, capital management, liquidity and interest rate sensitivity
 levels, customer service standards, market share and peer comparisons.

Regulatory Considerations

NewAlliance
 and its subsidiaries are subject to numerous examinations by federal and state banking
 regulators, as well as the Securities and Exchange Commission. Please refer to NewAlliances Annual Report on Form 10-K for the year ended December 31, 2008 for additional
 disclosures with respect to laws and regulations affecting the Companys businesses.

31




Critical Accounting Estimates

Our Consolidated
 Financial Statements are prepared in accordance with accounting principles generally
 accepted in the United States of America. In connection with the preparation of
 our financial statements, we are required to make assumptions and estimates about
 future events, and apply judgments that affect the reported amounts of assets, liabilities,
 revenue, expenses and the related disclosures. We base our assumptions, estimates
 and judgments on historical experience, current trends and other factors that management
 believes to be relevant at the time our Consolidated Financial Statements are prepared.
 On a regular basis, management reviews the accounting policies, assumptions, estimates
 and judgments to ensure that our financial statements are presented fairly and in
 accordance with GAAP. However, because future events and their effects cannot be
 determined with certainty, actual results could differ from our assumptions and
 estimates, and such differences could be material.We believe that our most critical
 accounting policies, and those which involve the most complex subjective decisions
 or assessments relate to income taxes, pension and other postretirement benefits,
 goodwill and intangible assets, the allowance for loan losses and other-than-temporary
 impairment of investments. None of the Companys critical accounting estimates
 have changed during the quarter. A brief description of our current policies involving
 significant management judgment follows:

Income Taxes

Management
 uses the asset and liability method of accounting for income taxes in which 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. Significant management judgment is required in determining income tax
 expense and deferred tax assets and liabilities. Some judgments are subjective and
 involve estimates and assumptions about matters that are inherently uncertain. In
 determining the valuation allowance, we use forecasted future operating results,
 based upon approved business plans, including a review of the eligible carryforward
 periods, tax planning opportunities and other relevant considerations. Management
 believes that the accounting estimate related to the valuation allowance is a critical
 accounting estimate because the underlying assumptions can change from period to
 period. For example, tax law changes or variances in future projected operating
 performance could result in a change in the valuation allowance.The reserve for
 tax contingencies contains uncertainties because management is required to make
 assumptions and to apply judgment to estimate the exposures associated with our
 various tax positions. The effective income tax rate is also affected by changes
 in tax law, entry into new tax jurisdictions, the level of earnings and the results
 of tax audits.

Pension and Other Postretirement
 Benefits

Management
 uses key assumptions that include discount rates, expected return on plan assets,
 benefits earned, interest costs, mortality rates, increases in compensation, and
 other factors. The two most critical assumptionsestimated return on plan assets
 and the discount rateare important elements of plan expense and asset/liability
 measurements. These critical assumptions are evaluated at least annually on a plan
 basis. Other assumptions are evaluated periodically and are updated to reflect actual
 experience and expectations for the future.

Goodwill and Identifiable Intangible
 Assets

We evaluate
 goodwill and identifiable intangible assets for impairment annually or whenever
 events or changes in circumstances indicate the carrying value of the goodwill or
 identifiable intangible assets may be impaired. We complete our impairment evaluation
 by performing internal valuation analyses based on discounted cash flow modeling
 techniques, considering publicly available market information and using an independent
 valuation firm, as appropriate. These types of analyses contain uncertainties because
 they require management to make assumptions and to apply judgment to estimate industry
 economic factors and the profitability of future business strategies.

Allowance for Loan Losses

The allowance
 for loan losses reflects managements best estimate of probable losses inherent
 in the loan portfolio. The adequacy of the allowance is determined based upon a
 detailed evaluation of the portfolio and sub-portfolios through a process which
 considers numerous factors, including levels and direction of delinquencies, non-performing
 loans and assets, risk ratings, estimated credit losses using both internal and
 external portfolio reviews, current economic and market conditions, concentrations,
 portfolio volume and mix, changes in underwriting, experience of staff, historical
 loss rates over the business cycle and current economic trends. All of these factors
 may be susceptible to significant change.

32




Other-Than-Temporary Impairment
 of Investments

We conduct
 a periodic review of our investment securities portfolio to determine if the value
 of any security has declined below its cost or amortized cost, and whether such
 decline is other-than-temporary. For equity securities, if such decline is deemed
 other-than-temporary, the security is written down to a new cost basis and the resulting
 loss is reported within non-interest income in the consolidated statement of income.
 For debt securities, if such decline is deemed other-than-temporary, the investment
 is written down for the portion of the impairment related to the estimated credit
 loss within non-interest income and the non-credit related impairment is recognized
 in other comprehensive income unless required to sell or there is intent to sell,
 in which case the entire loss would be recorded within non-interest income. Factors
 considered by management include, but are not limited to: not having the intent
 or need to sell the investment for a period of time sufficient to allow for the
 anticipated recovery in market value, percentage and length of time which an issue
 is below book value, credit deterioration of the investment such as the financial
 condition and near-term prospects of the issuer including their ability to meet
 contractual obligations in a timely manner and whether the decline in fair value
 appears to be issuer specific or, alternatively, a reflection of general market
 or industry conditions. Adverse changes in managements assessment of the factors
 used to determine that a security was not other-than-temporarily impaired could
 lead to additional impairment charges.

A complete
 discussion of critical accounting estimates can be found in the Companys most
 recent Annual Report on Form 10-K (fiscal year ended December 31, 2008).

Recent Accounting Changes

We have adopted
 the following new accounting pronouncements and authoritative guidance during 2009.
 Except as indicated, the adoption of the following pronouncements did not have a
 material impact on the Companys consolidated financial statements.

In June 2009,
 the Financial Accounting Standards Board (FASB) issued Statement of
 Financial Accounting Standards (SFAS) No. 168,The FASB Accounting
 Standards CodificationTMand the Hierarchy of Generally Accepted Accounting
 Principles  a replacement of FASB Statement No. 162 (SFAS
 No. 168). The objective of SFAS No. 168 is to replace SFAS No. 162, The
 Hierarchy of Generally Accepted Accounting Principles and to establish
 the FASB Accounting Standards CodificationTM (Codification or FASB
 ASC) as the source of authoritative accounting principles recognized by the
 FASB to be applied by nongovernmental entities in the preparation of financial statements
 in conformity with U.S. generally accepted accounting principles (GAAP).
 The Codification supersedes all previous level (a) through (d) GAAP, aside from
 non-codified FASB statements and guidance issued by the Securities and Exchange
 Commission (SEC). The Codification did not change GAAP, but rather reorganized
 it into approximately 90 accounting topics within a consistent structure to simplify
 user access. Contents in each of these accounting topics are further organized by
 subtopic, section and paragraph. Changes to the Codification are in the form of
 Accounting Standards Updates issued by the FASB. An Accounting Standards Update
 is not authoritative; rather, it is a document that communicates the specific amendments
 that change the Codification and provides background information about the guidance,
 including the basis for conclusions on changes made to the Codification. The adoption
 of SFAS No. 168 and the Codification did not have a material impact on the Companys consolidated financial statements but changed the referencing system for
 accounting standards from the legacy GAAP citations to codification topic numbers.

In June 2009,
 the FASB issued FASB Accounting Standards Update (ASU) No. 2009-01,
Topic 105, Generally Accepted Accounting Principles. This ASU amends the
 Codification for the issuance of SFAS No. 168 in its entirety, including the accounting
 standards update instructions contained in Appendix B of the statement. SFAS No.
 168 is summarized above.

The following
 pronouncements provide citations to the applicable Codification, as appropriate.

FASB ASC 820-10,
Effective date of Fair Value Measurements and Disclosures. This guidance
 requires disclosure of nonfinancial assets and liabilities in accordance with FASB
 ASC 820, Fair Value Measurements and Disclosures.

FASB ASC 815-10,
Disclosures about Derivative Instruments and Hedging Activities. This guidance
 changes the disclosure requirements regarding derivative instruments and hedging
 activities in accordance with FASB ASC 815-10-65.

FASB ASC 350-30,
Determination of the Useful Life of Intangible Assets. This guidance amends
 the factors that should be considered in developing renewal or extension assumptions
 used to determine the useful life of a recognized intangible asset under FASB ASC
 350, Intangibles  Goodwill and Other.

FASB ASC 805, Business Combinations. This guidance became effective on January 1, 2009
 and applies prospectively to any future business combinations. It is expected to
 have a significant effect on the Companys consolidated financial statements,
 when a business combination occurs.

33




FASB ASC 820-10, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
 Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
 This guidance provides additional clarification for estimating fair value when the
 volume and level of activity for the asset or liability have significantly decreased
 and also includes guidance on identifying circumstances that indicate a transaction
 is not orderly for fair value measurements.

FASB ASC 320-10,
Recognition and Presentation of Other-Than-Temporary Impairments. This guidance
 makes the accounting for other-than-temporary impairments more operational and improves
 the presentation of other-than-temporary impairments in the financial statements.
 The adoption of this pronouncement resulted in a $1.0 million, net of tax, cumulative
 effect adjustment increasing retained earnings and decreasing accumulated other
 comprehensive income.

FASB ASC 825-10,
Interim Disclosures about Fair Value of Financial Instruments. This guidance
 requires disclosures about the fair value of financial instruments not measured
 on the balance sheet at fair value in interim financial statements as well as in
 annual financial statements.

FASB ASC 855-10,
Subsequent Events. This guidance establishes general standards of accounting
 for and the disclosure of events that occur after the balance sheet date but before
 the financial statements are issued or are available to be issued.

Operating Results

Executive Overview

The current
 economic crisis, which began in the latter half of 2007 and is expected to continue
 throughout 2009, has been one of the most difficult financial and economic episodes
 in modern history. During the past 18 to 24 months, there have been many government
 initiatives instituted to help stem the crisis and get the economy turned around
 including the Emergency Economic Stabilization Act (EESA), the Financial
 Stability Plan and the American Recovery and Reinvestment Act. While these initiatives
 have objectives related to restoring confidence in the banking system and overall
 market place and stimulating the economy, to date they have had mixed results. Although
 the economy has been stabilized from its free fall, it is still operating in a recessionary
 environment as stress on consumers remains high due to elevated and rising unemployment
 rates, rising mortgage delinquencies and home foreclosures and credit remaining
 tight. In the second quarter, the Federal Deposit Insurance Company (FDIC) imposed an emergency special assessment on all FDIC insured banks that would
 assist the FDIC in their efforts to increase the Deposit Insurance Fund. As a result
 of this special assessment, the Company recorded approximately $4.0 million in additional
 deposit insurance expense for the three months ended June 30, 2009. Total FDIC assessment expense for the nine months ended September 30, 2009, including the
 special assessment, was $8.7 million. The FDIC has
 further proposed to require insured banks to prepay their quarterly assessments
 through December 31, 2012 on December 30, 2009 based on its current liquidity needs
 projections. Also, a proposal was released by the Obama Administration which includes
 sweeping financial regulatory reforms designed to ensure stability in the financial
 markets which will likely impact our regulatory burden if passed into law. Consequently,
 the operating environment remains very challenging.

The Company
 reported earnings of $12.6 million, or $0.13 per diluted share, for the third quarter
 of 2009 compared to $10.9 million or $0.11 per diluted share for the third quarter
 of 2008. For the nine months ended September 30, 2009 and 2008 reported earnings
 were $34.3 million, or $0.35 per diluted share, and $35.7 million, or $0.36 per
 diluted share, respectively. The quarter and year-to-date results were both positively
 impacted by the improvement in net interest income and non-interest income offset
 by higher loan loss provisions, FDIC insurance expense and income taxes.

In the third
 quarter, we experienced further growth in core deposits bolstered by continued customer
 confidence and new product offerings. Core deposits increased $87.1 million since
 June 30, 2009 and $760.7 million since December 31, 2008. The shift away from higher
 cost time deposits and the increase in core deposits has had the effect of both
 significantly lowering our cost of funds and providing ample liquidity to fund loan
 originations and to reduce our borrowings.

We expect
 deposit competition in our market area to remain high as a key focus for the banking
 industry continues to be the generation of deposits to enhance liquidity and asset
 growth in what continues to be a tight credit market for lower credit rated institutions.
 This has manifested itself in deposit pricing still running slightly high relative
 to reference indexes such as the LIBOR or Treasury curves than we experienced in
 more stable periods. We plan to continue our pricing strategy to retain maturing
 time deposit balances, within reason, and to grow core deposits.

Residential
 mortgage loan originations have also remained very strong thus far in 2009. The
 decrease in conforming mortgage interest rates caused by government purchases of
 mortgage securities, a reduced number of competitors who have the ability and liquidity
 to retain or sell mortgage loans and enhanced sales efforts by the Bank were catalysts
 for the surge of mortgage originations we experienced through September 30, 2009.
 In the third quarter, mortgage rates increased slightly causing a dip in originations,
 however, they were still strong. With ample liquidity, capital and access to the
 secondary mortgage market, we

34




were able
 to increase our market share and post mortgage originations of approximately $807.0
 million in the first three quarters of 2009. Of these originations, approximately
 $403.0 million were fixed rate mortgages with terms of 15 years or more and were
 originated for sale. Total mortgage origination activity and loan sale income was
 $1.3 million and $428,000 for the three months ended September 30, 2009 and 2008,
 respectively and for the 2009 and 2008 year-to-date periods, income was $4.8 million
 and $1.3 million, respectively. The current year income of $4.8 million includes
 approximately $300,000 in unrealized fair value gains related to loan commitments
 and mortgage loans held for sale. We anticipate originations will trend downward
 throughout the year, but still be running higher than prior year activity.

Net interest
 income has increased from 2008, both on a quarter and year-to-date basis, primarily
 due to significant reductions in our cost of funds. For the three months ended September
 30, 2009, interest expense decreased $10.5 million, or 20.5%, from the comparative
 quarter and the average rate paid on interest-bearing liabilities decreased 76 basis
 points. The nine month period experienced similar year-over-year declines in interest
 expense and the average rate paid on interest-bearing liabilities of 16.9% and 68
 basis points, respectively. We expect the cost of our interest-bearing liabilities
 to continue to decline throughout the year.

For the three
 and nine months ended September 30, 2009, the net interest margin expanded to 2.71%
 and 2.63%, respectively, from 2.63% and 2.62% for the three and nine months ended
 September 30, 2008, respectively. The reduction in the cost of funds outpaced the
 decline in the average yield on interest-earning assets resulting in positive growth
 in the margin.

Asset quality
 and prudent lending practices are major strengths of our institution, however like
 many financial institutions, we have experienced higher levels of delinquencies,
 net charge-offs and nonperforming loans compared to historical levels. In the third
 quarter, however, delinquencies and nonperforming loans stabilized slightly and
 were down from the second quarter. In response to risks inherent in its loan portfolio,
 the Company recorded a loan loss provision of $5.4 million for the quarter ended
 September 30, 2009 and $14.5 million for the nine months ended September 30, 2009.

Throughout
 the economic downturn, the Companys asset quality has remained solid and a
 cornerstone of our success. For the three months ended September 30, 2009, net charge-offs
 were $5.2 million, or on an annualized basis, 0.43% of average loans compared to
 net charge-offs of $2.8 million recorded during the third quarter of 2008. For the
 nine months ended September 30, 2009 and 2008, net charge-offs were $12.7 million
 and $4.2 million, respectively. Nonperforming loans at September 30, 2009 increased
 28.1% to $49.1 million since December 31, 2008 and as a percentage of total loans
 are 1.02% compared to 0.77% at year end. While the increase in nonperforming loans
 is higher than prior periods, the low absolute level of nonperforming loans the
 Company has previously recorded causes even modest increases in nonperforming loans
 to result in a large percentage change. The bulk of the increase in nonperforming
 loans is attributable to residential real estate resulting from economic and financial
 pressures. We continue to be proactive in our efforts to address credit quality
 and expect that, combined with our stringent underwriting standards, it will remain
 manageable in future periods.

The Company
 remains well capitalized by regulatory standards with a Tier 1 leverage
 ratio of 10.97%, compared to the regulatory well capitalized benchmark
 of 5.0%. Our capital level has remained strong throughout this economic crisis without
 Federal assistance. Therefore, the Company did not apply for funds from the Troubled
 Asset Relief Program (TARP). One of our challenges is to continuously
 search for the best use for our capital that will grow the franchise and enhance
 shareholder value. The Company has completed six acquisitions since 2004, the most
 recent being in the first quarter of 2007. While the volatility over the past 18
 - 24 months has not been conducive to widespread acquisition activity, we feel that
 there are opportunities in the current environment on which we may be able to capitalize
 as a result of our flexibility and capital strength. Key tactics include leveraging
 consumers flight to safety to capture market share, de-novo branching,
 acquiring banks that provide earnings accretion, including FDIC assisted acquisitions
 of troubled banks and seizing opportunities to purchase regional bank branch divestitures.

Through prudent
 risk management practices, sound credit polices, no direct exposure to subprime
 mortgage lending and sufficient capital and liquidity, we are confident that we
 are positioned well in these difficult economic times. Therefore, in looking forward
 our key business priorities for 2009 remain: a) strengthening the margin; b) building
 core fee income; c) maintaining flat expenses; d) aggressively managing credit quality
 and e) seizing opportunities to grow the franchise. As demonstrated by our results
 outlined above, these priorities are not new to us but rather a continuation of
 our Community Bank philosophy.

35




|Selected financial data, ratios and per share data are provided in Table 1.
|---------------------------------------------------------------------------
|                                                                           
|Table 1:
 Selected Data                                                    
|                                                                           
|                                                                           
|                                                                           
|(Dollars in
 thousands, except share data)                                 
|                                                                           
|Condensed Income Statement                                                 
|Interest and
 dividend income                                              
|Interest expense                                                           
|                                                                           
|Net interest
 income before provision for loan losses                      
|Provision
 for loan losses                                                 
|                                                                           
|Net interest
 income after provision for loan losses                       
|Non-interest
 income                                                       
|Operating
 expenses                                                        
|Merger related
 charges                                                    
|                                                                           
|Income before
 income taxes                                                
|Income tax
 provision                                                      
|                                                                           
|Net income                                                                 
|                                                                           
|Weighted average
 shares outstanding                                       
|Basic                                                                      
|Diluted                                                                    
|Earnings per
 share                                                        
|Basic                                                                      
|Diluted                                                                    
|                                                                           
|                                                                           
|Financial Ratios                                                           
|Return on
 average assets (1)                                              
|Return on
 average equity (1)                                              
|Net interest
 margin (1)                                                   
|Dividend payout
 ratio                                                     
|Average equity
 to average assets ratio                                    
|                                                                           
|Non-GAAP Ratios                                                            
|Efficiency
 ratio (2)                                                      
|Tangible common
 equity ratio (3)                                          
|                                                                           
|Per share data                                                             
|Book value
 per share                                                      
|Tangible book
 value per share                                             
|                                                                           

|(1) |  | Annualized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The efficiency
 ratio represents the ratio of non-interest expenses, net of OREO expenses, to the
 sum of net interest income and non-interest income, excluding security and limited
 partnership net gains or losses. The efficiency ratio is not a financial measurement
 required by accounting principles generally accepted in the United States of America.
 However, management believes such information is useful to investors in evaluating
 Company performance.
|(3) |  | The tangible
 common equity ratio excludes goodwill and identifiable intangible assets. This 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.                                                                                                                                          

Average Balances, Interest,
 Average Yields/Cost and Rate/Volume AnalysisTables 2 & 3 below set forth certain
 information concerning average interest-earning assets and interest-bearing liabilities
 and their associated yields or rates for the periods indicated. The average yields
 and costs are derived by dividing annualized income or expenses by the average balances
 of interest-earning assets or interest-bearing liabilities, respectively, for the
 periods shown and reflect annualized yields and costs. Average balances are computed
 using daily balances. Yields and amounts earned include loan fees and fair value
 adjustments related to acquired loans, deposits and borrowings. Loans held for sale
 and nonaccrual loans have been included in interest-earning assets for purposes
 of these computations.

Table 4 below presents the extent to which
 changes in interest rates and changes in volume of interest-earning assets and interest-bearing
 liabilities have affected the Companys interest income and interest expense
 during the periods indicated. Information is provided in each category with respect
 to: (i) change attributable to change in volume (change in volume multiplied by
 prior rate), (ii) change attributable to change in rate (change in rate multiplied
 by prior volume); and (iii) the change attributable to rate and volume (change in
 rate multiplied by change in volume), which is prorated between the changes in rate
 and volume.

36




|Table 2: Average Balance Sheets for the Three Months Ended September 30, 2009
 and 2008
|---------------------------------------------------------------------------------------
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|(Dollars in
 thousands)                                                                
|                                                                                       
|Interest-earning
 assets                                                               
|Loans                                                                                  
|Residential
 real estate                                                               
|Commercial
 real estate                                                                
|Commercial
 business                                                                   
|Consumer                                                                               
|                                                                                       
|Total
 loans                                                                           
|Fed
 funds sold and other short-term investments                                       
|Federal
 Home Loan Bank of Boston stock                                                
|Securities                                                                             
|                                                                                       
|Total
 securities, short-term investments                                              
|and
 federal home loan bank stock                                                      
|                                                                                       
|Total
 interest-earning assets                                                         
|Non-interest
 earning assets                                                           
|                                                                                       
|Total
 assets                                                                          
|                                                                                       
|                                                                                       
|                                                                                       
|Interest-bearing
 liabilities                                                          
|Deposits                                                                               
|Money
 Markets                                                                         
|NOW                                                                                    
|Savings                                                                                
|Time                                                                                   
|                                                                                       
|Total
 interest-bearing deposits                                                       
|Repurchase
 agreements                                                                 
|FHLB
 advances and other borrowings                                                    
|                                                                                       
|Total
 interest-bearing liabilities                                                    
|Non-interest-bearing
 demand deposits                                                  
|Other
 non-interest-bearing liabilities                                                
|                                                                                       
|Total
 liabilities                                                                     
|Equity                                                                                 
|                                                                                       
|Total
 liabilities and equity                                                          
|                                                                                       
|Net
 interest-earning assets                                                           
|                                                                                       
|Net
 interest income                                                                   
|                                                                                       
|Interest
 rate spread                                                                  
|Net
 interest margin (net interest income                                              
|as
 a percentage of total interest-earning assets                                      
|Ratio
 of total interest-earning assets                                                
|to
 total interest-bearing liabilitites                                                
|                                                                                       
|                                                                                       
|                                                                                       
|37                                                                                     




|Table 3: Average Balance Sheets for the Nine Months Ended September 30, 2009 and
 2008
|--------------------------------------------------------------------------------------
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|(Dollars in
 thousands)                                                               
|                                                                                      
|Interest-earning
 assets                                                              
|Loans                                                                                 
|Residential
 real estate                                                              
|Commercial
 real estate                                                               
|Commercial
 business                                                                  
|Consumer                                                                              
|                                                                                      
|Total
 loans                                                                          
|Fed
 funds sold and other short-term investments                                      
|Federal
 Home Loan Bank of Boston stock                                               
|Investment
 securities                                                                
|                                                                                      
|Total
 securities, short-term investments                                             
|and
 federal home loan bank stock                                                     
|                                                                                      
|Total
 interest-earning assets                                                        
|Non-interest
 earning assets                                                          
|                                                                                      
|Total
 assets                                                                         
|                                                                                      
|                                                                                      
|                                                                                      
|Interest-bearing
 liabilities                                                         
|Deposits                                                                              
|Money
 Markets                                                                        
|NOW                                                                                   
|Savings                                                                               
|Time                                                                                  
|                                                                                      
|Total
 interest-bearing deposits                                                      
|Repurchase
 agreements                                                                
|FHLB
 advances and other borrowings                                                   
|                                                                                      
|Total
 interest-bearing liabilities                                                   
|Non-interest-bearing
 demand deposits                                                 
|Other
 non-interest-bearing liabilities                                               
|                                                                                      
|Total
 liabilities                                                                    
|Equity                                                                                
|                                                                                      
|Total
 liabilities and equity                                                         
|                                                                                      
|Net
 interest-earning assets                                                          
|                                                                                      
|Net
 interest income                                                                  
|                                                                                      
|Interest
 rate spread                                                                 
|Net
 interest margin (net interest income                                             
|as
 a percentage of total interest-earning assets                                     
|Ratio
 of total interest-earning assets                                               
|to
 total interest-bearing liabilitites                                               
|                                                                                      
|                                                                                      
|                                                                                      
|38                                                                                    




|Table 4:
 Rate/Volume Analysis                   |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------ |  |  | ------------------- | ------- | ------------------ |  | --- | ------ | ------------------- |  | ------ | ------- | --- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                 |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|                                                 |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|                                                 |  |  | Three Months Ended  |         | Nine Months Ended 
|                                                 |  |  | September 30, 2009  |         | September 30, 2009
|                                                 |  |  | Compared to         |         | Compared to       
|                                                 |  |  | Three Months Ended  |         | Nine Months Ended 
|                                                 |  |  | September 30, 2008  |         | September 30, 2008
|                                                 |  |  |                     |         |                   
|                                                 |  |  | Increase (Decrease) |         |                    |  |     |        | Increase (Decrease) |  |        |         |    
|                                                 |  |  | Due to              |         |                    |  |     |        | Due to              |  |        |         |    
|                                                 |  |  |                     |         |                    |  |     |        |                     |  |        |         |    
|(In thousands)                                   |  |  | Rate                |         | Volume             |  | Net |        | Rate                |  | Volume |         | Net
|                                                
|Interest-earning
 assets                         |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|Loans                                            |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|Residential
 real estate                         |  |  | $                   | (1,879  | )                  |  | $   | (1,340 | )                   |  | $      | (3,219  | )   |  | $ | (4,142  | ) |  | $ | 1,508  |   |  | $ | (2,634  | )
|Commercial
 real estate                          |  |  |                     | (764    | )                  |  |     | 282    |                     |  |        | (482    | )   |  |   | (3,311  | ) |  |   | 716    |   |  |   | (2,595  | )
|Commercial
 business                             |  |  |                     | (1,125  | )                  |  |     | (477   | )                   |  |        | (1,602  | )   |  |   | (3,692  | ) |  |   | (855   | ) |  |   | (4,547  | )
|Consumer                                         |  |  |                     | (1,445  | )                  |  |     | 244    |                     |  |        | (1,201  | )   |  |   | (5,230  | ) |  |   | 1,500  |   |  |   | (3,730  | )
|                                                 |  | 
|Total
 loans                                     |  |  |                     | (5,213  | )                  |  |     | (1,291 | )                   |  |        | (6,504  | )   |  |   | (16,375 | ) |  |   | 2,869  |   |  |   | (13,506 | )
|Fed
 funds sold and other short-term investments |  |  |                     | (480    | )                  |  |     | 49     |                     |  |        | (431    | )   |  |   | (1,170  | ) |  |   | 543    |   |  |   | (627    | )
|Federal
 Home Loan Bank of Boston stock          |  |  |                     | (911    | )                  |  |     | -      |                     |  |        | (911    | )   |  |   | (3,842  | ) |  |   | 76     |   |  |   | (3,766  | )
|Securities                                       |  |  |                     | (3,639  | )                  |  |     | 4,711  |                     |  |        | 1,072   |     |  |   | (9,653  | ) |  |   | 8,220  |   |  |   | (1,433  | )
|                                                 |  | 
|Total
 securities, short-term investments        |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|and
 federal home loan bank stock                |  |  |                     | (5,030  | )                  |  |     | 4,760  |                     |  |        | (270    | )   |  |   | (14,665 | ) |  |   | 8,839  |   |  |   | (5,826  | )
|                                                 |  | 
|Total
 interest-earning assets                   |  |  | $                   | (10,243 | )                  |  | $   | 3,469  |                     |  | $      | (6,774  | )   |  | $ | (31,040 | ) |  | $ | 11,708 |   |  | $ | (19,332 | )
|                                                 |  | 
|Interest-bearing
 liabilities                    |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|Deposits                                         |  |  |                     |         |                    |  |     |        |                     |  |        |         |     |  |   |         |   |  |   |        |   |  |   |         |  
|Money
 market                                    |  |  | $                   | (488    | )                  |  | $   | 994    |                     |  | $      | 506     |     |  | $ | (2,003  | ) |  | $ | 1,061  |   |  | $ | (942    | )
|NOW                                              |  |  |                     | (14     | )                  |  |     | 6      |                     |  |        | (8      | )   |  |   | (264    | ) |  |   | (42    | ) |  |   | (306    | )
|Savings                                          |  |  |                     | (4,432  | )                  |  |     | 2,391  |                     |  |        | (2,041  | )   |  |   | (9,286  | ) |  |   | 7,465  |   |  |   | (1,821  | )
|Time                                             |  |  |                     | (2,173  | )                  |  |     | (1,964 | )                   |  |        | (4,137  | )   |  |   | (8,732  | ) |  |   | (4,564 | ) |  |   | (13,296 | )
|                                                 |  | 
|Total
 interest bearing deposits                 |  |  |                     | (7,107  | )                  |  |     | 1,427  |                     |  |        | (5,680  | )   |  |   | (20,285 | ) |  |   | 3,920  |   |  |   | (16,365 | )
|Repurchase
 agreements                           |  |  |                     | (422    | )                  |  |     | (248   | )                   |  |        | (670    | )   |  |   | (1,227  | ) |  |   | (584   | ) |  |   | (1,811  | )
|FHLB
 advances and other borrowings              |  |  |                     | (1,354  | )                  |  |     | (2,773 | )                   |  |        | (4,127  | )   |  |   | (4,581  | ) |  |   | (3,944 | ) |  |   | (8,525  | )
|                                                 |  | 
|Total
 interest-bearing liabilities              |  |  | $                   | (8,883  | )                  |  | $   | (1,594 | )                   |  | $      | (10,477 | )   |  | $ | (26,093 | ) |  | $ | (608   | ) |  | $ | (26,701 | )
|                                                 |  | 
|Increase in
 net interest income                 |  |  | $                   | (1,360  | )                  |  | $   | 5,063  |                     |  | $      | 3,703   |     |  | $ | (4,947  | ) |  | $ | 12,316 |   |  | $ | 7,369   |  
|                                                

Net Interest Income Analysis

Net interest
 income is the amount that interest and fees on earning assets (loans and investments)
 exceeds the cost of funds, primarily interest paid to the Companys depositors
 and interest on external borrowings. Net interest margin is the difference between
 the income on earning assets and the cost of interest-bearing funds as a percentage
 of average earning assets.

As shown in
 Table 2, net interest income for the quarter ended September 30, 2009 was $51.8
 million, an increase of $3.7 million from September 30, 2008. The increase was due
 to a 76 basis point reduction on the average rate paid on interest-bearing liabilities.
 The product mix shift from maturing higher cost time deposits and borrowings to
 lower cost core deposits resulted in a favorable funding mix. The earning assets
 that repriced or originated at reduced rates from a year ago, were counterbalanced
 by the reduction in our funding costs which resulted in an increase in the net interest
 margin of 8 basis points to 2.71% compared to 2.63% for the three months ended September
 30, 2008.

Net interest
 income for the nine months ended September 30, 2009 was $149.7 million, as shown
 in Table 3, an increase of $7.4 million, compared to the same period in 2008. These
 increases were due to: a) average balances of interest-earning assets outpacing
 the growth in interest-bearing liabilities by approximately $89.9 million; b) the
 repricing or maturing of interest-bearing liabilities outpacing interest-earning
 assets, thereby allowing us to reduce our cost of funds at a faster pace and c)
 the shift in the mix of interest-bearing liabilities from higher cost time deposits
 and borrowings to core deposits which reduced the cost of funds by 68 basis points.
 As discussed more fully below, given the loss of the Federal Home Loan Bank of Boston
 (FHLB) dividend and the reduction in the yields of interest-earning
 assets, the net interest margin increased one basis point to 2.63% for the current
 year-to-date period ended September 30, 2009 as compared to 2008.

As a voluntary
 member of the FHLB, the Company is required to invest in stock of the FHLB in an
 amount based partly upon its outstanding advances from the FHLB. Stock is purchased
 at par value. Upon redemption of the stock, which is at the discretion of the FHLB,
 the Company would receive an amount equal to the par value of the stock. At its
 discretion, the FHLB may also declare dividends on its stock. No dividends have
 been received for the three and nine month periods ended September 30, 2009 compared
 to dividends of $911,000 and $3.8 million for the three and nine months ended September
 30, 2008.

39




On February
 26, 2009, the FHLB advised its members that, while it currently meets all its regulatory
 capital requirements, it is focusing on preserving capital in response to ongoing
 market volatility, and accordingly, has suspended its quarterly dividend and extended
 the moratorium on excess stock purchases, primarily due to other-than-temporary
 impairment charges on its private-label mortgage-backed securities investments.
 The FHLB has stated that it expects and intends to hold its private-label mortgage-backed
 securities to maturity. In a letter to member banks on August 12, 2009, the FHLB
 announced the filing of its quarterly report to the SEC and disclosed that they
 were able to recapture approximately $350.0 million of capital upon the adoption
 of the new OTTI guidance in the second quarter, however, certain investments in
 their portfolio remain vulnerable to the potential volatility in the housing and
 capital markets, which could result in additional losses. They also stated that,
 to protect their capital base and to build retained earnings, their moratorium on
 excess stock repurchases and the quarterly dividend payout suspension remains in
 place at this time. Therefore, dividends from the FHLB for the remainder of 2009
 are unlikely.

Comparison
 of Quarter-to-Date September 2009 and September 2008Interest and
 dividend income decreased $6.7 million to $92.3 million at September 30, 2009 compared
 to $99.0 million at September 30, 2008 comprising of a decrease of $10.2 million
 due to rate, offset by a $3.5 million increase due to volume. The decline in rate
 was primarily due to a) newly originated loans and adjustable or variable rate loans
 that were reset at reduced rates due to the rate cuts imposed by the Federal Reserve
 Bank (FRB) throughout 2008, b) the absence of a quarterly dividend from
 the FHLB and c) a decline in the average yield in the investment securities portfolio
 due to a decline in market interest rates resulting from the current economic conditions.
 Loan yields have also been negatively impacted to a lesser extent by the increase
 in nonperforming loans. Investment growth helped to mitigate the effect of the rate
 decline on interest income as the average balance increase of $403.8 million accounted
 for approximately $4.8 million of the increase to interest income. Due to the growth
 in core deposits the Company has expanded the securities portfolio primarily with
 purchases of adjustable rate mortgage-backed securities. The average balance of
 the loan portfolio fell $96.5 million for the period. Given the economic and market
 conditions that have beset the industry over the last year, there have been fewer
 commercial originations that meet our underwriting criteria and although residential
 mortgage originations have been relatively strong, approximately half were originated
 at fixed rates and sold in the secondary market.

The cost of
 funds for the quarter ended September 30, 2009 decreased $10.5 million, or 20.5%
 to $40.5 million, compared to $51.0 million for the same period a year ago. The
 Companys continued strategy during this period was to bring down deposit costs
 and focus on the growth of core interest and non-interest-bearing deposits. The
 result has been a decrease of $5.7 million in deposit interest expense due to changes
 in the mix of deposits with net average balance growth of $557.7 million and a decrease
 of 82 basis points on the average rate paid. This decrease in deposit interest expense
 was primarily in time deposits, which decreased $4.1 million due to the declines
 in the average balances and average rate paid of $256.4 million and 54 basis points,
 respectively. Through targeted marketing campaigns and migration from maturing time
 deposits as they repriced at reduced rates, the Company has been able to grow core
 deposit average balances by a total of $814.1 million. The main driver of core deposit
 growth has been savings accounts with an average balance increase of $529.9 million
 and, additionally, when combined with the decline in the average rate paid of 109
 basis points, interest expense actually decreased by $2.0 million.

A further
 benefit of the core deposit growth has been a substantial reduction in and reliance
 on borrowings from the FHLB. FHLB advances and other borrowing costs decreased $4.1
 million due to the decline in the average balance and the average rate paid on FHLB
 advances of $255.1 million and 26 basis points, respectively. The Company was able
 to replace maturing advances with new advances at substantially lower rates or to
 payoff maturing advances.

Comparison
 of Year-to-Date September 2009 and September 2008Interest and
 dividend income decreased $19.3 million to $281.1 million for the nine months ended
 September 30, 2009 compared to $300.4 million at September 30, 2008 and comprised
 of a decrease of $31.0 million due to rate, partially offset by a $11.7 million
 increase due to volume. The decline in rate was primarily due to the decline in
 loan and investment yields due to lower market interest rates and the loss of three
 quarterly dividends from the FHLB. Loan and investment growth helped to relieve
 some of the interest rate pressure as the Company, with ready liquidity, increased
 the average balance of earning assets by $344.0 million.

The cost of
 funds for the nine months ended September 30, 2009 decreased $26.7 million to $131.4
 million, compared to $158.1 million for the same period a year ago primarily resulting
 from the Companys diligence in bringing deposit costs down while continuing
 to increase core deposits. As shown in table 4, deposit costs were reduced by $20.3
 million due to a decrease in the average rate paid of 79 basis points, partially
 offset by an increase of $3.9 million due to the increase in the average balances
 of $414.2 million. This $16.4 million net decrease in deposit interest costs has
 been achieved concurrently with growth in all core deposits of $621.3 million. Supported
 by the growth in deposits, the Company has been able to pay down higher cost borrowings
 as they mature or replace them with new advances at substantially lower rates and
 reduce its overall reliance on borrowings.

40




Provision for Loan LossesThe provision for loan losses (provision) is based on managements periodic assessment of the adequacy of the
 allowance for loan losses (allowance) which, in turn, is based on such
 interrelated factors as the composition of the loan portfolio and its inherent risk
 characteristics, the level of nonperforming loans and charge-offs, both current
 and historic, local economic conditions, the direction of real estate values, and
 regulatory guidelines.

Management performs a monthly review of
 the loan portfolio, and based on this review determines the level of the provision
 necessary to maintain an adequate allowance for loan losses. Management recorded
 a provision for loan losses of $5.4 million for the three months ended September
 30, 2009. The primary factors that influenced managements decision to record
 this provision were continuing trends in delinquencies, net charge-offs of $5.2
 million for the quarter and to support estimated credit losses embedded in the portfolio.
 A provision for loan losses of $4.2 million was recorded for the three months ended
 September 30, 2008, based on growth in the portfolio, the level of net charge-offs,
 and nonperforming loans at that time.

For the nine months ended September 30,
 2009, the provision for loan losses was $14.5 million as compared to $9.6 million
 for the same period a year ago. The year-to-date provision relates to net charge-offs
 of $12.7 million and increases in nonperforming loans of $10.8 million, primarily
 in the residential and commercial business portfolios due to the current economic
 conditions. Partially offsetting the year-to-date increase in the nonperforming
 loans was a decrease in nonperforming construction loans to commercial developers
 of residential condominiums which have declined due to negotiated sales, borrower
 paydowns and charge-offs. Future provisions for loan losses may be deemed necessary
 if economic conditions do not improve or continue to deteriorate. Further details
 about nonperforming loans can be found in the Asset Quality and Allowance
 for Loan Losses sections beginning on page 48.

At September 30, 2009, the allowance for
 loan losses was $51.7 million, which represented 1.08% of total loans and 105.36%
 of nonperforming loans. This compared to the allowance for loan losses of $49.9
 million at December 31, 2008 which represented 1.01% of total loans and 130.21%
 of nonperforming loans.

|Table 5: Non-Interest Income                      
|--------------------------------------------------
|                                                  
|                                                  
|                                                  
|(Dollars in
 thousands)                           
|                                                  
|Depositor
 service charges                        
|Loan and servicing
 income, net                   
|Trust fees                                        
|Investment
 management, brokerage & insurance fees
|Bank owned
 life insurance                        
|Net gain on
 securities                           
|Mortgage origination
 activity & loan sale income 
|Other                                             
|                                                  
|Total
 non-interest income                        
|                                                  

Non-Interest Income

Comparison of Quarter-to-Date September 2009 and September 2008As displayed in Table 5, non-interest income
 increased $3.0 million to $16.4 million for the three months ended September 30,
 2009 from the prior year period. The main drivers of the increase were depositor
 service charges, net gain on securities, mortgage origination activity and loan
 sale income and other income. These increases were partially offset by a decrease
 in BOLI income.

|   |  |  | Depositor
 service charges increased due to overdraft fee income and checking account service
 charges. Growth in this type of fee related income has resulted from profit improvement
 initiatives to expand core banking fee income and are also due in part to the growth
 in core deposits.                                                                                                                                                                                                                      
|-- | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  |  | Net gain on
 securities increased due to the prior year impairment charges related to an investment
 in a trust preferred equity security in a regional bank and two preferred equity
 securities issued by Freddie Mac and Lehman Brothers. Net gains recorded in the
 current year period primarily relate to gains on the sale of mortgage-backed securities.
 These securities were sold at a premium and were sold in order to reduce prepayment
 risk.                                                         
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  |  | Mortgage origination
 activity and loan sale income increased $840,000 due to a greater number of mortgage
 loans originated for sale and sold in the secondary market during the quarter and
 the effect of originations that were in the pipeline at September 30, 2009 under
 commitments to be sold. The increased origination activity has been driven by the
 low interest rate environment and the continued dislocation in the credit markets
 which has reduced the number of competitors in the short term.
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|41




| |  |  | Other income
 increased due to a larger net gain on investments in limited partnerships recorded
 during the current year quarter as compared to the net gain recorded in the prior
 year period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                  
| |  |  | BOLI income
 decreased due to a decline in the average yield earned as a result of current market
 interest rates.                                                                               

Comparison
 of Year-to-Date September 2009 and September 2008As displayed
 in Table 5, non-interest income increased $2.4 million to $46.0 million for the
 nine months ended September 30, 2009 from the prior year period. The increase was
 attributable to net gain on securities and increased mortgage origination activity
 and loan sale income. These increases were partially offset by declines in loan
 and servicing income, trust fees, investment management, brokerage and insurance
 fees, BOLI and other income.

| |  |  | Net gain on
 securities increased due to the gains recorded on the sale of mortgage-backed securities.
 These securities were sold at a premium and were sold in order to reduce prepayment
 risk, to reduce high price premium risk and to fund the pay-off of maturing FHLB
 advances. The increase in the net gain on securities is also due to the prior year
 impairment charges as outlined in the quarterly discussion above. Partially offsetting
 the net gain on the sale of investments was an other-than-temporary impairment recorded
 against the Companys investment in an adjustable rate mortgage mutual fund
 in the second quarter.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | Trust fees
 declined primarily due to a decrease in the year-to-date average assets under management.
 The assets under management declined primarily as a result of the decline in the
 market value of the assets, which caused the reduction in the amount of management
 fees earned. Assets under management have begun to rebound in the most recent quarter
 evidenced by the recent market improvement.                                                                                                                                                                                                                                        
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | Investment
 management, brokerage and insurance fees declined due to prevailing depressed market
 conditions and the ongoing lack of consumer confidence in longer-term investment
 choices.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | Loan and servicing
 income declined due primarily to a write-down of $475,000 in the first quarter of
 2009 of the Banks mortgage servicing asset and fewer commercial real estate
 prepayment fees. The decline in interest rates caused prepayment speeds to accelerate,
 thereby reducing the value of the servicing asset.                                                                                                                                                                                                                                                                                                                        
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | Other income
 decreased due to: a) net loss of $375,000 recorded on limited partnerships during
 2009 due to the decline in the fair-value of the underlying investments compared
 to a net gain in the prior year of $625,000, b) a decrease in amounts earned on the
 outstanding balances of bank checks processed by a third-party vendor due to the
 decline in market interest rates and c) the prior year receipt of approximately $500,000
 from the partial redemption of the Companys stake in Visa Inc., following
 Visas initial public offering.                                                                                        
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | The reasons
 for the decreases in BOLI income and the increase in mortgage origination and loan
 sale income from a year ago were due to the same reasons as outlined in the quarterly
 discussion above.                                                                                                                                                                                                                                                                                                                                                                                                                                              

|Table 6:
 Non-Interest Expense                   |  |  |                    |        |        |  |               |        |         |  |      |       |                   |  |        |     |         |  |   |         |  |  |   |         |  |  |   |        |   |  |  |       |    
|------------------------------------------------ |  |  | ------------------ | ------ | ------ |  | ------------- | ------ | ------- |  | ---- | ----- | ----------------- |  | ------ | --- | ------- |  | - | ------- |  |  | - | ------- |  |  | - | ------ | - |  |  | ----- | ---
|                                                 |  |  | Three Months Ended |        |        |  |               |        |         |  |      |       | Nine Months Ended |  |        |     |         |  |   |         | 
|                                                 |  |  | September 30,      |        | Change |  | September 30, |        | Change 
|                                                 |  |  |                    |        |        |  |               |        |        
|(Dollars in
 thousands)                          |  |  | 2009               |        | 2008   |  | Amount        |        | Percent |  | 2009 |       | 2008              |  | Amount |     | Percent
|                                                
|Salaries and
 employee benefits                  |  |  | $                  | 22,443 |        |  | $             | 22,354 |         |  | $    | 89    |                   |  |        | 0   | %       |  | $ | 65,281  |  |  | $ | 68,978  |  |  | $ | (3,697 | ) |  |  | (5    | ) %
|Occupancy                                        |  |  |                    | 4,287  |        |  |               | 4,415  |         |  |      | (128  | )                 |  |        | (3  | )       |  |   | 13,686  |  |  |   | 13,629  |  |  |   | 57     |   |  |  | 0     |    
|Furniture
 and fixtures                          |  |  |                    | 1,419  |        |  |               | 1,624  |         |  |      | (205  | )                 |  |        | (13 | )       |  |   | 4,348   |  |  |   | 4,964   |  |  |   | (616   | ) |  |  | (12   | )  
|Outside services                                 |  |  |                    | 4,779  |        |  |               | 5,047  |         |  |      | (268  | )                 |  |        | (5  | )       |  |   | 14,584  |  |  |   | 13,791  |  |  |   | 793    |   |  |  | 6     |    
|Advertising,
 public relations, and sponsorships |  |  |                    | 1,932  |        |  |               | 1,667  |         |  |      | 265   |                   |  |        | 16  |         |  |   | 4,202   |  |  |   | 5,412   |  |  |   | (1,210 | ) |  |  | (22   | )  
|Amortization
 of identifiable intangible assets  |  |  |                    | 2,122  |        |  |               | 2,364  |         |  |      | (242  | )                 |  |        | (10 | )       |  |   | 6,379   |  |  |   | 7,092   |  |  |   | (713   | ) |  |  | (10   | )  
|Merger related
 charges                          |  |  |                    | 4      |        |  |               | 99     |         |  |      | (95   | )                 |  |        | (96 | )       |  |   | 27      |  |  |   | 177     |  |  |   | (150   | ) |  |  | (85   | )  
|FDIC insurance
 premiums                         |  |  |                    | 1,880  |        |  |               | 178    |         |  |      | 1,702 |                   |  |        | 956 |         |  |   | 8,717   |  |  |   | 544     |  |  |   | 8,173  |   |  |  | 1,502 |    
|Other                                            |  |  |                    | 3,376  |        |  |               | 3,623  |         |  |      | (247  | )                 |  |        | (7  | )       |  |   | 9,805   |  |  |   | 10,339  |  |  |   | (534   | ) |  |  | (5    | )  
|                                                
|Total
 non-interest expense                      |  |  | $                  | 42,242 |        |  | $             | 41,371 |         |  | $    | 871   |                   |  |        | 2   | %       |  | $ | 127,029 |  |  | $ | 124,926 |  |  | $ | 2,103  |   |  |  | 2     | %  
|                                                
|                                                 |  |  |                    |        |        |  |               |        |         |  |      |       |                   |  |        |     |         |  |   |         |  |  |   |         |  |  |   |        |   |  |  |       |    
|42                                              




Non-Interest Expense

Comparison of Quarter-to-Date September
 2009 and September 2008As displayed in Table 6, non-interest expense
 increased $871,000 to $42.2 million for the three months ended September 30, 2009
 from $41.4 million for the same period a year ago. The main driver of the increase
 was FDIC insurance premiums expense and advertising, public relations, and sponsorships.
 This increase was partially offset by decreases in outside services, amortization
 of identifiable intangible assets and other expense.

| |  |  | FDIC insurance
 premium expense increased $1.7 million from the third quarter of last year due to:
 a) a nine basis point increase in the assessment rate bringing the rate to fourteen
 basis points and b) the exhaustion of the Companys one-time credit established
 by the Federal Deposit Insurance Reform Act of 2005 in the first quarter of 2009.
 FDIC insurance expense may continue to be volatile as the FDIC is in the process
 of determining how to best handle its liquidity needs. Instead of imposing any additional
 special assessments, the FDIC has issued a proposed rulemaking that would require
 institutions to prepay their regular risk-based assessments for the fourth quarter
 of 2009 and for all of 2010, 2011, and 2012 by December 30, 2009.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | Advertising,
 public relations and sponsorships increased primarily due to additional expenses
 related to various media advertising and bonus campaigns to promote an array of
 business and consumer products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | Amortization
 of identifiable intangible assets decreased due to less amortization on core deposit
 intangibles from using the accelerated method of accounting whereas there was more
 amortization expense in 2008 compared to 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | Outside services
 and other expenses decreased due to declines in operational expenditures such as
 data processing, audit fees, telephone, and outside printing costs. These decreases
 are mainly due to timing as we expect these expenses to increase in the fourth quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Comparison of Year-to-Date September 2009
 and September 2008As displayed in Table 6, non-interest expense
 increased $2.1 million to $127.0 million for the nine months ended September 30,
 2009 from $124.9 million for the same period a year ago. The main drivers of the
 increase were FDIC insurance premiums and outside services. These increases were
 partially offset by decreased salaries and employee benefits, furniture and fixtures,
 amortization of identifiable intangible assets and advertising, public relations
 and sponsorships. In the second quarter of 2009 the FDIC imposed a special assessment
 on all FDIC insured banks that would assist them in their efforts to increase the
 Deposit Insurance Fund. The Bank recorded expense of approximately $4.0 million
 related to the special assessment. Without the special assessment total non-interest
 expense would have been $123.1 million, a decrease of $1.9 million from the prior
 year.

|   |  |  | Outside services
 increased primarily due to consulting costs associated with a performance optimization
 project undertaken in the second half of 2008 and continuing into 2009 to improve
 the overall effectiveness and revenue performance of the Company, consulting costs
 for strategic planning initiatives and mortgage consulting costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  |  | Salaries and
 employee benefits decreased as a result of reduced stock option expense as the majority
 of options granted to date became fully vested on December 31, 2008 and a decrease
 in restricted stock expense due to the retirement of executive officers in 2009
 and 2008. Additionally, salary expense decreased due to a prior year severance payment
 for an executive who is no longer with the Company. These decreases were partially
 offset by increased bonus accruals, current year severance payments and an increase
 in pension plan expense due to the decline in the value of the pension assets and
 changes in assumptions for 2009. Resulting from the retirement of an executive officer,
 the Company expects to record additional benefit expense for the Supplemental Executive
 Retirement Plan (SERP) of approximately $1.2 million in the fourth quarter
 of 2009.
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  |  | Furniture
 and fixture expense decreased primarily due to a decline in depreciation expenses
 for various hardware and software that have been fully depreciated, i.e. branch
 and corporate telephone and computer systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  |  | Advertising,
 public relations and sponsorships declined primarily due to a reduction in expenses
 related to various media advertising and bonus campaigns to promote free savings
 and home equity products. As exemplified in the quarter, advertising has picked
 up and we expect this trend to continue through the end of the year due to planned
 media campaigns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  |  | The increase
 in FDIC insurance premiums of $8.2 million is due to the special one-time assessment
 of $4.0 in the second quarter of 2009 as well as the reasons outlined in the quarterly
 discussion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|43




| |  |  | The decrease
 in amortization of intangible assets is due to the same reason as described in the
 quarterly discussion.
| | - |  | -----------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                        

Income Tax ProvisionFor the three
 months ended September 30, 2009 and 2008, income tax expense was $7.9 million and
 $5.0 million and the effective tax rate for these periods was 38.5% and 31.2%, respectively.
 The increase in the effective tax rate for the three months ended September 30,
 2009 as compared to the 2008 period was primarily due to an increase, in 2009, of
 estimated nondeductible excess remuneration pursuant to Internal Revenue Code 162(m)
 and the reduction, in 2009, of favorable permanent differences, including bank owned
 life insurance income and the dividends received deduction.

For the nine
 months ended September 30, 2009 and 2008, income tax expense was $19.8 million and
 $15.7 million and the effective tax rate for these periods was 36.6% and 30.6%,
 respectively. The increase in the effective tax rate for the nine months ended September
 30, 2009 as compared to the 2008 period was primarily due to the reduction of $924,000
 of unrecognized tax benefits for tax positions of prior years in the first quarter
 of 2008 upon settlement of an IRS audit, an increase, in 2009, of estimated non-deductible
 excess remuneration pursuant to Internal Revenue Code 162(m) and the reduction,
 in 2009, of favorable permanent differences, including bank owned life insurance
 income and the dividends received deduction. The effective tax rate for the year
 ended December 31, 2009 is expected to be 36.59%

Financial Condition

Financial Condition SummaryFrom December
 31, 2008 to September 30, 2009, total assets and total liabilities increased $241.2
 million and $195.0 million, respectively, due mainly to increases in investments
 and deposits, partially offset by decreases in loans and borrowings. Stockholders equity increased $46.3 million.

Investment SecuritiesThe following
 table presents the amortized cost and fair value of investment securities at September
 30, 2009 and December 31, 2008.

|Table 7: Investment Securities                   
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|(In thousands)                                   
|                                                 
|                                                 
|Available
 for sale                              
|U.S.
 Treasury obligations                       
|U.S.
 Government sponsored enterprise obligations
|Corporate
 obligations                           
|Other
 bonds and obligations                     
|Auction
 rate certificates                       
|Marketable
 equity securities                    
|Trust
 preferred equity securities               
|Private
 label mortgage-backed securities        
|Mortgage-backed
 securities                      
|                                                 
|Total
 available for sale                        
|                                                 
|Held to
 maturity                                
|Mortgage-backed
 securities                      
|Other
 bonds                                     
|                                                 
|Total
 held to maturity                          
|                                                 
|Total
 securities                                
|                                                 

At September
 30, 2009, the Company had total investments of $2.65 billion, or 31.1%, of total
 assets. The increase of $416.0 million, from $2.24 billion at December 31, 2008
 was primarily the result of purchasing mortgage-backed securities. The Companys
 increase in the investment portfolio was funded primarily by the growth in deposits
 and loan principal repayments. While the Company prefers lending as the primary
 use of its excess cash flows, the investment portfolio serves a secondary role in
 generating revenue while managing interest-rate risk and liquidity.

The available
 for sale and held to maturity securities portfolios are primarily composed of mortgage-backed
 securities. At September 30, 2009, mortgage-backed securities comprised 87.1% and
 95.8% of the total available for sale and held to maturity securities portfolios,
 respectively, the majority of which are issued by Federal National Mortgage Association
 (FNMA) or (Fannie Mae) and Federal Home Loan Mortgage Corporation
 (FHLMC) or (Freddie Mac). The duration of the mortgage-backed
 securities portfolio was 1.38 years at September 30, 2009 compared to 1.55 years
 at December 31, 2008.

44




The Companys underlying investment strategy has been to purchase FNMA and FHLMC hybrid
 adjustable rate mortgage-backed securities, and seasoned 15 and 20 year Government
 Sponsored Enterprise (GSE) fixed rate mortgage-backed securities. The
 Company has focused on the purchases of these securities due to their attractive
 spreads versus funding costs and for their monthly cash flows that provide the Company
 with liquidity. This strategy is also supplemented with select purchases of bullet
 and callable agency securities. The average life for mortgage-backed securities,
 when purchased, would range between two and four years and the maturity dates for
 Agency obligations would range between one and five years.

FASB guidance
 for the accounting of Investments - Debt and Equity Securities, 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, 2009, $2.39 billion, or 90.1% of the portfolio,
 was classified as available for sale and $263.1 million of the portfolio was classified
 as held to maturity. Securities available for sale are carried at estimated fair
 value. Additional information about fair value measurements can be found in Note
 3 of the Notes to Unaudited Consolidated Financial Statements.

During the
 second quarter new other-than-temporary impairment (OTTI) guidance,
 FASB ASC 320-10, was adopted and, for debt securities, requires that credit related
 OTTI be recognized in earnings while non-credit related OTTI be recognized in other
 comprehensive income (OCI) unless there is intent to sell or are required
 to sell. The new guidance also requires that previously recorded impairment charges
 that do not relate to a credit loss be reclassified from retained earnings to accumulated
 other comprehensive income (AOCI). During the quarter ended June 30,
 2009, the Company reclassified the non-credit related portion of a previously recorded
 OTTI loss and recorded a current OTTI loss in accordance with this new guidance,
 both of which are described below.

A credit related
 OTTI loss in the amount of $626,000 was recorded against the Companys position
 in an adjustable rate mortgage mutual fund that holds positions in non-agency mortgage-backed
 securities. During the second quarter, the fund experienced its first realized loss
 on a mortgage investment and management determined that the dollar amount of securities carrying a rating of
 CCC or lower had increased since the prior quarter end. This decrease in the credit quality of the securities
 coupled with the loss recognized by the fund, resulted in managements determination
 that the fund was other-than-temporarily impaired. The non-credit related OTTI was
 $1.9 million and was recognized in OCI. During the third quarter, the funds
 market to book ratio improved and the fund continues to pay a monthly dividend.
 As of September 30, 2009, the fund has a current book value of $8.3 million
 and is not expected to be sold and management has determined that there are no additional
 OTTI charges that need to be recognized in the quarter ended September 30, 2009.

During 2008, one of the individual
 name trust preferred securities was deemed to be other-than-temporarily impaired
 and a charge of $1.6 million was recorded in the third quarter. Upon the adoption
 of the OTTI guidance discussed above, the Company recorded a cumulative effect adjustment
 that increased retained earnings and decreased AOCI by $1.6 million, or $1.0 million,
 net of tax. Additionally, the amortized cost for this security increased by $1.6
 million as the entire impairment charge recorded in 2008 was non-credit related.
 At September 30, 2009, this security had an amortized cost of $4.7 million and an
 unrealized loss of $1.4 million.

The net unrealized
 gain on securities classified as available for sale as of September 30, 2009 was
 $47.8 million compared to an unrealized gain of $2.1 million as of December 31,
 2008. The appreciation in the market value of securities available for sale was
 primarily due to the increase in the fair value of mortgage-backed securities and
 the unrealized gains on the mortgage backed securities purchased during the year,
 partially offset by gains on securities sold. The net unrealized gain on the available
 for sale investment portfolio that is primarily within the mortgage-backed securities
 is partially offset by unrealized losses on trust preferred equity securities and
 privately issued mortgage-backed securities. The changes in unrealized gains and
 losses on the investment portfolio are primarily due to credit spreads, liquidity
 and fluctuations in market interest rates during the period.

The net unrealized
 gain on mortgage-backed securities is primarily from agency mortgage-backed securities
 issued by FNMA and FHLMC, partially offset by unrealized losses on mortgage-backed
 securities issued by private institutions primarily due to widening in non-agency
 mortgage spreads. During the quarter, the negative mark to market pressure improved
 slightly due to a tightening of credit spreads. In addition to the changes in market
 interest rates, the unrealized gain on agency mortgage-backed securities are also
 due in part to programs initiated by the Federal Reserve to purchase the direct
 obligations of housing-related GSEs, Fannie Mae, Freddie Mac, and the Federal
 Home Loan Banks, and mortgage-backed securities issued by Fannie Mae, Freddie Mac,
 and Ginnie Mae. The goal of these purchases has been to drive down long-term fixed
 mortgage rates to stimulate the housing market as spreads on GSE debt and on GSE-issued
 mortgages had widened as compared to benchmark treasury and London Interbank Offered
 Rate (LIBOR) rates that have declined. In September, the Federal Open
 Market Committee announced that the FRB will purchase a total of $1.25 trillion
 of agency mortgage-backed securities and up to $200 billion of agency debt, to support
 mortgage lending and the housing markets and to improve the overall conditions in
 private credit

45




markets. Mortgage
 spreads tightened dramatically to the LIBOR curve over the quarter ended September
 30, 2009 and mortgage spreads also tightened to the treasury curve.

The unrealized
 loss on mortgage-backed securities issued by private institutions is primarily concentrated
 in one BBB rated private-label mortgage-backed security which is substantially paid
 down, well seasoned and of an earlier vintage that has not been significantly affected
 by high delinquency levels or vulnerable to lower collateral coverage as seen in
 later issued pools. None of the securities are backed by subprime mortgage loans
 and none have suffered losses. One security was downgraded to BBB during the quarter
 and the remaining securities are rated AAA. All are still paying principal and interest
 and are expected to continue to pay their contractual cash flows. Managements
 review of the above factors and issuer specific data concluded that these private-label
 mortgage-backed securities are not other-than-temporarily impaired.

The unrealized
 losses on other bonds and obligations primarily relates to the noncredit-related
 OTTI loss on a position in an adjustable rate mortgage mutual fund that holds positions
 in non-agency mortgage-backed securities that are facing negative mark to market
 pressures due to widening spreads in non-agency mortgage products. Although the
 fund has experienced declines in credit ratings it was not due to customer redemptions
 or forced selling of the investments. The fund recorded its first loss which factored
 into managements determination that the fund was other-than-temporarily impaired.
 As discussed above, a credit related OTTI loss of $626,000 was recorded through
 earnings in the second quarter of 2009. The fund carries a market value to book
 value ratio of 79.35% - a slight increase from June 30, 2009, has a weighted average
 underlying investment credit rating of A+ and it continues to pay normal monthly
 dividends. There is no intent to sell nor is it more likely than not that the Company
 will be required to sell these securities and has therefore concluded that the fund
 experienced no further OTTI in the quarter ended September 30, 2009.

The unrealized
 losses on auction rate certificates relate to certificates issued by an investment
 banking firm and are pools of government-guaranteed student loans that are issued
 by state student loan departments. In the first half of 2008, the auction process
 for auction rate certificates began to freeze resulting from the problems in the
 credit markets. These securities are currently rated AAA and are still paying their
 contractual cash flows and are expected to continue to pay their contractual cash
 flows. Management has therefore concluded that no other-than-temporary impairment
 exists as of September 30, 2009. In 2008, the underwriter entered into a settlement
 agreement with several state regulatory agencies, whereby they have agreed to repurchase
 these certificates from both their retail and institutional customers at par. The
 institutional buy-back of these securities is scheduled on or around June 30, 2010.

Trust preferred
 securities are comprised of two pooled trust preferreds with an amortized cost of
 $6.7 million which are both rated BB. The remaining $42.6 million are comprised
 of twelve individual names issues with the following ratings: $6.0 million
 rated A+ to A-, $14.5 million rated BBB+ to BBB and $22.1 million rated B to BB+.
 The unrealized losses reported for trust preferred equity securities relate to the
 financial and liquidity stresses in the fixed income market and not to any credit
 impairment of the issuers as the present value of cash flows expected to be collected
 is not less than the securities amortized cost basis. Although the ratings on some
 issues have been reduced since December 31, 2008, all are currently paying the contractual
 principal and interest payments. A detailed review of the two pooled trust preferreds
 and the individual names trust preferred equity securities is completed
 quarterly. This review included an analysis of collateral reports, stress default
 levels and financial ratios of the underlying issuers and management concluded that
 there was no other-than-temporary impairment at the end of the period.

Management
 has performed a review of all investments with unrealized losses and determined
 that no other investments had credit related other-than-temporary impairment. The
 Company has no intent to sell nor is it more likely than not that the Company will
 be required to sell any of these securities within the time necessary to recover
 the unrealized losses which may be until maturity. The Company does not own or plan
 on investing in securities backed by subprime mortgage collateral.

Lending ActivitiesThe Company
 makes residential real estate loans secured by one-to-four family residences, commercial
 real estate loans, residential and commercial construction loans, commercial business
 loans, home equity loans and lines of credit and other consumer loans. Table 8 displays
 the balances of the Companys loan portfolio as of September 30, 2009 and December
 31, 2008.

46




| |  | Table 8: Loan Portfolio                 |  |                    |           |                   |            |       |   |       |   |            |  |  |       |  
| |  | --------------------------------------- |  | ------------------ | --------- | ----------------- | ---------- | ----- | - | ----- | - | ---------- |  |  | ----- | -
| |  |                                         |  |                    |           |                   |            |       |   |       |   |            |  |  |       |  
| |  |                                         |  | September 30, 2009 |           | December 31, 2008
| |  |                                         |  |                    |           |                  
| |  |                                         |  |                    |           |                   | Percent of |       |   |       |   | Percent of
| |  | (Dollars in thousands)                  |  | Amount             | Total     |                   |            |       |   | Total
| |  |                                        
| |  | Residential real estate                 |  | $                  | 2,413,181 |                   |            | 50.2  | % |       | $ | 2,524,638  |  |  | 50.9  | %
| |  | Residential
 real estate construction   |  |                    | 11,781    |                   |            | 0.3   |   |       |   | 21,380     |  |  | 0.4   |  
| |  |                                        
| |  | Total
 residential real estate          |  |                    | 2,424,962 |                   |            | 50.5  |   |       |   | 2,546,018  |  |  | 51.3  |  
| |  |                                         |  |                    |           |                   |            |       |   |       |   |            |  |  |       |  
| |  | Commercial
 real estate                 |  |                    | 1,081,016 |                   |            | 22.4  |   |       |   | 1,077,200  |  |  | 21.7  |  
| |  | Commercial
 real estate construction    |  |                    | 141,964   |                   |            | 3.0   |   |       |   | 143,610    |  |  | 2.9   |  
| |  |                                        
| |  | Total
 commercial real estate           |  |                    | 1,222,980 |                   |            | 25.4  |   |       |   | 1,220,810  |  |  | 24.6  |  
| |  | Commercial
 business                    |  |                    | 422,814   |                   |            | 8.8   |   |       |   | 458,952    |  |  | 9.2   |  
| |  | Home equity
 and equity lines of credit |  |                    | 717,632   |                   |            | 14.9  |   |       |   | 714,444    |  |  | 14.4  |  
| |  | Other consumer                          |  |                    | 17,319    |                   |            | 0.4   |   |       |   | 22,561     |  |  | 0.5   |  
| |  |                                        
| |  | Total
 loans                            |  | $                  | 4,805,707 |                   |            | 100.0 | % |       | $ | 4,962,785  |  |  | 100.0 | %
| |  |                                        

| |  | As shown in
 Table 8, gross loans were $4.81 billion, down $157.1 million, at September 30, 2009
 from year-end 2008. The Company experienced a decrease in most loan categories due
 to higher levels of residential mortgage prepayments offsetting originations and
 reduced business loan demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Residential
 real estate loans continue to represent the largest segment of the Companys
 loan portfolio as of September 30, 2009, comprising 50.5% of total loans. The decrease
 of $121.1 million from December 31, 2008 was primarily due to prepayments outweighing
 new originations for portfolio during the year attributable to the decline in interest
 rates to historically low levels and customers refinancing to lock-in fixed rate
 mortgages. Although the Company had significant originations of both adjustable
 and fixed rate mortgages of $806.6 million during the year, approximately $403.8 million
 was originated for portfolio and the remainder was sold in the secondary market.
 The Company currently sells the majority of all originated fixed rate residential
 real estate loans with terms of 15 years or more. During the third quarter of 2009,
 the Company began to retain in its portfolio 30 year jumbo fixed rate residential
 mortgage originations. The Company anticipates that mortgage activity will continue
 to be robust while interest rates remain low, but not at the levels experienced
 in the first half of the year. The residential real estate loan portfolio has a
 weighted average FICO score of 749 and a current estimated weighted loan to value
 ratio of 60%. Included in residential real estate is a purchased portfolio, which
 is made up of prime loans individually re-underwritten by the Company to our underwriting
 criteria, and includes adjustable-rate and 10 and 15 year fixed-rate residential
 real estate loans with property locations throughout the United States with no significant
 exposure in any particular state. At September 30, 2009 the Companys purchased
 portfolio had an outstanding balance of approximately $546.0 million with the largest
 concentration in our footprint of Connecticut and Massachusetts at 17.6%, followed
 by California and New York, which each make up approximately 13.5%.                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Commercial
 real estate loans and commercial business loans decreased $34.0 million, primarily
 in commercial loans. In general, loan growth has slowed due to current economic
 conditions and elevated levels of stress on businesses. Additionally, we are finding
 fewer opportunities in the short term that meet our underwriting and credit quality
 standards. Therefore, our originations have been dominated by financing requests
 from current customers and less from new customers. The commercial construction
 portfolio of $142.0 million includes approximately $34.2 million of loans to commercial
 borrowers for residential housing development, $12.9 million of which are for condominium
 projects. The decrease in commercial construction is due to a decrease in residential
 housing development loans through a negotiated settlement, paydowns and further
 charge-offs on nonperforming condominium projects, partly offset by originations
 of commercial to permanent construction loans. The commercial loan portfolios continue
 to have increased delinquencies and nonperforming loans in 2009, partially offset
 by declines in the construction portfolio. See the Asset Quality and
 Allowance for Loan Losses sections following this discussion for further
 information concerning charge-offs and the loan loss allowance. Although the Companys commercial portfolios have declined, our long term strategy continues to
 be that of building a larger percentage of the Companys assets in commercial
 loans including real estate and other business loans, such as asset-based lending.
 We remain an active commercial lender and will continue promoting strong business
 development efforts to obtain new business banking relationships, while maintaining
 strong credit quality and profitability. We believe that our status as a healthy
 regional community bank focused on relationship banking bodes well for us to retain
 customers and to be a source for new businesses shifting away from larger banks
 in search of more personalized lending services.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Home equity
 loans and lines of credit increased $3.2 million from December 31, 2008 to September
 30, 2009. 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 an alternative to first mortgage loans. The
 weighted average FICO score                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

47




| |  | and current
 estimated weighted combined loan to value ratio for home equity loans and lines
 of credit is 748 and 65%, respectively. Loan growth has been from organic originations
 in the Companys market area, none of which is subprime.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Higher-Risk Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The loan portfolio
 segments that we consider to have the highest risk are construction loans to commercial
 developers for residential development and a small segment of our residential real
 estate loans. The Company has a carrying value of $34.2 million of commercial construction
 loans for residential development. All of these loans are collateralized and carry
 a reserve allocation of approximately $5.3 million. This segment has total delinquencies
 of $2.7 million, all of which are in the over 90 day category.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Within the
 residential portfolio, management uses two main early warning techniques to more
 closely monitor credit deterioration. The Company uses a matrix to identify where
 the concentration of outstanding loans fall in the risk continuum. This matrix is
 constructed using estimated current loan-to-value ranges (current balance LTV adjusted
 for estimated appreciation or depreciation in the appraised value) and the latest
 available FICO score ranges (rescored quarterly). The Company considers loans with
 an estimated current loan-to-value ratio above 80% and a FICO score less than 620
 to be higher-risk. Once identified, the higher-risk loans are then reviewed by
 the Special Assets department to determine what, if any, action should be taken
 to mitigate possible loss exposure. At September 30, 2009, higher-risk loans comprised approximately $39.0 million, or
 1.7% of the residential real estate portfolio. The Company also tracks loans that
 have a FICO score that has declined 20 points or more and are below 660. As of September
 30, 2009 loans meeting this criteria represent approximately $47.0 million, or 2%
 of the residential portfolio.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Asset Quality                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Loans are
 placed on nonaccrual if collection of principal or interest in full is in doubt,
 if the loan has been restructured, or if any payment of principal or interest is
 past due 90 days or more. A loan may be returned to accrual status if it has demonstrated
 sustained contractual performance or if all principal and interest amounts contractually
 due are reasonably assured of repayment within a reasonable period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | As displayed
 in Table 9, nonperforming assets at September 30, 2009 increased to $51.8 million
 compared to $40.4 million at December 31, 2008. The increase is primarily due to
 loans secured by residential one-to-four family loans and commercial business loans,
 partially offset by a decline in construction loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The increase
 in nonperforming residential loans of $14.0 million was due to current economic conditions
 including factors such as the rise in unemployment rates reaching a twenty-six year
 high and the declines in the median sales price of residential homes. There are
 132 loans in the residential nonperforming category totaling $26.7 million, representing
 1.10% of the total residential portfolio. The Company routinely updates FICO scores
 and LTV ratios and continues to originate loans with superior credit characteristics.
 Through continued heightened account monitoring, collections and workout efforts,
 the Bank is committed to mortgage solution programs to assist homeowners to remain
 in their homes. As has been its practice historically, the Company does not originate
 subprime loans. Included in nonperforming residential loans are approximately $3.5
 million in restructured loans which have been modified from their original contractual
 terms.                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | In the course
 of resolving nonperforming loans, the Bank may choose to restructure the contractual
 terms of certain real estate loans. Terms may be modified to fit the ability of
 the borrower to repay in line with their current financial status. It is the Banks policy to have any restructured loans which are on nonaccrual status prior
 to being modified, remain on nonaccrual status for approximately six months before
 management considers its return to accrual status.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The increase
 in nonperforming commercial business loans was primarily due to the general deterioration
 of economic conditions that have led to the inability of some businesses to properly
 service their debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The decline
 in nonperforming commercial construction loans relates to condominium projects within
 the residential housing development segment primarily due to charge-offs recorded
 against a number of relationships of $3.1 million, note sales and paydowns. As of
 September 30, 2009, the construction to permanent segment of commercial construction
 loans had no delinquencies, nonaccruals, impairment or adversely classified loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | If current
 economic and real estate market conditions persist or deteriorate further, there
 will be added stress on our loan portfolios. The Company believes, however, that
 its historical practice of prudent underwriting, the relatively modest size of its
 residential construction portfolio and strong average FICO scores combined with
 low weighted average loan to value ratios associated with its residential portfolio
 are significant advantages in keeping asset quality manageable. Nonperforming loans
 as a percent of total loans outstanding at September 30, 2009 were 1.02%, compared
 to 0.77% at December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

48




| |  | Table 9: Nonperforming Assets                                         |  |               |        |              |  |   |        |  
| |  | --------------------------------------------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
| |  |                                                                       |  |               |        |              |  |   |        |  
| |  |                                                                       |  | September 30, |        | December 31,
| |  | (Dollars in thousands)                                                |  | 2009          |        | 2008        
| |  |                                                                      
| |  | Nonaccruing loans (1)                                                 |  |               |        |              |  |   |        |  
| |  | Real
 estate loans                                                    |  |               |        |              |  |   |        |  
| |  | Residential (one- to four- family)                                    |  | $             | 26,654 |              |  | $ | 12,634 |  
| |  | Commercial
 real estate loans                                         |  |               | 6,993  |              |  |   | 8,201  |  
| |  | Commercial
 construction                                              |  |               | 2,721  |              |  |   | 10,234 |  
| |  |                                                                      
| |  | Total
 real estate loans                                              |  |               | 36,368 |              |  |   | 31,069 |  
| |  | Commercial
 business                                                  |  |               | 10,693 |              |  |   | 5,863  |  
| |  | Consumer
 loans                                                       |  |               |        |              |  |   |        |  
| |  | Home
 equity and equity lines of credit                               |  |               | 2,008  |              |  |   | 1,304  |  
| |  | Other
 consumer                                                       |  |               | 22     |              |  |   | 95     |  
| |  |                                                                      
| |  | Total
 consumer loans                                                 |  |               | 2,030  |              |  |   | 1,399  |  
| |  |                                                                      
| |  | Total
 nonaccruing loans                                              |  |               | 49,091 |              |  |   | 38,331 |  
| |  | Other real
 estate owned                                              |  |               | 2,702  |              |  |   | 2,023  |  
| |  |                                                                      
| |  | Total
 nonperforming assets                                           |  | $             | 51,793 |              |  | $ | 40,354 |  
| |  |                                                                      
| |  |                                                                       |  |               |        |              |  |   |        |  
| |  | Total
 nonperforming loans as a percentage of total loans (2)         |  |               | 1.02   | %            |  |   | 0.77   | %
| |  | Total
 nonperforming assets as a percentage of total assets           |  |               | 0.61   |              |  |   | 0.49   |  
| |  | Troubled
 debt restructured loans included in nonaccruing loans above |  | $             | 3,466  |              |  | $ | -      |  

|(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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Deteriorating
 market conditions have been affecting loan portfolios since the latter part of 2007.
 As displayed in Table 10 below, the Company recorded net charge-offs of $5.2 million,
 during the three months ended September 30, 2009, compared to net charge-offs of $2.8
 million for the three months ended September 30, 2008. Net charge-offs of $957,000, $1.0
 million, $2.9 million and $456,000 were recorded against the residential, commercial construction,
 commercial business and consumer portfolios, respectively. The majority of the charge-offs
 in the residential category were adjustments based on current appraisals which continue
 to show the depression in home values while persisting adverse economic and housing
 pressures are affecting charge-off levels in the commercial construction and commercial
 business portfolios. As a result of the net charge-offs, nonaccrual and delinquent
 loans and adversely classified loan indicators, a provision for loan losses of $5.4
 million was recorded for the three months ended September 30, 2009 compared to $4.2
 million for the three months ended September 30, 2008. For the nine months ended
 September 30, 2009 and 2008, net charge-offs were $12.7 million and $4.2 million and
 the provision for loan losses was $14.5 million and $9.6 million, respectively.                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The Company
 has a loan loss allowance of $51.7 million, or 1.08% of total loans as compared to
 a loan loss allowance of $49.9 million, or 1.01% of total loans at December 31, 2008.
 Management believes that the allowance for loan losses is adequate and directionally
 consistent with asset quality and delinquency indicators and that it represents
 the best estimate of probable losses inherent in the loan portfolio. To achieve
 this best estimate, numerous factors are evaluated and applied to the allowance
 for loan loss calculation. Management continues to assess loss factors based on
 recent economic events and incorporates that into the calculation, including the
 appropriate timeframe to consider for loss history.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The allowance
 for loan losses to nonperforming loans ratio at September 30, 2009 was 105.36% compared
 to 130.21% at December 31, 2008 and 140.52% at September 30, 2008. This ratio has
 declined because growth in the allowance is not proportional to growth in nonperforming
 loans due to 1) classification of nonperforming loans is a backward looking indicator,
 often loans with credit weaknesses are identified and allocated higher levels of
 reserves if appropriate before becoming nonperforming, 2) the majority of the Companys nonperforming loans are secured by real estate collateral and while the entire
 loan is classified as nonperforming, only the amount of estimated losses would have
 been captured in the allowance for loan losses, 3) the growth in nonperforming loans
 this year was concentrated in residential real estate loans in which the loss in
 event of default is traditionally low, 4) certain nonperforming loans have already
 been partially charged-off to the expected net realizable value and 5) a portion
 of the allowance is to cover losses established under FASB ASC 450,Contingencies, for performing loans. Performing loans have not grown at the same rate as nonperforming
 loans. The Company employs a formal quarterly process to assess the adequacy of
 the Companys allowance for loan losses. The process is designed to adequately
 capture inherent losses in the loan portfolio.

49




| |  | Table 10: Schedule of Allowance for Loan Losses   |  |                            |        |                     |                           |   |        |   |      |   |        |   |  |   |        |  
| |  | ------------------------------------------------- |  | -------------------------- | ------ | ------------------- | ------------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
| |  |                                                   |  |                            |        |                     |                           |   |        |   |      |   |        |   |  |   |        |  
| |  |                                                   |  | As or For the Three Months |        |                     | As or For the Nine Months |  
| |  |                                                   |  | Ended September 30,        |        | Ended September 30,
| |  |                                                   |  |                            |        |                     |                          
| |  | (Dollars in thousands)                            |  | 2009                       | 2008   |                     |                           |   | 2009   |   | 2008 |  
| |  |                                                  
| |  | Balance at beginning of period                    |  | $                          | 51,502 |                     |                           | $ | 47,798 |   |      | $ | 49,911 |   |  | $ | 43,813 |  
| |  | Provision
 for loan losses                        |  |                            | 5,433  |                     |                           |   | 4,200  |   |      |   | 14,533 |   |  |   | 9,600  |  
| |  | Charge-offs                                       |  |                            |        |                     |                           |   |        |   |      |   |        |   |  |   |        |  
| |  | Residential
 real estate loans                    |  |                            | 960    |                     |                           |   | 83     |   |      |   | 2,449  |   |  |   | 234    |  
| |  | Commercial
 real estate loans                     |  |                            | 392    |                     |                           |   | 827    |   |      |   | 2,389  |   |  |   | 827    |  
| |  | Commercial
 construction loans                    |  |                            | 1,010  |                     |                           |   | 1,431  |   |      |   | 3,055  |   |  |   | 2,431  |  
| |  | Commercial
 business loans                        |  |                            | 3,166  |                     |                           |   | 468    |   |      |   | 5,317  |   |  |   | 1,143  |  
| |  | Consumer
 loans                                   |  |                            | 490    |                     |                           |   | 496    |   |      |   | 903    |   |  |   | 847    |  
| |  |                                                  
| |  | Total
 charge-offs                                |  |                            | 6,018  |                     |                           |   | 3,305  |   |      |   | 14,113 |   |  |   | 5,482  |  
| |  |                                                  
| |  | Recoveries                                        |  |                            |        |                     |                           |   |        |   |      |   |        |   |  |   |        |  
| |  | Residential
 real estate loans                    |  |                            | 3      |                     |                           |   | 255    |   |      |   | 140    |   |  |   | 262    |  
| |  | Commercial
 real estate loans                     |  |                            | 538    |                     |                           |   | -      |   |      |   | 538    |   |  |   | 23     |  
| |  | Commercial
 construction loans                    |  |                            | -      |                     |                           |   | -      |   |      |   | -      |   |  |   | -      |  
| |  | Commercial
 business loans                        |  |                            | 228    |                     |                           |   | 186    |   |      |   | 519    |   |  |   | 849    |  
| |  | Consumer
 loans                                   |  |                            | 34     |                     |                           |   | 41     |   |      |   | 192    |   |  |   | 110    |  
| |  |                                                  
| |  | Total
 recoveries                                 |  |                            | 803    |                     |                           |   | 482    |   |      |   | 1,389  |   |  |   | 1,244  |  
| |  |                                                  
| |  | Net charge-offs                                   |  |                            | 5,215  |                     |                           |   | 2,823  |   |      |   | 12,724 |   |  |   | 4,238  |  
| |  |                                                  
| |  | Balance at
 end of period                         |  | $                          | 51,720 |                     |                           | $ | 49,175 |   |      | $ | 51,720 |   |  | $ | 49,175 |  
| |  |                                                  
| |  | Net charge-offs
 to average loans (annualized)    |  |                            | 0.43   | %                   |                           |   | 0.23   | % |      |   | 0.34   | % |  |   | 0.12   | %
| |  | Allowance
 for loan losses to total loans         |  |                            | 1.08   |                     |                           |   | 0.99   |   |      |   | 1.08   |   |  |   | 0.99   |  
| |  | Allowance
 for loan losses to nonperforming loans |  |                            | 105.36 |                     |                           |   | 140.52 |   |      |   | 105.36 |   |  |   | 140.52 |  
| |  | Net charge-offs
 to allowance for loan losses     |  |                            | 10.08  |                     |                           |   | 5.74   |   |      |   | 24.60  |   |  |   | 8.62   |  
| |  | Total recoveries
 to total charge-offs            |  |                            | 13.34  |                     |                           |   | 14.58  |   |      |   | 9.84   |   |  |   | 22.69  |  
| |  |                                                   |  |                            |        |                     |                           |   |        |   |      |   |        |   |  |   |        |  

| |  | Loans held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Loans held
 for sale were $14.7 million at September 30, 2009, an increase of $9.3 million from
 December 31, 2008. The Company currently sells the majority of its originated fixed
 rate residential real estate loans with terms of 15 years or more. During the third
 quarter of 2009, the Company allocated an initial pool of $50.0 million for the retention
 of 30 year jumbo fixed rate residential mortgage originations in its portfolio.
 The increase is due to a greater number of fixed rate residential mortgage loan
 originations attributable to the historically low level of interest rates and the
 continued dislocation in the credit markets which reduced the number of competitors
 in the short term. These factors, combined with the Companys adequate liquidity
 and capital allowed us to increase our market share. During the year, the Company
 funded approximately $402.9 million in mortgage loans originated for sale. The Company
 originates both fixed-rate mortgage loans and small business loans (SBA)
 for sale in the secondary market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Goodwill and Identifiable Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | At September
 30, 2009, the Company had intangible assets of $564.6 million, a decrease of $6.4
 million, from $571.0 million at December 31, 2008. The decrease is due to year-to-date
 amortization expense for core deposit and customer relationships.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Identifiable
 intangible assets are amortized on a straight-line or accelerated basis, over their
 estimated lives. Management assesses the recoverability of intangible assets subject
 to amortization whenever events or changes in circumstances indicate that their
 carrying value may not be recoverable. If the carrying amount exceeds fair value,
 an impairment charge is recorded to income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Goodwill is
 not amortized, but instead is reviewed for impairment on an annual basis and more
 frequently if circumstances exist that indicates a possible reduction in the fair
 value of the business below its carrying value. The Company engaged an external
 third party to assist with the annual test for goodwill impairment during the first
 quarter of 2009. The analysis performed evaluated the fair value of the reporting
 unit using a combination of four valuation methodologies including; the Public Market
 Peers approach, the Comparable Transactions approach, the Control Premium approach
 and a Discounted Cash Flow approach. Based on the analysis, the Company concluded
 an impairment charge was not deemed necessary. Given the economic climate and the
 Companys market capitalization, management reviewed a number of events that
 could potentially trigger the requirement to perform an interim goodwill impairment
 analysis. The review consisted of an analysis of potential triggering events, including,
 but not limited to: a) a significant adverse change in legal factors or in the business
 climate, b) an adverse action or assessment by a regulator, c) unanticipated competition,
 d) cash flow or operating losses, e) long-term outlooks for specific industries
 and f) market capitalization of the company below its book value. The fact that
 the market capitalization of the Company was below its book value at September 30,
 2009 was outweighed by the lack of other triggering events and management concluded
 that no events or circumstances have occurred through September 30, 2009 which indicate
 that the carrying value of the Companys goodwill may be impaired.

50




| |  | Sources of Funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash flows
 from deposits, loan and mortgage-backed securities repayments, securities sales
 proceeds and maturities, borrowings and earnings are the primary sources of the
 Companys funds available for use in its lending and investment activities
 and in meeting its operational needs. While scheduled loan and securities repayments
 are a relatively stable source of funds, deposit flows and loan and investment security
 prepayments are influenced by prevailing interest rates and local and economic conditions
 and are inherently uncertain. See Note 10 of Notes to Unaudited Consolidated Financial
 Statements contained elsewhere within this Report for borrowings information.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | The Company
 attempts to control the flow of funds in its deposit accounts according to its need
 for funds and the cost of alternative sources of funding. A Loan and Deposit Pricing
 Committee meets weekly to determine pricing and marketing initiatives. It influences
 the flow of funds primarily by the pricing of deposits, which is affected to a large
 extent by competitive factors in its market area and asset/liability management
 strategies.                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The Company
 receives retail and commercial deposits through its main office and 86 other banking
 offices throughout Connecticut (75 locations) and Massachusetts (12 locations).
 Customers can also access their accounts through ATMs, internet banking and telephone
 banking. Customer deposits generated through the NewAlliance banking network are
 the largest source of funds used to support asset growth.                                                                                                                                                                                                                                                                                   

| |  | Table 11: Deposits |  |   |               |  |  |   |              | 
| |  | ------------------ |  | - | ------------- |  |  | - | ------------ | 
| |  |                    |  |   | September 30, |  |  |   | December 31, | 
| |  | (In thousands)     |  |   | 2009          |  |  |   | 2008         | 
| |  |                   
| |  | Savings            |  | $ | 1,841,605     |  |  | $ | 1,463,341    | 
| |  | Money market       |  |   | 696,464       |  |  |   | 346,522      | 
| |  | NOW                |  |   | 367,627       |  |  |   | 368,730      | 
| |  | Demand             |  |   | 528,614       |  |  |   | 494,978      | 
| |  | Time               |  |   | 1,540,025     |  |  |   | 1,774,259    | 
| |  |                   
| |  | Total
 deposits    |  | $ | 4,974,335     |  |  | $ | 4,447,830    | 
| |  |                   
| |  |                    |  |   |               |  |  |   |              | 

| |  | As displayed
 in Table 11, deposits increased $526.5 million compared to December 31, 2008. The
 Companys strategy has been to increase core deposits and reduce rates paid
 on interest bearing deposits, particularly on time deposits, in order to improve
 the net interest margin and the interest rate spread while continuing to build core
 relationships. Through well-designed product offerings, the Company has been able
 to grow core deposits by $760.7 million, particularly through the Companys
 free savings product. The Bank has also been focused on growing core deposits by
 launching the products, Essential Checking and Essential Savings in
 the beginning of the year, which encompasses an interest-bearing checking, a competitively
 priced savings account and a cash rewards debit card. Money market deposits have
 shown significant increases and have grown approximately $350.0 million from year
 end due to the premium money market product which offers competitive pricing with
 a tiered rate structure. The Company has executed several programs, including telephone
 and direct mail campaigns to retain valued, higher-balance deposit accounts through
 the cross-sell strategy of offering our best banking product 
 Premium Alliance Checking and its companion accounts  Premium Savings and
 Premium Money Market. Also positively impacting money market deposit balances was
 the transfer of approximately $45.0 million of the Banks Trust customer funds,
 awaiting investment or distribution, from institutional money market funds and into
 a money market account within the Bank. Partially offsetting the growth in core
 deposits was a decrease in time deposit accounts of approximately $234.2 million,
 as the Company repriced maturing CDs at reduced rates causing retention of
 time deposits to drop. However, the Company was able to retain some of the attrition
 in time deposit accounts through the free savings, premium money market and essential
 products that offer competitive interest rates.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | NewAlliance
 also uses various types of short-term and long-term borrowings in meeting funding
 needs. While customer deposits remain the primary source for funding loan originations,
 management uses short-term and long-term borrowings as a supplementary funding source
 for loan growth and other liquidity needs when the cost of these funds are favorable
 compared to alternative funding, including deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | The Company
 is a member of the FHLB of Boston which is part of the Federal Home Loan Bank System.
 Members are required to own capital stock in the FHLB and borrowings are collateralized
 by certain home mortgages or securities of the U.S. Government and its agencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

51




| |  | The following
 table summaries the Companys recorded borrowings at September 30, 2009.
| |  | ---------------------------------------------------------------------------------------

| |  | Table 12: Borrowings                                            |  |   |               |  |  |   |              | 
| |  | --------------------------------------------------------------- |  | - | ------------- |  |  | - | ------------ | 
| |  |                                                                 |  |   | September 30, |  |  |   | December 31, | 
| |  | (In thousands)                                                  |  |   | 2009          |  |  |   | 2008         | 
| |  |                                                                
| |  | FHLB advances (1)                                               |  | $ | 1,885,389     |  |  | $ | 2,190,914    | 
| |  | Repurchase
 agreements                                          |  |   | 133,802       |  |  |   | 159,530      | 
| |  | Mortgage loans
 payable                                         |  |   | 1,204         |  |  |   | 1,317        | 
| |  | Junior subordinated
 debentures issued to affiliated trusts (2) |  |   | 21,135        |  |  |   | 24,735       | 
| |  |                                                                
| |  | Total
 borrowings                                               |  | $ | 2,041,530     |  |  | $ | 2,376,496    | 
| |  |                                                                
| |  |                                                                 |  |   |               |  |  |   |              | 

| |  | (1) |  | Includes
 fair value adjustments on acquired borrowings, in accordance with purchase accounting
 standards of $3.7 million and $5.8 million at September 30, 2009 and December 31,
 2008, respectively. The acquisition fair value adjustments (premiums) are being
 amortized as an adjustment to interest expense on borrowings over their remaining
 terms using the level yield method.                                                                                                                                                                                             
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     | 
| |  | (2) |  | Includes
 fair value adjustments on acquired borrowings, in accordance with purchase accounting
 standards of $0 and $100,000 at September 30, 2009 and December 31, 2008, respectively.
 The trusts were organized to facilitate the issuance of "trust preferred" securities.
 The Company acquired these subsidiaries when it acquired Alliance Bancorp of New
 England, Inc. and Westbank Corporation, Inc. The affiliated trusts are wholly-owned
 subsidiaries of the Company and the payments of these securities are irrevocably
 and unconditionally guaranteed by the Company.
| |  |     | 

| |  | Borrowings
 were $2.04 billion at September 30, 2009, a decrease of $335.0 million from the balance
 recorded at December 31, 2008, and were mainly in FHLB advances. The decrease in
 FHLB advances was primarily due to principal paydowns and maturing advances, partially
 offset by new advances at reduced rates. Due to the growth in core deposits, the
 Company has not initiated any advances with the FHLB since the first quarter of
 2009. As a result, the Company was able to lessen its reliance on borrowings from
 the FHLB by utilizing excess customer deposits to originate loans, invest in securities
 and meet other liquidity needs, while managing interest rate risk. At September
 30, 2009, all of the Companys outstanding FHLB advances were at fixed rates
 ranging from 1.82% to 8.17%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Total stockholders equity equaled $1.43 billion at September 30, 2009, an increase of $46.3 million
 compared to $1.38 billion at December 31, 2008. The increase was primarily due to
 year to date earnings of $34.3 million and an increase in the fair market value of
 available for sale investment securities of $30.7 million, net of tax. The increase
 in equity was partially offset by $21.1 million for the payment of cash dividends
 declared on our common stock during the nine months ended September 30, 2009. For
 information regarding our compliance with applicable capital requirements, see Liquidity and Capital Position below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Dividends
 declared for the year to date period ended September 30, 2009 were $0.21 per share
 compared to $0.205 per share for the same period last year. On October 27, 2009,
 we declared a $0.07 per share cash dividend payable on November 17, 2009 to shareholders
 of record on November 6, 2009. This will be the Companys 22nd consecutive
 quarterly dividend payment. Book value per share amounted to $13.39 and $12.90 at
 September 30, 2009 and December 31, 2008, respectively, and tangible book value
 amounted to $8.09 and $7.57 at the same dates, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | 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 mitigated
 as the majority has implied government guarantees. There is no direct subprime mortgage
 exposure in the investment portfolio. The chief market risk factor affecting financial
 condition and operating results is interest rate risk. Interest rate risk is the
 exposure of current and future earnings and capital arising from adverse movements
 in interest rates and spreads. This risk is managed by periodic evaluation of the
 interest rate risk inherent in certain balance sheet accounts, determination of
 the level of risk considered appropriate given the Companys capital and liquidity
 requirements, business strategy, performance objectives and operating environment
 and maintenance of such risks within guidelines approved by the Board of Directors.
 Through such management, the Company seeks to reduce the vulnerability of its net
 earnings to changes in interest rates. The Asset/Liability Committee, comprised
 of numerous senior executives, is responsible for managing interest rate risk. On
 a quarterly basis, the Board of Directors reviews the Companys gap position
 and interest rate sensitivity exposure described below and Asset/Liability Committee
 minutes detailing the Companys activities and strategies, the effect of those
 strategies on the

52




| |  | Companys
 operating results, interest rate risk position and the effect changes in interest
 rates would have on the Companys net interest income. The extent of movement
 of interest rates is an uncertainty that could have a negative impact on earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The principal
 strategies used to manage interest rate risk include (i) emphasizing the origination,
 purchase and retention of adjustable rate loans, and the origination and purchase
 of loans with maturities matched with those of the deposits and borrowings funding
 the loans, (ii) investing in debt securities with relatively short maturities and/or
 average lives and (iii) classifying a significant portion of its investment portfolio
 as available for sale so as to provide sufficient flexibility in liquidity management.
 By its strategy of limiting the Banks risk to rising interest rates, the Bank
 is also limiting the benefit of falling interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | The Company
 employs two approaches to interest rate risk measurement; gap analysis and income
 simulation analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Gap 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, 2009, 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 positive $149.1 million,
 or positive 1.75% 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 a future balance sheet structure and interest income and expense under
 the various rate scenarios. The Companys internal guidelines on interest rate
 risk specify that for a range of interest rate scenarios, the estimated net interest
 margin over the next 12 months should decline by less than 12% as compared to the
 forecasted net interest margin in the base case scenario. However, in practice,
 interest rate risk is managed well within these 12% guidelines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | For the base
 case rate scenario the yield curve as of September 30, 2009 was utilized. This yield
 curve was utilized due to the recent excessive volatility in the rate markets as
 well as due to the comments from various Federal Reserve Bank officials that interest
 rates would likely remain flat for an extended period. As of September 30, 2009,
 the Companys estimated exposure as a percentage of estimated net interest
 income for the next twelve-month period as compared to the forecasted net interest
 income in the base case scenario are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |  |                                                  |  | Percentage change in          |      
| |  | ------------------------------------------------ |  | ----------------------------- | -----
| |  |                                                  |  | estimated net interest income |      
| |  |                                                  |  | over twelve months            |      
| |  |                                                 
| |  | 100 basis point upward shock in interest rates   |  |                               | 2.73 
| |  |                                                  |  |                               |      
| |  | 25 basis point
 downward shock in interest rates |  |                               | -0.97
| |  |                                                 

| |  | As of September
 30, 2009, a downward rate shock of 25 basis points was a realistic representation
 of the risk of falling rates as the Federal Reserve has reduced the overnight lending
 rate target to a range between 0.00% and 0.25%. For an increase in rates, an upward
 rate shock of 100 basis points is also a relevant representation of potential risk
 given the possibility of the economy rebounding in the first half of next year due
 to the reductions in the federal funds rate, the government stimulus package and
 the expansion of the Federal Reserve Banks balance sheet.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Based on the
 scenarios above, net interest income would increase slightly in the 12-month period
 after an upward movement in rates, and would decrease slightly after a downward
 movement in rates. Computation of prospective effects of hypothetical interest rate
 changes are based on a number of assumptions including the level of market interest
 rates, the degree to which non-                                                                                                                                                                                                       

53




| |  | maturity deposits
 react to changes in market rates, the expected prepayment rates on loans and investments,
 the degree to which early withdrawals occur on time deposits and other deposit flows.
 As a result, these computations should not be relied upon as indicative of actual
 results. Further, the computations do not reflect any actions that management may
 undertake in response to changes in interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Liquidity and Capital 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 used borrowings from the Federal Home Loan Bank of Boston to fund loan growth
 while managing interest rate risk and liquidity; however during 2009 the Company
 was able to reduce its reliance on the FHLB due to the growth in core deposits and
 thus have not initiated borrowings since March 2009. At September 30, 2009, total
 borrowings from the Federal Home Loan Bank amounted to $1.88 billion, exclusive of $3.7
 million in purchase accounting adjustments, and the Company had the immediate capacity
 to increase that total to $2.20 billion. Additional borrowing capacity of approximately $1.39
 billion would be readily available by pledging eligible investment securities as
 collateral. Depending on market conditions and the Companys liquidity and
 gap position, the Company may continue to borrow from the Federal Home Loan Bank
 or initiate borrowings through the repurchase agreement market. At September 30,
 2009 the Companys repurchase agreement lines of credit with three large broker
 dealers totaled $100.0 million, $75.0 million of which was available on that date.
 Agreement terms vary based on the collateral submitted.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | The Companys most liquid assets are cash and due from banks, short-term investments and
 debt securities. The levels of these assets are dependent on the Companys
 operating, financing, lending and investment activities during any given period.
 At September 30, 2009, cash and due from banks, short-term investments and debt
 securities maturing within one year amounted to $340.0 million, or 4.0% of total
 assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | NewAlliances main source of liquidity at the parent company level is dividends from NewAlliance
 Bank. The main uses of liquidity are payments of dividends to common stockholders,
 repurchase of NewAlliances common stock, and the payment of principal and
 interest to holders of trust preferred securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Management
 believes that the cash and due from banks, short term investments and debt securities
 maturing within one year, coupled with the borrowing line at the Federal Home Loan
 Bank and the available repurchase agreement lines at selected broker dealers, provide
 for sufficient liquidity to meet its operating needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | At September
 30, 2009, the Company had commitments to originate loans, unused outstanding lines
 of credit and standby letters of credit totaling $877.1 million. Commitments generally
 have fixed expiration dates or other termination clauses, therefore, total commitment
 amounts do not necessarily represent future cash requirements. Management anticipates
 that it will have sufficient funds available to meet its current loan commitments.
 Time deposits maturing within one year from September 30, 2009 amount to $1.15 billion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | At September
 30, 2009, the Companys Tier 1 leverage ratio, a primary measure of regulatory
 capital was $875.1 million, or 11.0%, which is above the threshold level of $398.7
 million, or 5.0% to be considered well-capitalized. The Tier 1 risk-based
 capital ratio stood at 19.9% and the Total risk-based capital ratio stood at 21.1%.
 The Bank also exceeded all of its regulatory capital requirements with leverage
 capital of $718.2 million, or 9.0% of average assets, which is above the required
 level of $319.0 million or 4.0%. The Tier 1 risk-based capital ratio was 16.4% and
 the Total risk-based capital ratio was 17.6%. 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, under the caption Management of Market and Interest Rate
 Risk on pages 52 through 54.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

54




| |  | Item 4. Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | The Companys management, including our Chief Executive Officer and Interim Chief Financial
 Officer, has evaluated the effectiveness of our disclosure controls and procedures
 (as defined in Rule 13(a)-15(e) or Rule 15(d)-15(e) under the Exchange Act) as of
 September 30, 2009. Based upon that evaluation, the Chief Executive Officer and
 Interim 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 2009.                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In addition,
 based on that evaluation, no change in the Companys internal control over
 financial reporting occurred during the quarter ended September 30, 2009 that has
 materially affected, or is reasonably likely to materially affect, the Companys
 internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Item
 4T. Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | PART II
 - OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Item
 1. Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | There are
 no material legal proceedings or other litigation. See the caption Legal Proceedings under Footnote 14 Commitments and Contingencies in Part I, Item
 I, Financial Statements (Unaudited) of this Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Item 1A. Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | An investment
 in our common stock involves certain risks inherent to our business. The material
 risks and uncertainties that management believes affect the Company are described
 below. To understand these risks and to evaluate an investment in our common stock,
 you should read this entire report, including the following risk factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | If any of
 the following risks actually occur, the Companys financial condition and results
 of operations could be materially and adversely affected. If this were to happen,
 the value of the Companys common stock could decline significantly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | Changes
 in interest rates and spreads could have a negative impact on earnings and results
 of operations, which could have a negative impact on the value of NewAlliance stock.
NewAlliances earnings and financial condition are dependent to a large
 degree upon net interest income, which is the difference between interest earned
 from loans and investments and interest paid on deposits and borrowings. The narrowing
 of interest rate spreads, meaning the difference between interest rates earned on
 loans and investments and the interest rates paid on deposits and borrowings, could
 adversely affect NewAlliances earnings and financial condition. The Company
 cannot predict with certainty or control changes in interest rates. Regional and
 local economic conditions and the policies of regulatory authorities, including
 monetary policies of the Federal Reserve Board, affect interest income and interest
 expense. The Company has ongoing policies and procedures designed to manage the
 risks associated with changes in market interest rates.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | However, changes
 in interest rates still may have an adverse effect on NewAlliances profitability.
 For example, high interest rates could also affect the amount of loans that we originate,
 because higher rates could cause customers to apply for fewer mortgages, or cause
 depositors to shift funds from accounts that have a comparatively lower cost, to
 accounts with a higher cost or experience customer attrition due to competitor pricing.
 If the cost of interest-bearing deposits increases at a rate greater than the yields
 on interest-earning assets increase, net interest income will be negatively affected.
 Changes in the asset and liability mix may also affect net interest income. Similarly,
 lower interest rates cause higher yielding assets to prepay and floating or adjustable
 rate assets to reset to lower rates. If the Bank is not able to reduce its funding
 costs sufficiently, due to either competitive factors or the maturity schedule of
 existing liabilities, then the Banks net interest margin will decline.                 

55




| |  | Credit
 market conditions may impact NewAlliances investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Significant
 credit market anomalies may impact the valuation and liquidity of the Companys
 investment securities. The problems of numerous financial institutions have reduced
 market liquidity, increased normal bid-asked spreads and increased the uncertainty
 of market participants. Such illiquidity could reduce the market value of the Companys investments, even those with no apparent credit exposure. The valuation of
 the Companys investments requires judgment and as market conditions change
 investment values may also change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Weakness
 in the markets for residential or commercial real estate, including the secondary
 residential mortgage loan markets, could reduce NewAlliances net income and
 profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Beginning
 in 2007 and continuing into 2009, softening residential housing markets, increasing
 delinquency and default rates, and increasingly volatile and constrained secondary
 credit markets began affecting the mortgage industry generally. NewAlliances
 financial results may be adversely affected by changes in real estate values. Decreases
 in real estate values could adversely affect the value of property used as collateral
 for loans and investments. If poor economic conditions result in decreased demand
 for real estate loans, the Companys net income and profits may decrease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The declines
 in home prices in many markets across the U.S., along with the reduced availability
 of mortgage credit, also may result in increases in delinquencies and losses in
 NewAlliances portfolio of loans related to residential real estate construction
 and development. Further declines in home prices coupled with a worsening economic
 recession and associated increases in unemployment levels could drive losses beyond
 that which is provided for in NewAlliances allowance for loan losses. In that
 event, NewAlliances earnings could be adversely affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Additionally,
 the effects of ongoing mortgage market challenges, combined with the ongoing correction
 in residential real estate market prices and reduced levels of home sales, could
 result in further price reductions in single family home values, adversely affecting
 the value of collateral securing mortgage loans held, mortgage loan originations
 and gains on sale of mortgage loans. Continued declines in real estate values and
 home sales volumes, and financial stress on borrowers as a result of job losses,
 or other factors, could have further adverse effects on borrowers that result in
 higher delinquencies and greater charge-offs in future periods, which would adversely
 affect NewAlliances financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | NewAlliance
 may experience higher levels of loan losses due to current economic conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | The current
 economic conditions have led to declines in collateral values and stress on the
 cash flows of borrowers, therefore, NewAlliances allowance for loan losses
 may need to be increased, or may be deemed insufficient by various regulatory agencies.
 Such agencies may require the Bank to recognize an increase to the allowance for
 loan losses. Any increases in the allowance for loan losses will result in a decrease
 in net income and, possibly capital, and may have a material adverse effect on NewAlliances financial condition and results of operations. See the sections titled Allowance
 for Loan Losses and Classification of Assets and Loan Review in
 Item 7, Managements Discussion and Analysis of Financial Condition and Results
 of Operation, located in the Companys most recent Annual Report on Form 10-K
 for further discussion related to the process for determining the appropriate level
 of the allowance for loan losses.                                                                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | If the
 goodwill that the Company has recorded in connection with its acquisitions becomes
 impaired, it would have a negative impact on the Companys profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Applicable
 accounting standards require that the purchase method of accounting be used for
 all business combinations. Under purchase accounting, if the purchase price of an
 acquired company exceeds the fair value of the companys net assets, the excess
 is carried on the acquirers balance sheet as goodwill. At September 30, 2009,
 the Company had approximately $527.2 million of goodwill on its balance sheet. Companies
 must evaluate goodwill for impairment at least annually. Write-downs of the amount
 of any impairment, if necessary, are to be charged to the results of operations
 in the period in which the impairment occurs. There can be no assurance that future
 evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on NewAlliances financial
 condition and results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | NewAlliances business strategy of growth through acquisitions could have an impact on
 earnings and results of operations that may negatively impact the value of NewAlliance
 stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In recent
 years, NewAlliance has focused, in part, on acquisitions. Over the past five years,
 the Company has acquired four banking institutions, a non-depository trust company
 and a registered investment advisory firm. From time to time in the ordinary course
 of business, the Company engages in preliminary discussions with potential acquisition
 targets. As of the date of this filing, there are no binding or definitive agreements,
 plans, arrangements, or understandings for such acquisitions by the Company. Although
 our business strategy includes both internal expansion and acquisitions, there can
 be no assurance that, in the future, we will successfully identify suitable acquisition
 candidates, complete acquisitions successfully, integrate acquired operations into
 our existing operations or expand into new markets. Further, there can be no assurance
 that acquisitions will not have an adverse effect upon our operating results while
 the operations of the acquired businesses are being integrated into our operations.
 In addition, once integrated, acquired operations may not achieve levels of profitability
 comparable to those achieved by our existing operations, or otherwise perform as
 expected. Further, transaction-related expenses or expenses related

56




| |  | to the work
 on transactions that do not close, may adversely affect our earnings. These adverse
 effects on our earnings and results of operations may have a negative impact on
 the value of our stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | The impact
 on the Company and the Bank of recently enacted legislation, in particular the Emergency
 Economic Stabilization Act of 2008 and its implementing regulations cannot be predicted
 at this time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | On October
 3, 2008, President Bush signed into law the EESA, which includes the TARP. The legislation
 was in response to the financial crises affecting the banking system and financial
 markets. EESA is expected to have a profound effect on the financial services industry.
 The effect of programs developed under EESA, including the TARP and Capital Purchase
 Program (CPP), could dramatically change the competitive environment
 of the Company.                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | TARP gave
 the Treasury authority to deploy up to $700.0 billion into the financial system with
 an objective of improving liquidity in capital markets. On October 14, 2008, Treasury
 announced plans to direct $250.0 billion of this authority into preferred stock investments
 in banks (the CPP), the first $125.0 billion of which has been allocated to nine
 major financial institutions. By the end of December 2008, an additional $100.0 billion
 was allocated to American International Group, the Federal Reserve Bank of New York,
 Citigroup and U.S. automakers, GM and Chrysler. In January 2009, the remaining $350.0
 billion was also released by Congress. The general terms of this preferred stock
 program are as follows for a participating bank:
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

| |  | The Company
 is not participating in either the TARP or the CPP, however, the actual impact that
 EESA and the implementation of its programs, or any other governmental program will
 have on the financial markets and the Company cannot reliably be determined at this
 time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Strong
 competition within NewAlliances market areas may limit growth and profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Competition
 in the banking and financial services industry is intense. In our market areas,
 we compete with commercial banks, savings institutions, mortgage brokerage firms,
 credit unions, finance companies, mutual funds, insurance companies, and brokerage
 and investment banking firms operating locally and elsewhere. As we grow, we will
 be expanding into market areas where we may not be as well known as other institutions
 that have been operating in those areas for some time. In addition, larger banking
 institutions have become increasingly active in our market areas. Many of these
 competitors have substantially greater resources and lending limits than we have
 and may offer certain services that we do not or cannot efficiently provide. Our
 profitability depends upon our continued ability to successfully compete in our
 market areas. The greater resources and deposit and loan products offered by some
 of our competitors may limit our ability to grow profitably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | NewAlliance
 is subject to extensive government regulation and supervision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | NewAlliance,
 primarily through NewAlliance Bank and certain non-bank subsidiaries, is subject
 to extensive federal and state regulation and supervision. Banking regulations are
 primarily intended to protect depositors funds, federal deposit insurance
 funds and the banking system as a whole, not stockholders. These regulations affect
 the Companys lending practices, capital structure, investment practices, dividend
 policy and growth, among other things. Congress and federal regulatory agencies
 continually review banking laws, regulations and policies for possible changes.
 For example, currently pending in Congress are separate bills that would (1) create
 a Consumer Financial Protection Agency; and (2) impose stringent rules on banks
 charging overdraft fees. Other initiatives would dramatically alter the current
 structure for the regulation of banks. Changes to statutes, regulations or regulatory
 policies, including changes in interpretation or implementation of statutes, regulations
 or policies, could affect the Company in substantial and unpredictable ways. Such
 changes could subject the Company to additional costs, limit the types of financial
 services and products we may offer and/or increase the ability of non-banks to offer
 competing financial services and products, among other things. Failure to comply
 with laws, regulations or policies could result in sanctions by regulatory agencies,
 civil money penalties and/or reputation damage, which could have a material adverse
 effect on the Companys business, financial condition and results of operations.
 While NewAlliance has policies and procedures designed to prevent any such violations,
 there can be no assurance that such violations will not occur. See the section captioned
 Supervision and Regulation in Item 1. located in the Companys
 most recent Annual Report on Form 10-K for further information.

57




| |  | NewAlliance
 may not pay stockholders dividends if NewAlliance is not able to receive dividends
 from its subsidiary, NewAlliance Bank.                                                                                                                                                                                                                                                                             
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash dividends
 from NewAlliance Bank and our liquid assets are our principal sources of funds for
 paying cash dividends on our common stock. Unless we receive dividends from NewAlliance
 Bank or choose to use our liquid assets, we may not be able to pay dividends. NewAlliance
 Banks ability to pay us dividends is subject to its ability to earn net income
 and to meet certain regulatory requirements.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | NewAlliances stock price can be volatile.                                                                                                                                                                                                                                                                                                                                                                           
| |  | NewAlliances stock price can fluctuate widely in response to a variety of factors including:                                                                                                                                                                                                                                                                                                                        

| |  |  |  | actual or
 anticipated variations in quarterly operating results;                                                                                                           
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | recommendations
 by securities analysts;                                                                                                                                    
| |  |  |  | new technology
 used, or services offered, by competitors;                                                                                                                  
| |  |  |  | significant
 acquisitions or business combinations, strategic partnerships, joint ventures or
 capital commitments by or involving the Company or the Companys competitors;
| |  |  |  | failure to
 integrate acquisitions or realize anticipated benefits from acquisitions;                                                                                       
| |  |  |  | operating
 and stock price performance of other companies that investors deem comparable to
 NewAlliance;                                                                   
| |  |  |  | news reports
 relating to trends, concerns and other issues in the financial services industry;                                                                             
| |  |  |  | changes in
 government regulations; and                                                                                                                                     
| |  |  |  | geopolitical
 conditions such as acts or threats of terrorism or military conflicts.                                                                                        

| |  | General market
 fluctuations, industry factors and general economic and political conditions and
 events, such as economic slowdowns or recessions, interest rate changes, credit
 loss trends or currency fluctuations could also cause NewAlliances stock price
 to decrease regardless of the Companys operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | NewAlliance
 may not be able to attract and retain skilled people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | NewAlliances success depends, in large part, on its ability to attract and retain key
 people. Competition for the best people in most activities engaged in by the Company
 can be intense and we may not be able to hire people or to retain them. The unexpected
 loss of services of one or more of the Companys key personnel could have a
 material adverse impact on the business because of their skills, knowledge of the
 market, years of industry experience and the difficulty of promptly finding qualified
 replacement personnel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | NewAlliance
 continually encounters technological change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The financial
 services industry is continually undergoing rapid technological change with frequent
 introductions of new technology-driven products and services. The effective use
 of technology can increase efficiency and enable financial institutions to better
 serve customers and to reduce costs. However, some new technologies needed to compete
 effectively result in incremental operating costs. The Companys future success
 depends, in part, upon its ability to address the needs of its customers by using
 technology to provide products and services that will satisfy customer demands,
 as well as to create additional efficiencies in operations. Many of the Companys competitors have substantially greater resources to invest in technological
 improvements. The Company may not be able to effectively implement new technology-driven
 products and services or be successful in marketing these products and services
 to its customers. Failure to successfully keep pace with technological change affecting
 the financial services industry could have a material adverse impact on the Companys business and, in turn, its financial condition and results of operations.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | NewAlliances controls and procedures may fail or be circumvented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Management
 regularly reviews and updates the Companys internal controls, disclosure controls
 and procedures, and corporate governance policies and procedures. Any system of
 controls, however well designed and operated, is based in part on certain assumptions
 and can provide only reasonable, not absolute, assurances that the objectives of
 the system are met. Any failure or circumvention of the controls and procedures
 or failure to comply with regulations related to controls and procedures could have
 a material adverse effect on the Companys business, results of operations
 and financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Customer
 information may be obtained and used fraudulently.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Risk of theft
 of customer information resulting from security breaches by third parties exposes
 the Company to reputation risk and potential monetary loss. The Company has exposure
 to fraudulent use of our customers personal information resulting from its
 general business operations through loss or theft of the information and through
 customer use of financial instruments, such as debit cards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Changes
 in accounting standards can materially impact NewAlliances financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | NewAlliances accounting policies and methods are fundamental to how the Company records
 and reports its financial condition and results of operations. From time to time,
 the Financial Accounting Standards Board or regulatory authorities change the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

58




| |  | financial
 accounting and reporting standards that govern the preparation of our financial
 statements. These changes can be hard to predict and can materially impact how we
 record and report our financial condition and results of operations. In some cases,
 we could be required to apply a new or revised standard retroactively, resulting
 in the Company restating prior period financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Changes
 and interpretations of tax laws and regulations may adversely impact NewAlliances financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Local, state
 or federal tax authorities may interpret tax laws and regulations differently than
 NewAlliance and challenge tax positions that NewAlliance has taken on its tax returns.
 This may result in the disallowance of deductions or differences in the timing of
 deductions and result in the payment of additional taxes, interest or penalties
 that could materially affect NewAlliances performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Unpredictable
 catastrophic events could have a material adverse effect on NewAlliance Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | The occurrence
 of catastrophic events such as hurricanes, pandemic disease (including the H1N1
 virus), windstorms, floods, severe winter weather or other catastrophes could adversely
 affect NewAlliances business and, in turn, its financial condition or results
 of operations. This may result in a significant number of employees that are unavailable
 to perform critical operating functions at either their regular worksite or the
 disaster recovery worksite. Unpredictable natural and other disasters could have
 an adverse effect on the Company in that such events could materially disrupt its
 operations or the ability or willingness of its customers to access the financial
 services offered by NewAlliance Bank.                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Unprecedented
 disruption and significantly increased risk in the financial markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | The banking
 industry experienced unprecedented turmoil in 2008 as some of the worlds major
 financial institutions collapsed, were seized or were forced into mergers as the
 credit markets tightened and the economy headed into a recession and has eroded
 confidence in the worlds financial system. As we have seen in the past year
 there have been unintended consequences (i.e. investors are hesitant to invest in
 the financial sector for fear of losing their investment) from the measures taken
 by the Government in an effort to stabilize the economy such as, the FDICs
 special one-time assessment of 5 basis points of total assets less Tier 1 capital
 payable in the third quarter of 2009, which has had a substantial effect on NewAlliances deposit insurance premium expense in 2009. There may also be other ways in
 which NewAlliance Bank will be impacted by the current crisis that we cannot currently
 predict or mitigate.

| |  | 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, 2009.

Issuer Purchases of Equity Securities


|                      |     | (a) Total
 Number of SharesPurchased | (b) Average
 Price Paid perShare(includescommission) | (c) Total
 Number of SharesPurchased as Part ofPublicly Announced Plansor Programs | (d) Maximum
 Number(or Approximate Dollar Value) ofShares that may Yet BePurchased Under the
 Plansor Programs
|--------------------- | --- | ------------------------------------ | ---------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------
|Period                |     |                                      |                                                      |                                                                                    |                                                                                                               
|July 1-31, 2009       | (1) | 202                                  | $          
        11.73                            | 0                                                                                  | 3,036,747
 shares                                                                                             
|August 1-31,
 2009    |     | 0                                    | $          
                -                        | 0                                                                                  | 3,036,747
 shares                                                                                             
|September
 1-30, 2009 |     | 149,475                              | $             
     10.89                            | 149,475                                                                            | 2,887,272
 shares                                                                                             
|Total                 |     | 149,677                              | $             
     10.89                            | 149,475                                                                            |                                                                                                               

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

|    |  |                                                                                                                                                             | 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) |  | Shares represent
 common stock withheld by the Company to satisfy tax withholding requirements on
 the vesting of shares under the Companys benefit plans.

59




|Item 3. Defaults Upon Senior Securities                    
|-----------------------------------------------------------
|                                                           
|None.                                                      
|                                                           
|Item 4. Submission of Matters to a Vote of Security Holders
|                                                           
|None.                                                      
|                                                           
|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     |  |  | Amended
 and Restated Bylaws of NewAlliance Bancshares, Inc. Incorporated herein by reference
 is Exhibit 3.2 filed with the Companys Current Report on Form 8-K, filed November 2, 2007.                                                                                               
|4.1     |  |  | See Exhibit
 3.1, Amended and Restated Certificate of Incorporation and Exhibit 3.2, Bylaws of
 NewAlliance Bancshares, Inc.                                                                                                                                                             
|10.1    |  |  | (Intentionally
 omitted.)                                                                                                                                                                                                                                                                
|10.2    |  |  | Amended
 and Restated NewAlliance Bank Supplemental Executive Retirement Plan. Incorporated
 herein by reference is Exhibit 10.2 filed with the Companys Quarterly Report
 on Form 10-Q, filed November 7, 2008.                                                                        
|10.3    |  |  | NewAlliance
 Amended and Restated Employee Stock Ownership Plan Supplemental Executive Retirement
 Plan. Incorporated herein by reference is Exhibit 10.3 filed with the Companys
 Quarterly Report on Form 10-Q, filed November 7, 2008.                                               
|10.4    |  |  | The NewAlliance
 Bank Amended and Restated 401(k) Supplemental Executive Retirement Plan. Incorporated
 herein by reference is Exhibit 10.4 filed with the Companys Quarterly Report
 on Form 10-Q, filed November 7, 2008.                                                             
|10.5    |  |  | NewAlliance
 Bank Executive Incentive Plan approved by shareholders on April 17, 2008, as amended.
 Incorporated herein by reference is Exhibit 10.5 filed with the Companys Quarterly
 Report on Form 10-Q, filed August 7, 2009.                                                      
|10.6    |  |  | Employee
 Change of Control Severance Plan. Incorporated by reference is Exhibit 10.6 filed
 with the Companys Quarterly Report on Form 10-Q, filed November 8, 2007.                                                                                                                   
|10.7.1  |  |  | Amended
 and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance
 Bank and Peyton R. Patterson, effective September 25, 2007. Incorporated herein
 by reference is Exhibit 10.7.1 filed with the Companys Current Report on Form
 8-K, filed October 1, 2007. 
|10.7.2  |  |  | Intentionally
 omitted.                                                                                                                                                                                                                                                                  
|10.7.3  |  |  | Amended
 and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance
 Bank and Gail E.D. Brathwaite, effective September 25, 2007. Incorporated herein
 by reference is Exhibit 10.7.3 filed with the Companys Current Report on Form
 8-K, filed October 1, 2007.
|10.7.4  |  |  | Intentionally
 omitted.                                                                                                                                                                                                                                                                  
|10.7.5  |  |  | June 2009
 Amendment to Amended and Restated Employment Agreement between NewAlliance Bank
 and Diane L. Wishnafski, effective June 23, 2009. Incorporated herein by reference
 is Exhibit 10.7.5.1 filed with the Companys Current Report on Form 8-K, filed
 June 23, 2009.           
|10.7.6  |  |  | (Intentionally
 omitted)                                                                                                                                                                                                                                                                 
|10.7.7  |  |  | (Intentionally
 omitted)                                                                                                                                                                                                                                                                 
|10.7.8  |  |  | Amended
 and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee,
 effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.8
 filed with the Companys Current Report on Form 8-K, filed October 1, 2007.                                
|10.7.9  |  |  | Employment
 Agreement between NewAlliance Bank and Paul A. McCraven, effective September 25,
 2007. Incorporated herein by reference is Exhibit 10.7.9 filed with the Companys Current Report on Form 8-K, filed October 1, 2007.                                                       
|10.7.10 |  |  | Amended
 and Restated Employment Agreement between NewAlliance Bank and Koon-Ping Chan, effective
 September 25, 2007. Incorporated herein by reference is Exhibit 10.7.10 filed with
 the Companys Current Report on Form 8-K, filed October 1, 2007.                                  
|10.7.11 |  |  | Employment
 Agreement between NewAlliance Bank and Mark Gibson, effective February 18, 2009.
 Incorporated herein by reference is Exhibit 10.7.11 filed with the Companys
 Annual Report on Form 10-K, filed February 27, 2009.                                                         

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|10.7.12 |  |  | Employment
 Agreement among NewAlliance Bank, NewAlliance Bancshares, Inc. and Cecil Eugene
 Kirby, Jr., effective April 21, 2009. Incorporated herein by reference is Exhibit
 10.7.12 filed with the Companys Current Report on Form 8-K, filed April 22,
 2009.
|------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7.13 |  |  | Employment
 Agreement among NewAlliance Bank, NewAlliance Bancshares, Inc. and Glenn I. MacInnes,
 dated as of October 12, 2009. Incorporated herein by reference is Exhibit 10.7.13
 filed with the Companys Current Report on Form 8-K, filed October 14, 2009. 
|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.                                                                        
|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.                                                             
|10.11   |  |  | (Intentionally
 omitted)                                                                                                                                                                                                                                           
|10.12   |  |  | Form of
 Indemnification Agreement for Directors and Certain Executive Officers. Incorporated
 herein by reference is Exhibit 10.12 filed with the Companys Annual Report
 on Form 10-K, filed March 1, 2007.                                                     
|10.13   |  |  | General
 Severance Plan. Incorporated herein by reference is Exhibit 10.13 filed with the
 Companys Annual Report on Form 10-K, filed February 27, 2009.                                                                                                          
|10.14   |  |  | Form of
 Performance Share Award Agreement (for senior officers) (2009 awards). Incorporated
 herein by reference is Exhibit 10.14 filed with the Company Current Report on Form
 8-K, filed June 1, 2009.                                                         
|10.15   |  |  | Form of
 Restricted Stock Award Agreement (for senior officers) (2009 awards). Incorporated
 herein by reference is Exhibit 10.15 filed with the Company Current Report on Form
 8-K, filed June 1, 2009.                                                          
|10.16   |  |  | Form of
 Stock Option Award Agreement (for senior officers) (2009 awards). Incorporated herein
 by reference is Exhibit 10.16 filed with the Company Current Report on Form 8-K,
 filed June 1, 2009.                                                              
|14      |  |  | Code of
 Ethics for Senior Financial Officers. Incorporated herein by reference is Exhibit
 14 filed with the Companys Annual Report on Form 10-KT, filed March 30, 2004.                                                                                         
|21      |  |  | Subsidiaries
 of NewAlliance Bancshares, Inc. and NewAlliance Bank. Incorporated herein by reference
 is Exhibit 21 filed with the Companys Annual Report on Form 10-K, filed March
 1, 2007.                                                                     
|31.1    |  |  | Certification
 of Peyton R. Patterson pursuant to the requirements of Section 13 or 15(d) of the
 Securities Exchange Act of 1934 (filed herewith).                                                                                                                
|31.2    |  |  | Certification
 of Mark F. Doyle 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 Mark F. Doyle pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                        

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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:                                                                                                                                                                                       
|           |                                                                                                                                                                                           
|           |                                                                                                                                                                                           
|           |                                                                                                                                                                                           
|           |                                                                                                                                                                                           
|           |                                                                                                                                                                                           
|           | Date:                                                                                                                                                                                     

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