10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ X ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005
OR
[     ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-50610

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 officers)	(Zip Code)

Registrant’s telephone number, including area code: (203) 789-2767
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Title of  Class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	New York Stock Exchange, Inc.

     Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   X    No ___

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes___   No    X  

     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.                            Yes   X    No ___

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.    X  

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act.

Large accelerated filer     X                                                                                                    Accelerated filer ___                                                                                          Non-accelerated filer ___

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

     The market value of the common equity held by non-affiliates was $1.58 billion based upon the closing price of $14.05 as of June 30, 2005 as reported in The Wall Street Journal on July 1, 2005. Solely for the purposes of this calculation, directors and officers of the registrant are deemed to be affiliates. As of February 24, 2006 there were 109,987,870 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on April 11, 2006 are incorporated by reference into Part III, Items 10 - 14 of this 10-K.

TABLE OF CONTENTS

Part I		Page
Item 1.	Business		3
Item 1A.	Risk Factors		18
Item 1B.	Unresolved Staff Comments		19
Item 2.	Properties		19
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		20
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
Item 6.	Selected Financial Data		21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		45
Item 9A.	Controls and Procedures		45
Item 9B.	Other Information		45
Part III
Item 10.	Directors and Executive Officers of the Registrant		46
Item 11.	Executive Compensation		46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		46
Item 13.	Certain Relationships and Related Transactions		46
Item 14.	Principal Accounting Fees and Services		46
Part IV
Item 15.	Exhibits, Financial Statement Schedules		46

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PART I

Item 1.    Business

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 market interest rates, loan prepayment rates and delinquencies, general economic conditions, legislation and regulation; changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; changes in the quality or composition of the loan or investment portfolios; changes in deposit flows, competition, and demand for financial services, and loan, deposit and investment products in the Company’s markets; the ability of the Company to successfully integrate the operations of acquired companies, changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the Company’s operations, pricing and services.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by applicable law or regulation, 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.

General

In 2003, the Company was organized as a Delaware business corporation in connection with the conversion of NewAlliance Bank (the “Bank”), formerly New Haven Savings Bank, from mutual to capital stock form, which became effective on April 1, 2004. The Bank’s conversion resulted in the Company owning all of the Bank’s outstanding capital stock. The Bank is now a wholly-owned subsidiary of the Company, a bank holding company regulated by the Federal Reserve Board. On April 1, 2004 the Bank changed its name to NewAlliance Bank.

The Company completed two acquisitions on April 1, 2004: (1) Connecticut Bancshares, Inc. (“Connecticut Bancshares”), the holding company for the Savings Bank of Manchester and (2) Alliance Bancorp of New England, Inc. (“Alliance”), the holding company for Tolland Bank. The Savings Bank of Manchester was a $2.54 billion-asset bank with 28 branches in three counties in Central Connecticut, Tolland Bank was a $427.6 million-asset bank with 10 branches in two counties in Central Connecticut. The acquired banks were merged into NewAlliance Bank.

On July 1, 2005, the Company completed the acquisition of Trust Company of Connecticut (“Trust Company”), a non-depository trust company. Trust Company had assets of approximately $5.6 million, stockholders’ equity of approximately $4.9 million and client assets under management of approximately $700 million.

On January 2, 2006 the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), the holding company for Cornerstone Bank and Trust Company. Cornerstone had assets and stockholders’ equity of approximately $212.0 and $21.6 million, respectively at December 31, 2005, with six full service offices serving the attractive Fairfield County market in Southern Connecticut.

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

The Company’s core operating objectives are to (1) grow through a disciplined acquisition strategy, supplemented by de-novo branching, (2) build high quality, profitable loan portfolios, in particular through growth in commercial real estate, commercial business, residential real estate and home equity loans using both organic and acquisition strategies, (3) increase the non-interest income component of total revenues through (i) development of banking-related fee income, (ii) growth in existing wealth management services, including trust and the sale of insurance and investment products, and (iii) the potential acquisition of additional

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financial services businesses, (4) utilize technology to provide superior customer service and new products and (5) improve operating efficiencies through increased scale and process improvements.

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

The Bank was founded in 1838 as a Connecticut-chartered mutual savings bank and is regulated by the State of Connecticut Department of Banking and the Federal Deposit Insurance Corporation. The Company’s deposits are insured to the maximum allowable amount by the Bank Insurance Fund of the Federal Deposit Insurance Corporation. The Bank has been a member of the Federal Home Loan Bank System since 1974.

At December 31, 2005, the Company operated 65 banking offices in New Haven, Middlesex, Hartford, Tolland and Windham counties effectively providing a full range of banking services to individuals and corporate customers located in Southwestern, Central, South Central and Southeastern Connecticut. Effective with the acquisition of Cornerstone, the Company broadened its branch network reach further south into Fairfield County, increasing the number of communities served to 41 and number of banking offices to 71. The Company specializes in the acquisition of deposits, from both the general public and businesses, in the communities and surrounding towns served by its branch network. These deposits, together with funds generated from operations and borrowings, are in turn used to originate residential real estate loans, consumer loans (primarily home equity loans and lines of credit), commercial loans and commercial real estate loans. On September 26, 2005, the Company opened a new full-service branch in the Parkville section of Hartford, Connecticut.

The Company retains in its portfolio loans that it originates and purchases except fixed rate residential loans which are scheduled to amortize over more than 15 years, which are generally sold in the secondary market with servicing rights retained. The Company also invests in mortgage-backed and debt securities and other permissible investments. Revenues are derived principally from the generation of interest and fees on loans and, to a lesser extent, interest and dividends on securities. The Company’s primary sources of funds are deposits, repurchase agreements, principal and interest payments on loans, investment securities and advances from the Federal Home Loan Bank (“FHLB”). The Company’s results of operations depend to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense for deposits and borrowings.

Lending Activities

General
The Company originates residential real estate loans collateralized by one- to four-family residences, commercial real estate loans, residential and commercial construction loans, commercial loans, home equity lines of credit and fixed rate loans and other consumer loans predominately in the State of Connecticut. In 2005, the Company began a strategy of purchasing adjustable rate and 10 and 15 year fixed rate residential mortgages with property locations predominantly in the Northeast. By the end of 2005, the Company had decided to expand the program to twenty states and anticipates that loan purchases will continue in 2006. Real estate secured the majority of the Company’s loans as of December 31, 2005, including some loans classified as commercial loans. Interest rates charged on loans are affected principally by the Company’s current asset/liability strategy, the demand for such loans, the supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by general economic conditions, monetary policies of the federal government, including the Federal Reserve Board, federal and state tax policies and budgetary matters.

Residential Real Estate Loans
A principal lending activity of the Company is to originate loans secured by first mortgages on one- to four-family residences in the State of Connecticut. The Company originates residential real estate loans primarily through commissioned mortgage representatives across our branch footprint. The Company originates both fixed rate and adjustable rate mortgages and purchases both adjustable rate and 10 and 15 year fixed rate mortgages. Residential lending represents the largest single component of our total portfolio.

The Company currently sells all of the fixed rate residential real estate loans it originates with terms of over 15 years. Loans are originated for sale under forward rate commitments. The percentage of loans the Company sells will vary depending upon interest rates and our strategy for the management of interest rate risk. The Company continues to service loans that it sells to Federal Home Loan Mortgage Corporation or Federal National Mortgage Association and others, and receives a fee for servicing such loans.

The retention of adjustable rate and shorter term fixed rate, as opposed to longer term, fixed rate residential mortgage loans in the portfolio helps reduce the Company’s exposure to interest rate risk. However, adjustable rate mortgages generally pose credit risks

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different from the credit risks inherent in fixed rate loans primarily because as interest rates rise, the underlying debt service payments of the borrowers rise, thereby increasing the potential for default. Management believes that these risks, which have not had a material adverse effect on the Company to date, generally are less onerous than the interest rate risks associated with holding long-term fixed rate loans in the loan portfolio. The Company began a residential real estate loan purchase program at the beginning of the year 2005. The program began with purchasing adjustable rate mortgages and fixed rate mortgages with terms of maturity of less than 15 years. The servicing for these loans is retained by the seller. These purchases were concentrated in the greater New England states following underwriting standards no less stringent than those used for the organic residential loan portfolio. The Company also purchases fixed rate mortgages with terms greater than 15 years for Community Reinvestment Act purposes. At the end of the year 2005, the Company decided to expand the footprint for its purchases of residential mortgages based on an analysis of relevant state economic data and other considerations.

Commercial Real Estate Loans
The Company makes commercial real estate loans throughout its market area. Properties, such as office buildings, light industrial, retail facilities or multi-family income properties, normally collateralize commercial real estate loans. These properties are located primarily in Connecticut. Among the reasons for management’s continued emphasis on commercial real estate lending is the desire to invest in assets with yields which are generally higher than yields on one- to four-family residential mortgage loans, and are more sensitive to changes in market interest rates. These loans typically have terms of up to 25 years and interest rates which adjust over periods of 3 to 10 years based on one of various rate indices.

Commercial real estate lending poses greater credit risk than residential mortgage lending to owner occupants. The repayment of commercial real estate loans depends on the business and financial condition of the borrower. Economic events and changes in government regulations, which the Company and its borrowers do not control, could have an adverse impact on the cash flows generated by properties securing commercial real estate loans and on the market value of such properties. Commercial properties tend to decline in value more rapidly than residential owner-occupied properties during economic recessions and individual loans on commercial properties tend to be larger than individual loans on residential properties.

Construction Loans
The Company originates both residential and commercial construction loans. Typically loans are made to owner-borrowers who will occupy the properties (residential construction) and to licensed and experienced developers for the construction of single-family home developments (commercial construction).

The proceeds of construction loans are disbursed in stages and the terms may require developers to pre-sell a certain percentage of the properties they plan to build before the Company will advance any construction financing. Company officers, appraisers and/or independent engineers inspect each project’s progress before additional funds are disbursed to verify that borrowers have completed project phases.

Residential construction loans to owner-borrowers generally convert to a fully amortizing long-term mortgage loans upon completion of construction. Commercial construction loans generally have terms of six months to two years. Some construction to permanent loans have fixed interest rates for the permanent portion, but the Company originates mostly adjustable rate construction loans.

Construction lending, particularly commercial construction lending, poses greater credit risk than residential mortgage lending to owner occupants. The repayment of construction loans depends on the business and financial condition of the borrower and on the economic viability of the project financed. A number of borrowers have more than one construction loan outstanding with the Company at any one time. Economic events and changes in government regulations, which the Company and its borrowers do not control, could have an adverse impact on the value of properties securing construction loans and on the borrower’s ability to complete projects financed and, if not the borrower’s residence, sell them for anticipated amounts at the time the projects commenced.

Commercial Loans
Commercial loans are generally collateralized by equipment, leases, inventory and/or accounts receivable. Many of the Company’s commercial loans are also collateralized by real estate, but are not classified as commercial real estate loans because such loans are not made for the purpose of acquiring, refinancing or constructing the real estate securing the loan. Commercial loans provide primarily working capital, equipment financing, financing for leasehold improvements and financing for expansion. The Company offers both term and revolving commercial loans. Term loans have either fixed or adjustable rates of interest and, generally, terms of between two and seven years. Term loans generally amortize during their life, although some loans require a balloon payment at maturity. Revolving commercial lines of credit typically have two-year terms, are renewable annually and have rates of interest which generally adjust on a daily basis. Such rates are normally indexed to the Company’s base rate of interest.

Commercial lending generally poses a higher degree of credit risk than real estate lending. Repayment of both secured and unsecured commercial loans depends substantially on the success of the borrower’s underlying business, financial condition and cash flows. Unsecured loans generally involve a higher degree of risk of loss than do secured loans because, without collateral, repayment is

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primarily dependent upon the success of the borrower’s business. Secured commercial loans are generally collateralized by equipment, leases, inventory and accounts receivable. Compared to real estate, such collateral is more difficult to monitor, its value is more difficult to validate, it may depreciate more rapidly and it may not be as readily saleable if repossessed.

At December 31, 2005, the Company’s outstanding commercial loan portfolio included the following business sectors: manufacturing, special trades, professional services, wholesale trade, retail trade, educational and health services. Industry concentrations are reported quarterly to the Loan Committee of the Board of Directors.

Consumer Loans
The Company originates various types of consumer loans, including auto, mobile home, boat, educational and personal installment loans. However, over 95% of our consumer loan portfolio is comprised of home equity loans and lines of credit secured by one- to four-family owner-occupied properties. These loans are typically secured by second mortgages. Home equity loans have fixed interest rates, while home equity lines of credit normally adjust based on the Company’s prime rate of interest.

Credit Risk Management and Asset Quality

One of management’s key objectives has been and continues to be to maintain a high level of asset quality. In addition to maintaining sound credit standards for new loan originations and purchases, proactive collection and work out processes are employed in dealing with delinquent or problem loans.

The Company manages and controls risk in the loan portfolio through adherence to consistent standards. A credit policy establishes underwriting standards, places limits on exposure and sets other limits or standards as deemed necessary and prudent. Exceptions to credit policy must be approved by the First Vice President of Loan Administration or the Senior Loan Committee, and are reported quarterly to senior management and the Loan Committee of the Board of Directors. Individual loan officers may originate loans within certain approved lending limits and all loans require two signatures. The Senior Loan Committee approves all loans within an aggregate relationship between $1.0 million and $5.0 million, with the Loan Committee of the Board of Directors approving all loan relationships above $5.0 million.

Credit Administration is independent of the lending groups, and is responsible for preparing monthly and quarterly reports regarding the credit quality of the loan portfolio which are submitted to senior management and the Board of Directors, to ensure compliance with the credit policy, and the completion of credit analyses for all loans above a specific threshold. In addition, Credit Administration is responsible for managing the reduction in nonperforming and classified assets. On a quarterly basis, the Criticized Asset Committee reviews commercial and commercial real estate loans that are risk rated Special Mention or worse, focusing on the current status and strategies to improve the credit.

The loan review function is performed by an independent third party, to provide an evaluation of the creditworthiness of the borrower and the appropriateness of the risk rating classifications. The findings are then presented to the Loan Committee of the Board of Directors.

Trust Services

The Company provides a range of fiduciary and trust services and general investment management services to individuals, families and institutions. The Company will continue to emphasize the growth of its trust and investment management services to increase fee-based income. At December 31, 2005, Trust Services managed approximately 750 account relationships and assets under management of $1.15 billion. For the years ended December 31, 2005 and 2004, and the twelve months ended December 31, 2003, revenues for this area were $4.8 million, $2.4 million and $2.0 million, respectively. The most recent increase in revenues reflects the Company’s acquisition of Trust Company on July 1, 2005. The Trust Company acquisition added client assets under management of approximately $700 million.

Brokerage, Investment Advisory and Insurance Services

The Company offers investment and advisory services through its wholly owned subsidiary NewAlliance Investments, Inc., member NASD, SIPC. Both retail and commercial customers of the Company are offered investment and insurance products, including corporate retirement plans, such as employee profit sharing and 401(k) plans, as well as personal investment accounts. Products and services include: stocks, bonds, mutual funds, annuities and 529 plans for college funding, as well as estate and retirement planning, life insurance, fixed annuities, disability income and Medicare supplemental policies.

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Investment Activities

The primary objective of the investment portfolio is to achieve a competitive rate of return on the investments over a reasonable period of time based on prudent management practices and sensible risk taking. The portfolio is also used to help manage the net interest rate risk position of the Company. In view of the Company’s lending capacity and generally higher rates of return on loans, management prefers lending activities as its primary source of revenue with the securities portfolio serving a secondary role. The investment portfolio, however, is expected to continue to represent a significant portion of the Company’s assets, and includes U.S. Government and Agency securities, mortgage-backed securities, collateralized mortgage obligations, asset backed securities, high quality corporate debt obligations, municipal bonds and corporate equities. The portfolio will continue to serve the Company’s liquidity needs as projected by management and as required by regulatory authorities.

Over the past year, the Company has emphasized the purchase of 3/1, 5/1 and 7/1 hybrid adjustable rate mortgage securities, ten-year mortgage backed securities and agency and private collateralized mortgage obligations with underlying collateral consisting of fifteen-year mortgage loans. In addition, the Company has targeted collateralized mortgage obligation purchases in the two- to three-year weighted average life tranches with expected extensions up to a maximum of five and one half years in a rising rate environment. The objective of this decision has been to limit the potential interest rate risk due to the extension of this portfolio in a rising rate environment. The structures of the collateralized mortgage obligations have been in either a planned amortization class, mandatory redemption or tightly structured sequential pay format.

The investment policy of the Company is reviewed and updated by senior management and submitted to the Board of Directors for their approval on an annual basis. The investment policy prohibits the use of hedging with such instruments as financial futures, interest rate options and swaps without specific prior approval from the Board of Directors.

Sources of Funds

The Company uses deposits, repayments and prepayments of loans, proceeds from sales of loans and securities and proceeds from maturing securities, borrowings and cash flows generated by operations to fund lending, investing and general operations. Deposits represent the Company’s primary source of funds.

Deposits
The Company offers a variety of deposit accounts with a range of interest rates and other terms, which are designed to meet customer financial needs. The Federal Deposit Insurance Corporation (“FDIC”) insures deposits up to certain limits (generally, $100,000 per depositor). Retail and commercial deposits are received through the Company’s banking offices. Additional deposit services provided to customers are ATM, telephone, Internet Banking and Internet Bill Pay.

Deposit flows are significantly influenced by economic conditions, the general level of interest rates and the relative attractiveness of competing deposit and investment alternatives. Deposit pricing strategy is monitored weekly by the Pricing Committee and results are reported monthly by the Asset/Liability Committee. When determining our deposit pricing, we consider competitive market rates, deposit flows, funding commitments and investment alternatives, FHLB advance rates and rates on other sources of funds.

National, regional and local economic conditions, changes in competitor money market, savings and time deposit rates, prevailing market interest rates and competing deposit and investment alternatives all have a significant impact on the level of the Company’s deposits.

Borrowings
The Company is a member of the Federal Home Loan Bank system which functions in a reserve credit capacity for regulated, federally insured depository institutions and certain other home financing institutions. Members of the system are required to own capital stock in the FHLB and are authorized to apply for advances on the security of their FHLB stock and certain home mortgages and other assets (principally securities, which are obligations of, or guaranteed by, the United States Government or its agencies) provided certain creditworthiness standards have been met. Under its current credit policies, the FHLB limits advances based on a member’s assets, total borrowings and net worth. Long-term and short-term FHLB advances are utilized as a source of funding to meet liquidity and planning needs when the cost of these funds are favorable as compared to alternate funding sources.

Additional funding sources are available through securities sold under agreements to repurchase and the Federal Reserve Bank of Boston.

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Subsidiary Activities

NewAlliance Bancshares, Inc. is a bank holding company and currently has the following wholly-owned subsidiaries. The Company has not participated in asset securitizations.

Alliance Capital Trust I and Alliance Capital Trust II were organized by Alliance to facilitate the issuance of “trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. The Company’s debt to Alliance Capital Trust I and II is recorded as “Junior Subordinated Debentures issued to affiliated trusts” in Note 11 of the Notes to Consolidated Financial Statements contained elsewhere in this report, and amounted to a total of $7.8 million at December 31, 2005.

NewAlliance Bank is a Connecticut chartered capital stock savings bank and also has the following wholly-owned subsidiaries all of which are incorporated in Connecticut.

NewAlliance Bank Community Development Corporation (“CDC”) was organized in 1999 pursuant to a federal law which encourages the creation of such bank subsidiaries to further community development programs. The CDC has been funded with $5.5 million in cash to provide flexible capital for community development and neighborhood revitalization. The Bank intends to provide additional funding to the CDC, up to $10.0 million in total, as the funds can be utilized. The CDC investments can be in the form of equity, debt or mezzanine financing. Current investments include artist housing, affordable housing loan pools, equity investments in downtown real estate development and small business development funds. In connection with the formation of NewAlliance Bancshares, Inc., Fairbank Corporation became a wholly-owned subsidiary of the CDC. Fairbank Corporation owns a 121 unit apartment building in New Haven, Connecticut. The building includes tenants eligible for federal “Section 8” housing cost assistance and a branch of the Bank. Fairbank Corporation was formed and the investment made in 1971 to further the Bank’s commitment to the New Haven community.

The Loan Source, Inc. is used to hold certain real estate that we may acquire through foreclosure and other collection actions and investments in certain limited partnerships. The Loan Source, Inc. currently has no such foreclosure property under ownership, but does have an investment in a limited partnership.

NewAlliance Servicing Company operates as the Bank’s passive investment company (“PIC”). A 1998 Connecticut law allows for the creation of PICs. A properly created and maintained PIC allows the Bank to contribute its real estate loans to the PIC where they are serviced. The PIC does not recognize income generated by the PIC for the purpose of Connecticut business corporations’ tax, nor does the Bank recognize income for these purposes on the dividends it receives from the PIC. Since its establishment in 1998, the PIC has allowed the Bank, like many other banks with Connecticut operations, to experience substantial savings on the Connecticut business corporations tax that otherwise would have applied.

NewAlliance Investments, Inc. The Bank offers brokerage and investment advisory services and fixed annuities and other insurance products to its customers. NewAlliance Investments, Inc. is a registered broker-dealer and is a member of the NASD.

Employees

At December 31, 2005, The Company had 1,082 employees consisting of 875 full-time and 207 part-time employees. The Company maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan, an employee 401(k) investment plan and an employee stock purchase plan. See Note 12 of the Notes to Consolidated Financial Statements contained elsewhere within this report for additional information on certain benefit programs.

The Foundation

The Bank established the NewAlliance Foundation (the “Foundation”) as a new charitable foundation in connection with its conversion from a mutual to stock bank. The Foundation is not a subsidiary of the Company or the Bank. The Foundation was funded with a contribution of 4,000,000 shares of the Company’s common stock and $40,000 of cash. The Foundation is dedicated to charitable purposes, including community development activities with the Company’s local communities. The New Haven Savings Bank Foundation, formed in 1998, was merged into the Foundation in the second quarter of 2004.

Other than the contributions to establish the Foundation described above, the Company does not expect to make further contributions to the Foundation. At December 31, 2005, the Foundation had assets of approximately $49.5 million. Since 1998, the New Haven

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Savings Bank Foundation and the Foundation have made contributions of approximately $21.1 million to local non-profit organizations.

Market Environment

Market Area
The Company is headquartered in New Haven, Connecticut in New Haven County. With the acquisition of Cornerstone on January 2, 2006, the Company has 71 banking offices located throughout Fairfield, New Haven, Middlesex, Hartford, Tolland and Windham Counties. The Company’s primary deposit gathering area consists of the 41 communities and surrounding towns that are served by its branch network. The Company’s primary lending area is much broader than its deposit gathering area and includes the entire State of Connecticut, although most of the Company’s loans are made to borrowers in its primary deposit marketing area.

Unemployment
The Connecticut economy over the year 2005 turned in a steady, yet unremarkable performance. The unemployment rate posted figures between 4.7% and 5.3% throughout the year peaking at 5.4% in August, and then declining slightly to 5.1% in November. Jobless claims have remained stable and as of November 2005, were averaging 4,143 per month down slightly from the year 2004 average of 4,174. As of November 2005, there had been 10,900 new jobs, an increase of 0.7%, created in the state of Connecticut over the past year. This job growth was led by the service sector, which created 9,000 new jobs while the manufacturing sector, remained flat. In addition, the New England Economic Partnership (“NEEP”) projects that State job growth will continue at a steady pace with 17,600 jobs forecasted to be added in 2006. The New Haven and Hartford labor market areas, as of November 2005, were posting unemployment rates of 4.9% and 5.0% and the Norwich – New London market area was posting an unemployment rate of 4.5%. The Bridgeport – Stamford market area, the newest footprint for the Company with the Cornerstone acquisition, was posting an unemployment rate of 4.4% as of November 2005. Real gross state product is forecasted to increase by approximately 3.2% to 3.4% during 2006.

Housing Market
The housing market in 2005 remained robust with the NEEP forecasting that housing permits will increase 0.8% to 11,935, however, the housing market is projected to slow in 2006 due to the cumulative effect of the interest rate increases during 2005. There are currently year over year increases in building permits in the Waterbury, Bridgeport-Stamford and Danbury labor market areas, with year over year declines in the New Haven, Hartford and Norwich – New London labor market areas. Home price gains have also been strong over the past year, as measured by the National Association of Realtors, with the Hartford and New Haven/Meriden metropolitan statistical areas posting home price increases of 8% and 12% as of the third quarter of 2005.

Interest Rate Environment
Rates, as implied by the forward yield curve at December 31, 2005, are forecasted to increase by approximately 30 basis points at the three month part of the yield curve, one basis point at the one year part of the yield curve, one basis point at the two year part of the yield curve, two basis points at the five year part of the yield curve and 4 basis points at the ten year part of the yield curve. For the current year, the Company is using the increase in rates, as implied by the forward yield curve, for income and balance sheet planning purposes. The Company is also assuming an increase of 75 basis points in the federal funds rate spread evenly throughout the next six months and then held steady for the balance of the year.

Competition
The Company continues to face intense competition for the attraction and retention of deposits and loan originations in its primary market area. Its most direct competition for deposits has historically come from the many banks, commercial and savings, as well as savings and loan associations operating in the Company’s primary market area and, to a lesser extent, from other financial institutions, such as banks with internet programs, brokerage firms, credit unions and insurance companies. While these entities are expected to continue to provide fierce competition for deposits, we are also facing increasingly significant competition for deposits from banks with internet programs and the mutual fund industry as customers seek alternative sources of investment for their funds. Competition for loans comes from the many traditional financial institutions, banks and savings and loans, in our market area and from other specialized financial service providers, such as mortgage companies and mortgage brokers. Competition is likely to further increase due to the entrance of non-traditional lending financial service providers such as internet based lenders and insurance and securities companies. Competition for deposits, for the origination of loans and for the provision of other financial services may limit the Company’s future growth.

Regulation and Supervision

The Bank is subject to extensive regulation by the Connecticut Department of Banking, as its chartering agency, and by the FDIC, as its deposit insurer. The Bank is required to file reports with, and is periodically examined by, the FDIC and the Connecticut

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Department of Banking concerning its activities and financial condition. It must obtain regulatory approvals prior to entering into certain transactions, such as mergers. The Company is required to file reports with and otherwise comply with the rules and regulations of the Federal Reserve Bank (“FRB”) of Boston, the Connecticut Banking Commissioner and the Securities and Exchange Commission (“SEC”) under the Federal securities laws. The following discussion of the laws and regulations material to the operations of the Company and the Bank is a summary and is qualified in its entirety by reference to such laws and regulations. Any change in such regulations, whether by the Department of Banking, the FDIC, the SEC or the FRB, could have a material adverse impact on the Bank or the Company.

Connecticut Banking Laws and Supervision

Connecticut Banking Commissioner The Commissioner regulates internal organization as well as the deposit, lending and investment activities of Connecticut banks, including NewAlliance Bank. The approval of the Commissioner is required for, among other things, the establishment of branch offices and business combination transactions. The Commissioner conducts periodic examinations of Connecticut-chartered banks. The FDIC also regulates many of the areas regulated by the Commissioner, and federal law may limit some of the authority provided to Connecticut-chartered banks by Connecticut law.

Lending Activities
Connecticut banking laws grant savings banks broad lending authority, generally identical to commercial banks. With certain limited exceptions, total secured and unsecured loans made to any one obligor under this statutory authority may not exceed 10% and 15%, respectively, of a bank’s equity capital and reserves for loan and lease losses.

Dividends
The Bank may pay cash dividends out of its net profits. For purposes of this restriction, “net profits” represents the remainder of all earnings from current operations. Further, the total amount of all dividends declared by the Bank in any year may not exceed the sum of its net profits for the year in question combined with its retained net profits from the preceding two years, unless the Commissioner approves the larger dividend. Federal law also prevents the Bank from paying dividends or making other capital distributions that would cause it to become “undercapitalized.” The FDIC may limit the Bank’s ability to pay dividends. No dividends may be paid to the Bank’s shareholders if such dividends would reduce shareholders’ equity below the amount of the liquidation account required by the Connecticut conversion regulations.

Liquidation Account
As part of the conversion to a stock bank on April 1, 2004, the Bank established a liquidation account for the benefit of account holders in an amount equal to the Bank’s capital of $403.8 million as of September 30, 2003. The liquidation account will be maintained for a period of ten years after the conversion for the benefit of those deposit account holders who qualified as eligible account holders at the conversion and who have continued to maintain their eligible deposit balances with the Bank following the conversion. The liquidation account, which totaled $195.5 million at December 31, 2005, is reduced annually by an amount equal to the decrease in eligible deposit balances, notwithstanding any subsequent increases in the account. Therefore, the decrease in the liquidation account does not imply a proportionate decline in the aggregate balances of pre-conversion account relationships. In the event of the complete liquidation of the Bank, each eligible deposit account holder will be entitled to receive his/her proportionate interest in the liquidation account, after the payment of all creditors’ claims, but before distributions to the Company as the sole stockholder of the Bank.

Branching Activities
Any Connecticut-chartered bank meeting certain statutory requirements may, with the Commissioner’s approval, establish and operate branches in any town or towns within the state and establish mobile branches.

Investment Activities
Connecticut law requires the board of directors to adopt annually an investment policy to govern the types of investments that the Bank makes, and to periodically review its adherence to its investment policy. The investment policy must establish standards for the making of prudent investments and procedures for divesting investments no longer deemed consistent with its investment policy. In recent years, Connecticut law has expanded bank investment activities.

Connecticut banks may invest in debt securities and debt mutual funds without regard to any other liability to the Connecticut bank of the maker or issuer of the debt securities and debt mutual funds, if the debt securities and debt mutual funds are rated in the three highest rating categories or otherwise deemed to be a prudent investment, and so long as the total amount of debt securities and debt mutual funds of any one issuer will not exceed 25% of the bank’s total equity capital and reserves for loan and lease losses and the total amount of all its investments in debt securities and debt mutual funds will not exceed 25% of its assets. In addition, a Connecticut bank may invest in certain government and agency obligations according to the same standards as debt securities and debt mutual funds except without any percentage limitation.

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Similarly, Connecticut banks may invest in equity securities and equity mutual funds without regard to any other liability to the Connecticut bank of the issuer of equity securities and equity mutual funds, so long as the total amount of equity securities and equity mutual funds of any one issuer does not exceed 25% of a bank’s total equity capital and reserves for loan and lease losses and the total amount of the bank’s investment in all equity securities and equity mutual funds does not exceed 25% of its assets.

Powers
In recent years, Connecticut law has expanded the powers of Connecticut banks. Connecticut law permits Connecticut banks to sell insurance and fixed- and variable-rate annuities if licensed to do so by the Connecticut Insurance Commissioner. With the prior approval of the Commissioner, Connecticut banks are also authorized to engage in a broad range of activities related to the business of banking, or that are financial in nature or that are permitted under the Bank Holding Company Act (“BHCA”) or the Home Owners’ Loan Act (“HOLA”), both federal statutes, or the regulations promulgated as a result of these statutes. Connecticut banks are also authorized to engage in any activity permitted for a national bank or a federal savings association upon filing notice with the Commissioner, unless the Commissioner disapproves the activity.

Assessments
Connecticut banks are required to pay annual assessments to the Connecticut Department of Banking to fund the Department’s operations. The general assessments are paid pro-rata based upon a bank’s asset size.

Enforcement
Under Connecticut law, the Commissioner has extensive enforcement authority over Connecticut banks and, under certain circumstances, affiliated parties, insiders, and agents. The Commissioner’s enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of officers and directors, emergency closures, dissolution and liquidation.

Federal Regulations

Capital Requirements
Under FDIC regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as NewAlliance Bank, are required to comply with minimum leverage capital requirements. For an institution determined by the FDIC not to be anticipating or experiencing significant growth and to be, in general, a strong banking organization, rated composite 1 under the Uniform Financial Institutions Ranking System established by the Federal Financial Institutions Examination Council, the minimum capital leverage requirement is a ratio of Tier 1 capital to total assets of 3%. For all other institutions, the minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of common shareholders’ equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and certain other specified items.

The FDIC regulations require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit substitutes and residual interests) to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk. For example, under the FDIC’s risk-weighting system, cash and securities backed by the full faith and credit of the U.S. government are given a 0% risk weight, loans secured by one- to four-family residential properties generally have a 50% risk weight, and commercial loans have a risk weighting of 100%.

State non-member banks, such as the Bank, must maintain a minimum ratio of total capital to risk-weighted assets of at least 8%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier 1 capital. Banks that engage in specified levels of trading activities are subject to adjustments in their risk based capital calculation to ensure the maintenance of sufficient capital to support market risk.

The Federal Deposit Insurance Corporation Improvement Act (the “FDICIA”) required each federal banking agency to revise its risk-based capital standards for insured institutions to ensure that those standards take adequate account of interest-rate risk, concentration of credit risk, and the risk of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The FDIC, along with the other federal banking agencies, has adopted a regulation providing that the agencies will take into account the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The FDIC also has authority to establish individual minimum capital

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requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.

As a bank holding company, the Company is subject to capital adequacy guidelines for bank holding companies similar to those of the FDIC for state-chartered banks. The Company’s equity exceeded these requirements at December 31, 2005.

Standards for Safety and Soundness
As required by statute, the federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit system, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. Most recently, the agencies have established standards for safe guarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Investment Activities
Since the enactment of the FDICIA, all state-chartered FDIC insured banks, including the Bank, have generally been limited in their investment activities to principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law. The FDICIA and the FDIC permit exceptions to these limitations. For example, state chartered banks, such as NewAlliance Bank may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the Nasdaq National Market and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. The Bank received grandfathered authority from the FDIC to invest in listed stock and/or registered shares. The maximum permissible investment is 100% of Tier 1 Capital, as specified by the FDIC’s regulations, or the maximum amount permitted by Connecticut law, whichever is less. The Bank also received grandfathered authority to purchase preferred stock and registered investment company shares subject to the same limits listed above. In addition, the Bank received permission from the FDIC to purchase and retain up to an additional 60% of its Tier 1 Capital in money market (auction rate) preferred stock and to purchase and retain up to an additional 15% of its Tier 1 Capital in adjustable rate preferred stock. Such grandfathered authority may be terminated upon the FDIC’s determination that such investments pose a safety and soundness risk to the Bank.

The FDIC is also authorized to permit institutions like the Bank to engage in state authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the Bank Insurance Fund (“BIF”). The FDIC has adopted revisions to its regulations governing the procedures for institutions seeking approval to engage in such activities or investments. The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) specifies that a nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

Interstate Branching
Beginning June 1, 1997, the Interstate Banking Act (the “IBA”) permitted the responsible federal banking agencies to, under certain circumstances, approve acquisition transactions between banks located in different states, regardless of whether the acquisition would be prohibited under the law of the two states. The IBA also permitted a state to “opt in” to the provisions of the IBA before June 1, 1997, and permitted a state to “opt out” of the provisions of the IBA by adopting appropriate legislation before that date. In 1995, Connecticut affirmatively “opted-in” to the provisions of the IBA. Accordingly, beginning June 1, 1997, the IBA permitted a Connecticut-chartered bank to acquire institutions in a state other than Connecticut unless the other state had opted out of the IBA. The IBA also authorizes de novo branching into another state if the host state enacts a law expressly permitting out of state banks to establish such branches within its borders.

Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

The FDIC has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally a leverage ratio of 4% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or

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generally a leverage ratio of less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. As of December 31, 2005, NewAlliance Bank was “well capitalized”.

“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such a plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

Transactions with Affiliates
Under federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act (the “FRA”). In a holding company context, at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, Section 23A limits the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such bank’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to 20% of capital stock and surplus. The term “covered transaction” includes, among other things, the making of loans or other extensions of credit to an affiliate and the purchase of assets from an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees, acceptances on letters of credit issued on behalf of an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or no less favorable, to the savings bank or its subsidiary as similar transactions with nonaffiliates.

Further, Section 22(h) of the FRA restricts loans to directors, executive officers, and principal shareholders (“insiders”). Under Section 22(h), loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the board of directors. Further, under Section 22(h), loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the bank’s employees and does not give preference to the insider over the employees. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Enforcement
The FDIC has extensive enforcement authority over insured banks, including NewAlliance Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

The FDIC has authority under Federal law to appoint a conservator or receiver for an insured bank under limited circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured bank if it was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the bank became “critically undercapitalized.” The FDIC may also appoint itself as conservator or receiver for a bank under specific circumstances on the basis of its financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Insurance of Deposit Accounts

The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of three capital categories based on the institution’s financial condition consisting of (1) well capitalized, (2) adequately capitalized or (3) undercapitalized, and one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution’s primary federal regulator and information which the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. An institution’s

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assessment rate depends on the capital category and supervisory category to which it is assigned. Assessment rates for insurance fund deposits currently range from zero basis points for the strongest institution to 27 basis points for the weakest. BIF members are also required to assist in the repayment of bonds issued by the Financing Corporation in the late 1980’s to recapitalize the Federal Savings and Loan Insurance Corporation. The FDIC is authorized to raise the assessment rates. The FDIC has exercised this authority several times in the past and may raise insurance premiums in the future. If such action is taken by the FDIC, it could have an adverse effect on the earnings of the Bank.

The FDIC may terminate insurance of deposits if it finds that the institution is in an unsafe or unsound condition to continue operations, has engaged in unsafe or unsound practices, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Federal Reserve System

The FRB regulations require depository institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $48.3 million or less (which may be adjusted by the FRB) the reserve requirement is 3%; and for amounts greater than $48.3 million, 10% (which may be adjusted by the FRB between 8% and 14%), against that portion of total transaction accounts in excess of $48.3 million. The first $7.8 million of otherwise reservable balances (which may be adjusted by the FRB) are exempted from the reserve requirements. The Bank is in compliance with these requirements.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Member institutions are required to acquire and hold shares of capital stock in the Federal Home Loan Bank in an amount at least equal to the sum of 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year and 4.5% of its advances (borrowings) from the Federal Home Loan Bank. The Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2005 of $66.4 million. At December 31, 2005, the Bank had approximately $1.2 billion in Federal Home Loan Bank advances.

The Federal Home Loan Banks are required to provide funds for certain purposes including the resolution of insolvent thrifts in the late 1980s and to contributing funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, a member bank affected by such reduction or increase would likely experience a reduction in its net interest income. Recent legislation has changed the structure of the Federal Home Loan Banks’ funding obligations for insolvent thrifts, revised the capital structure of the Federal Home Loan Banks and implemented entirely voluntary membership for Federal Home Loan Banks. There can be no assurance that such dividends will continue in the future. Further, there can be no assurance that the impact of recent or future legislation on the Federal Home Loan Banks also will not cause a decrease in the value of the Federal Home Loan Bank stock held by the Bank.

Holding Company Regulation

As a bank holding company, NewAlliance Bancshares, Inc. is subject to comprehensive regulation and regular examinations by the Federal Reserve Board. The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under Connecticut banking law, no person may acquire beneficial ownership of more than 10% of any class of voting securities of a Connecticut-chartered bank, or any bank holding company of such a bank, without prior notification of, and lack of disapproval by, the Connecticut Banking Commissioner. The Connecticut Banking Commissioner will disapprove the acquisition if the bank or holding company to be acquired has been in existence for less than five years, unless the Connecticut Banking Commissioner waives this five year restriction, or if the acquisition would result in the acquirer controlling 30% or more of the total amount of deposits in insured depository institutions in Connecticut. Similar restrictions apply to any person who holds in excess of 10% of any such class and desires to increase its holdings to 25% or more of such class.

Under Federal Reserve Board policy, a bank holding company must serve as a source of strength for its subsidiary bank. Under this policy, the Federal Reserve Board may require, and has required in the past, a holding company to contribute additional capital to an undercapitalized subsidiary bank.

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Bank holding companies must obtain Federal Reserve Board approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company.

The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted by the FRB includes, among other things: (i) operating a savings institution, mortgage company, finance company, credit card company or factoring company; (ii) performing certain data processing operations; (iii) providing certain investment and financial advice; (iv) underwriting and acting as an insurance agent for certain types of credit-related insurance; (v) leasing property on a full-payout, non-operating basis; (vi) selling money orders, travelers’ checks and United States Savings Bonds; (vii) real estate and personal property appraising; (viii) providing tax planning and preparation services; (ix) financing and investing in certain community development activities; and (x) subject to certain limitations, providing securities brokerage services for customers.

Dividends

The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve Board, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Bank holding companies are required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the consolidated net worth of the bank holding company. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve Board order or any condition imposed by, or written agreement with, the Federal Reserve Board. This notification requirement does not apply to any company that meets the well-capitalized standard for commercial banks, is “well managed” within the meaning of the Federal Reserve Board regulations and is not subject to any unresolved supervisory issues.

Financial Modernization
The Gramm-Leach-Bliley Act permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services company known as a “financial holding company”. A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for bank holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The act also permits the Federal Reserve Board and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed, and has at least a “satisfactory” Community Reinvestment Act rating. A financial holding company must provide notice to the Federal Reserve Board within 30 days after commencing activities previously determined by statute or by the Federal Reserve Board and Department of the Treasury to be permissible. The Company has not submitted notice to the Federal Reserve Board of its intent to be deemed a financial holding company. However, it is not precluded from submitting a notice in the future should it wish to engage in activities only permitted to financial holding companies.

Miscellaneous Regulation

Sarbanes-Oxley Act of 2002

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board which will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the bill restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client will require pre-approval by the company’s audit committee members. In

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addition, the audit partners must be rotated every five years. The bill requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under the Sarbanes-Oxley Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee or the board of directors or the board itself.

Longer prison terms will also be applied to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan “blackout” periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Sarbanes-Oxley Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution (“FAIR”) provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

The Sarbanes-Oxley Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s registered public accounting firm (“RPAF”). Audit Committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a “financial expert” (as such term is defined by the SEC) and if not, why not. Under the Sarbanes-Oxley Act, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company’s chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Sarbanes-Oxley Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company’s financial statements for the purpose of rendering the financial statements materially misleading. Under the Sarbanes-Oxley Act the SEC prescribed rules requiring inclusion of an internal control report and assessment by management in the annual report to shareholders. The Sarbanes-Oxley Act requires the RPAF that issues the audit report to attest to and report on management’s assessment of the company’s internal controls. In addition, the Sarbanes-Oxley Act requires that each financial report required to be prepared in accordance with (or reconciled to) generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), as amended as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA does require the FDIC, in connection with its examination of a bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to acquire branches and other financial institutions. The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Bank’s latest FDIC CRA rating was “satisfactory”.

Connecticut has its own statutory counterpart to the CRA, which is also applicable to the Bank. Connecticut law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Connecticut law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. The Bank’s most recent rating under Connecticut law was “satisfactory.”

Consumer Protection and Fair Lending Regulations
Connecticut savings banks are subject to a variety of federal and Connecticut statutes and regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations.

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New York Stock Exchange Disclosure
The Company’s common stock was listed on the New York Stock Exchange (“NYSE”) effective December 14, 2004. The Company’s Chief Executive Officer provided the NYSE with the annual certification regarding the NYSE’s corporate governance standards required by the NYSE under Rule 303A.12(a) in 2005.

Federal Income Taxation

NewAlliance reports income on a calendar year basis using the accrual method of accounting. The federal income tax laws apply to NewAlliance in the same manner as to other corporations with some exceptions, including particularly the Bank’s reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company. The Bank’s federal income tax returns have been either audited or closed under the statute of limitations through tax year 2000.

Bad Debt Reserves
For fiscal years beginning before December 31, 1995, thrift institutions, which qualified under certain definitional tests and other conditions of the Internal Revenue Code of 1986, as amended, were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method.

Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves. Approximately $49.6 million of the Bank’s accumulated bad debt reserves would not be recaptured into taxable income unless certain events were to occur, such as a “non-dividend distribution” by the Bank to the Parent Company.

Connecticut Taxation

The Company is subject to the Connecticut Corporate Business tax and files a combined Connecticut income tax return. Connecticut income tax is based on the federal taxable income before net operating loss and special deductions with certain modifications made to federal taxable income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate (7.5% for 2005, 9.4% for 2004 and 9.0% for 2003 (including the surcharge on tax)) to arrive at Connecticut income tax.

In May 1998 the State of Connecticut enacted legislation permitting the formation of a PIC as a subsidiary of a financial institution. This legislation exempts qualifying PICs from state income taxation in Connecticut and excludes dividends paid from a PIC to a related financial institution. The Bank qualifies as a financial institution under the statue and has established a PIC that began operations in the first quarter of 1999, which has substantially eliminated state income taxes since that time, and management expects this to continue going forward.

Impact of Inflation and Changing Prices
The Consolidated Financial Statements and their Notes presented within this document have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires the measurement of financial position and operating results in terms of historical dollar amounts without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike the assets and liabilities of industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

New Accounting Standards
In December 2004, the Financial Accounting Standards Board (“FASB”) issued revised SFAS No. 123R, which requires entities to measure the cost of employees services received in exchange for an award of equity instruments based on the estimated grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide services in exchange for the award (usually the vesting period).

The estimated grant-date fair value of employee share options will be determined using option-pricing models adjusted for the unique characteristics of those instruments. The notes to the financial statements will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements.

17

On April 14, 2005 the Securities and Exchange Commission issued a final rule that allows companies to delay the implementation of SFAS No. 123R to the beginning of a company’s next fiscal year. As of the effective date, the Company will apply SFAS No. 123R using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion outstanding of awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or proforma disclosure purposes. The anticipated financial impact of the implementation of SFAS No. 123R is discussed in Note 13 of the Notes to Consolidated Financial Statements.

Statistical Disclosure by Bank Holding Companies
The following information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below.

		Page
I.	Distribution of Assets, Liabilities and Stockholder Equity; Interest Rates and Interest Differential	28,30
II.	Investment Portfolio	39,40
III.	Loan Portfolio	34-37
IV.	Summary of Loan Loss Experience	37-39
V.	Deposits	28,41
VI.	Return on Equity and Assets	23
VII.	Short-Term Borrowings	n/a

Availability of Information
We make available on our website, which is located at http://www.newalliancebank.com, reports we file with the Securities and Exchange Commission. Investors are encouraged to access these reports and the other information about our business and operations on our website.

Item 1A.     Risk Factors

An investment in our common stock involves certain risks. To understand these risks and to evaluate an investment in our common stock, you should read this entire prospectus, including the following risk factors.

Our Business Strategy of Growth Through Acquisitions Could Have an Impact on Our Earnings and Results of Operations That May Negatively Impact the Value of Our Stock.
Our business strategy includes both internal expansion and acquisitions, and there can be no assurance that, in the future, we will successfully identify suitable acquisition candidates, complete acquisitions successfully, integrate acquired operations into our existing operations or expand into new markets. Further, there can be no assurance that acquisitions will not have an adverse effect upon our operating results while the operations of the acquired businesses are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect our earnings. These adverse effects on our earnings and results of operations may have a negative impact on the value of our stock.

We May Experience Higher Levels of Loan Loss Due to Our Recent Growth.
Our growth strategy depends on generating an increasing level of loans to produce an acceptable return to our shareholders. We will also need to accomplish this loan growth while maintaining low loan losses in our portfolio. A significant portion of our growth is expected to occur in markets that are relatively new to us, including those areas served by the banks we acquired in 2004, Savings Bank of Manchester and Tolland Bank, and areas of future expansion, including Fairfield County, Connecticut, through our acquisition of Cornerstone Bank.

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

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Changes in Interest Rates Could Have an Impact on Our Earnings and Results of Operations, Which Could Have a Negative Impact on The Value of Our Stock.
Our consolidated results of operations depend to a large extent on the level of our net interest income, which is the difference between interest income from interest-earning assets, such as loans and investments, and interest expense on interest-bearing liabilities, such as deposits and borrowings. If interest-rate fluctuations cause the cost of interest-bearing liabilities to increase faster than the yield on interest-earning assets, our net interest income will decrease. If the cost of interest-bearing liabilities declines faster than the yield on interest-earning assets, our net interest income will increase.

We measure our interest-rate risk using simulation analyses with particular emphasis on measuring changes in net interest income in different interest-rate environments. The simulation analyses incorporate assumptions about balance sheet changes, such as asset and liability growth, loan and deposit pricing and changes due to the mix and maturity of such assets and liabilities. Other key assumptions relate to the behavior of interest rates and spreads, prepayments of loans and the run-off of deposits. These assumptions are inherently uncertain and, as a result, the simulation analyses cannot precisely estimate the impact that higher or lower rate environments will have on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in cash flow patterns and market conditions, as well as changes in management’s strategies.

While we use various monitors of interest-rate risk, we are unable to predict future fluctuations in interest rates or the specific impact of these fluctuations. The market values of most of our financial assets are sensitive to fluctuations in market interest rates. Fixed rate investments, mortgage-backed securities and mortgage loans typically decline in value as interest rates rise. Prepayments on mortgage-backed securities may adversely affect the value of such securities and the interest income generated by them.

Changes in interest rates can also affect the amount of loans that we originate, as well as the value of our loans and other interest-earning assets and our ability to realize gains on the sale of such assets and liabilities. Prevailing interest rates also affect the extent to which our borrowers prepay their loans. When interest rates increase, borrowers are less likely to prepay their loans, and when interest rates decrease, borrowers are more likely to prepay loans. Funds generated by prepayments might be invested at a less favorable interest rate. Prepayments may adversely affect the value of mortgage loans, the levels of such assets that we retain in our portfolio, net interest income and loan servicing income.

Increases in interest rates might cause depositors to shift funds from accounts that have a comparatively lower cost, such as regular savings accounts, to accounts with a higher cost, such as certificates of deposit. 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.

We May Not Pay You Dividends if We Are Not Able to Receive Dividends From Our 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.

Item 1B.     Unresolved Staff Comments

None.

Item 2.         Properties

The Company conducts business from its executive offices at 195 Church Street, New Haven, Connecticut and its 71 banking offices located in Connecticut. Of the 71 banking offices, 20 are owned, and 51 are leased.

The following table sets forth certain information with respect to our offices:

		Number of
County		Banking Offices
New Haven			28
Middlesex			7
Hartford			16
Tolland			12
Windham			2
Fairfield			6
	Total		71

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For additional information regarding our premises and equipment and lease obligations, see Notes 7 and 15 to the Consolidated Financial Statements.

Item 3.     Legal Proceedings

We are not involved in any pending legal proceedings other than the matter described below and routine legal proceedings occurring in the ordinary course of business. We believe that those routine proceedings involve, in the aggregate, amounts which are immaterial to the financial condition and results of operations of the Company.

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

Item 4.     Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information
The Company’s common stock has been trading on the New York Stock Exchange under the symbol “NAL” since December 14, 2004. Prior to that, the Company’s common stock had been trading on the NASDAQ Stock Exchange under the symbol “NABC” beginning April 1, 2004. Before that, NewAlliance Bancshares, Inc. had not yet commenced operation and had never issued capital stock. The following table sets forth the high and low prices of our common stock and the dividends declared per share of common stock for the periods indicated.

	Market Price
					Dividends Declared
2005	High		Low		Per Share
First Quarter	$	15.40	$	13.99		$	0.050
Second Quarter		14.40		12.98			0.050
Third Quarter		14.90		13.62			0.055
Fourth Quarter		15.10		13.90			0.055
	Market Price
					Dividends Declared
2004	High		Low		Per Share
First Quarter	$	n/a	$	n/a		$	n/a
Second Quarter		15.72		12.92			n/a
Third Quarter		14.36		13.25			0.040
Fourth Quarter		15.76		13.50			0.040

Holders
As of December 31, 2005, there were 108,823,607 shares of common stock outstanding, which were held by approximately 12,364 holders of record. Such number of record holders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms, and other nominees.

Dividends
The Company began paying quarterly dividends in 2004 on its common stock and currently intends to continue to do so in the foreseeable future. The Company’s ability to pay dividends depends on a number of factors, however, including the ability of the Bank to pay dividends to the Company under federal laws and regulations, and as a result there can be no assurance that dividends will continue to be paid in the future.

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Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2005)

	Number of securities to be issued upon exercises of outstanding options, warants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Plan category
Equity compensation plans approved by security shareholders		8,766,600		$14.40		3,791,123	(1)
Equity compensation plans not approved by security shareholders		-		-		-
Total		8,766,600		$14.40		3,791,123

(1) This figure includes 2,649,274 shares that may be issued pursuant to options presently authorized but unissued, and 1,141,849 shares that may be issued as restricted stock, all in accordance with the 2005 Long-Term Compensation Plan approved by the Company’s shareholders in April 2005.

Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities
The Company issued 737,871 shares of common stock as part of its acquisition of Trust Company on July 1, 2005. Further information regarding the issuance of these shares appears in Part II, Item. 2 of the Company’s Quarterly Report on Form 10-Q filed on November 9, 2005.

Purchases of Equity Securities by the Issuer and Affiliated Purchases
The following table sets forth information about the Company’s stock repurchases for the three months ended December 31, 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

	(a) Total Number of Shares purchased		(b) Average Price Paid per Share (includes commission)			(c) Total Number of Shares Purchased as Part of a Publicly Announced Plans or Programs		(d) Maximum Number of Shares that may Yet Be Purchased Under the Plans or Programs
Period
10/01/05 - 10/31/05		2,112,300		$	14.4512		2,112,300	3,890,200 shares
11/01/05 - 11/30/05		1,861,000			14.5782		1,861,000	2,029,200 shares
12/01/05 - 12/31/05		839,600			14.6388		839,600	1,189,600 shares
Total		4,812,900		$	14.5330		4,812,900

On May 9, 2005, a stock repurchase plan was announced and provides for the repurchase of up to 10.7 million shares of common stock of the Company. There is no set expiration date for this plan.

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

Item 6.    Selected Financial Data

The following tables contain certain information concerning the financial position and results of operations of the Company at the dates and for the periods indicated. This information should be read in conjunction with the Consolidated Financial Statements and related notes. Effective December 31, 2003, the Company changed its fiscal year end from March 31 to December 31.

On April 1, 2004, the Bank completed its conversion from a state-chartered mutual bank to a state-chartered stock bank. Concurrent with the conversion, the Company completed its acquisitions of Connecticut Bancshares and Alliance. Accordingly, 2004 Selected Financial Data includes the effect of those transactions. See Notes 3 and 4 of the Notes to Consolidated Financial Statements for additional information related to these transactions.

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	For the Year Ended December 31,				For the Twelve Months Ended December 31,			For the Nine Months Ended December 31,				For the Year Ended March 31,
(In thousands, except per share data)	2005		2004			2003		2003		2002		2003		2002
Selected Operating Data
Interest and dividend income	$	276,570	$	208,032		$	104,570	$	77,867	$	90,111	$	116,812	$	131,939
Interest expense		100,461		61,812			30,396		22,259		31,479		39,617		57,080
Net interest income before provision for loan losses		176,109		146,220			74,174		55,608		58,632		77,195		74,859
Provision for loan losses		400		600			-		-		-		-		-
Net interest income after provision for loan losses		175,709		145,620			74,174		55,608		58,632		77,195		74,859
Non-interest income		45,524		35,746			17,774		12,242		13,075		18,607		12,219
Contribution to the Foundation		-		40,040			-		-		-		-		-
Conversion and merger related charges		2,156		17,591			4,032		4,022		-		-		-
Other non-interest expense		139,084		119,142			60,908		45,763		44,410		59,564		52,400
Income before provision for income taxes		79,993		4,593			27,008		18,065		27,297		36,238		34,678
Provision for income taxes		27,394		524			9,091		5,989		9,260		12,361		11,748
Net income	$	52,599	$	4,069		$	17,917	$	12,076	$	18,037	$	23,877	$	22,930
Basic and diluted earnings per share	$	0.50
Weighted-average shares outstanding
Basic		105,110
Diluted		105,517
Dividends per share	$	0.21

	At December 31,						At March 31,
(In thousands)	2005		2004		2003		2003		2002
Selected Financial Data
Total assets	$	6,561,402	$	6,264,138	$	2,536,797	$	2,392,733	$	2,260,291
Loans (1)		3,276,706		3,144,657		1,307,525		1,178,371		1,168,893
Allowance for loan losses		35,552		36,163		17,669		18,932		20,805
Short-term investments		46,497		100,000		13,000		30,000		130,429
Investment securities		2,455,205		2,283,701		1,120,046		1,087,725		876,221
Goodwill		424,436		417,307		-		-		-
Identifiable intangible assets		52,581		56,003		710		730		829
Deposits		3,798,112		3,702,012		1,814,684		1,816,234		1,745,379
Borrowings		1,380,755		1,064,816		277,681		141,501		117,466
Stockholders’ equity		1,310,868		1,416,372		406,001		396,150		373,099
Nonperforming loans (2)		7,391		10,233		5,489		3,922		11,220
Nonperforming assets (3)		7,391		10,233		5,512		3,988		11,220

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	At or For the Year Ended December 31,				At or For the Twelve Months Ended December 31,			At or For the Nine Months Ended December 31,				At or For the Year Ended March 31,
	2005		2004			2003		2003		2002		2003		2002
Selected Operating Ratios and Other Data
Performance Ratios (4)
Average yield on interest-earning assets	4.79	%	4.24	%		4.47	%	4.40	%	5.33	%	5.22	%	6.29	%
Average rate paid on interest-bearing liabilities	2.20		1.59			1.66		1.61		2.36		2.23		3.41
Interest rate spread (5) (7)	2.59		2.65			2.81		2.79		2.97		2.99		2.88
Net interest margin (6) (7)	3.05		2.98			3.17		3.14		3.47		3.45		3.57
Ratio of interest-bearing assets to interest-bearing liabilities	126.65		125.82			127.92		128.06		126.77		125.79		125.39
Ratio of net interest income after provision for loan losses to non-interest expense	124.40		82.39			114.22		111.70		132.02		129.60		142.86
Non-interest expense as a percent of average assets	2.18		3.24			2.67		2.71		2.53		2.54		2.38
Return on average assets	0.81		0.07			0.74		0.66		1.03		1.02		1.04
Return on average equity	3.76		0.36			4.48		4.01		6.50		6.35		6.31
Ratio of average equity to average assets	21.57		20.87			16.46		16.40		15.84		16.04		16.47
Efficiency ratio (8)	63.59		97.31			70.63		73.05		63.02		63.18		55.67
Proforma efficiency ratio (9)	62.61		65.54			66.21		63.74		-		-		-
Regulatory Capital Ratios
Leverage capital ratio	14.31		16.32			16.10		16.10		16.05		16.45		16.29
Tier 1 capital to risk-weighted assets	24.99		26.98			26.95		26.95		26.64		27.19		25.14
Total risk-based capital ratio	26.02		28.22			28.15		28.15		27.89		28.44		26.42
Asset Quality Ratios
Nonperforming loans as a percent of total loans (1) (2)	0.23		0.33			0.42		0.42		0.39		0.33		0.96
Nonperforming assets as a percent of total assets (3)	0.11		0.16			0.22		0.22		0.19		0.17		0.50
Allowance for loan losses as a percent of total loans	1.08		1.15			1.35		1.35		1.64		1.61		1.78
Allowance for loan losses as a percent of non-performing loans	481.02		353.40			321.90		321.90		416.94		482.71		185.43
Net loan charge-offs as a percent of average interest-earning assets	0.02		0.07			0.07		0.05		0.07		0.08		0.12

(1)	Loans are stated at their principal amounts outstanding, net of deferred loan fees and costs and net unamortized premium on acquired loans.
(2)	Nonperforming loans include loans for which the Company does not accrue interest (nonaccrual loans), loans 90 days past due and still accruing interest and renegotiated loans due to a weakening in the financial condition of the borrower.
(3)	Nonperforming assets consist of nonperforming loans and other real estate owned.
(4)	Performance ratios are based on average daily balances during the periods indicated and are annualized where appropriate. Regulatory Capital Ratios and Asset Quality Ratios are end-of-period ratios.
(5)	Interest rate spread represents the difference between the weighted average yield on average interest-bearing assets and the weighted average cost of average interest-bearing liabilities.
(6)	Net interest margin represents net interest income as a percentage of average interest-earning assets.
(7)	No tax equivalent adjustments were made due to the fact that ratio would not be materially different.
(8)	The efficiency ratio represents the ratio of non-interest expenses, net of OREO expenses, to the sum of net interest income and non-interest income, excluding security gains or losses. 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.
(9)	The proforma efficiency ratio represents the ratio of non-interest expenses, net of OREO expenses, conversion and merger-related expenses and contribution to NewAlliance Foundation, to the sum of net interest income and non-interest income, excluding security 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.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview

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 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. The Company has taken steps to grow in size and geographic reach and expects to be able to expand its deposit gathering activities with the development of new products and services and improve its overall competitive position and support internal growth through lending in the communities it serves. The Company’s growth objectives also include merger and acquisition activities, where appropriate.

Completed acquisitions as of December 31, 2005 are: 1) Connecticut Bancshares, 2) Alliance and 3) Trust Company. The acquisitions of Connecticut Bancshares and Alliance were completed in conjunction with the Bank’s conversion from mutual to capital stock form on April 1, 2004. The acquisition of Trust Company was completed on July 1, 2005. Unless otherwise defined, references to “the acquisitions” would refer to these three transactions. The Company also completed its acquisition of Cornerstone on January 2, 2006.

Effective December 31, 2003, the Company changed its fiscal year end to December 31 from March 31. For 2005 and 2004, the fiscal years were for twelve-month periods whereas for 2003, the fiscal year was for a nine-month period. Due to this change in fiscal year ends, Management’s Discussion and Analysis of Operating Results will compare the following periods: 1) fiscal year ended December 31, 2005 to the fiscal year ended December 31, 2004, and 2) the fiscal year ended December 31, 2004 to the comparative twelve-month period ended December 31, 2003. This presentation will improve comparability of results of operations for the periods presented.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex subjective decisions or assessment, are as follows. Additional information related to the Company’s accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements.

Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. Management uses historical information as well as current economic data, to assess the adequacy of the allowance for loan losses as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen.

Income Taxes
Management considers accounting for income taxes as a critical accounting policy due to the subjective nature of certain estimates that are involved in the calculation. 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. Management must assess the realizability of the deferred tax asset, including the carryforward of a portion of the charitable contribution, and to the extent that management believes that recovery is not likely, a valuation allowance is established. Adjustments to increase or decrease the valuation allowance are generally charged or credited, respectively, to income tax expense. However, certain changes could be charged or credited to equity or goodwill.

Pension and Other Postretirement Benefits
The determination of the Company’s obligation and expense for pension and other postretirement benefits is dependent upon certain assumptions used in calculating such amounts. Key assumptions used in the actuarial valuations include the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation. Actual results could differ from the assumptions and market driven rates may fluctuate. Significant differences in actual experience or significant changes in the assumptions may materially affect future pension and other postretirement obligations and expense.

24

Intangible Assets
The Company is required to follow SFAS No. 141,“Business Combinations” and SFAS No. 142,“Goodwill and Other Intangible Assets” for business acquisitions and the subsequent accounting for intangible assets acquired. For business acquisitions, SFAS No. 141 requires us to record as assets on our financial statements both goodwill, an intangible asset which is equal to the excess of the purchase price which we pay for another company over the estimated fair value of the net assets acquired, and identifiable intangible assets such as core deposit intangibles and non-compete agreements. Under SFAS No. 142, goodwill must be regularly evaluated for impairment, in which case we may be required to reduce its carrying value through a charge to earnings. Core deposit and other identifiable intangible assets are amortized to expense over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not have future economic benefit. The valuation techniques used by management to determine the carrying value of tangible and intangible assets acquired in the acquisitions and the estimated lives of identifiable intangible assets involve estimates for discount rates, projected future cash flows and time period calculations, all of which are susceptible to change based on changes in economic conditions and other factors. Future events or changes in the estimates, which were used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affects their value or estimated lives could have a material adverse impact on future results of operations.

Mortgage Servicing Rights
Mortgage servicing rights represent the present value of future servicing fees from the right to service loans sold. The fair value of capitalized mortgage servicing rights requires the development of a number of estimates, the most critical of which is assumed mortgage loan prepayment speeds, which is significantly impacted by changes in interest rates. In general, during periods of falling interest rates, the mortgage loans prepay faster and the value of the Company’s mortgage servicing assets decline. Conversely, during periods of rising rates, the value of mortgage servicing rights generally increases due to slower rates of prepayments. The amount and timing of mortgage servicing rights amortization is adjusted quarterly based on actual results and updated projections. In addition, on a quarterly basis, management performs a valuation review of mortgage servicing rights for potential declines in value that may include obtaining an independent appraisal of the fair value of our servicing portfolio. This quarterly valuation review entails applying current assumptions to the portfolio stratified by predominant risk characteristics such as loan type, interest rate and loan term.

Other Than Temporary Impairment of Securities
On a monthly basis management performs an impairment review of investment securities for potential other than temporary declines in fair value. Significant judgment is involved in determining when a decline in fair market value is considered other than temporary. Some of these judgments related to the investment include financial condition, earnings prospects, adverse events causing the decline that are not expected to reverse in the near term, declines in debt ratings, and length of time that fair value has been below cost. When recognized, other than temporary declines in fair value are recorded in the income statement within net security gains.

Amortization and Accretion on Investment Securities
Premiums and discounts on fixed income securities are amortized or accreted into interest income over the term of the security using the level yield method. For investments with a stated maturity, premiums and discounts are amortized or accreted over the contractual terms of the related security. The Company has a significant portfolio of mortgage-backed securities and collateralized mortgage obligations for which the average life can vary significantly depending on prepayment of the underlying mortgage loans. Therefore, the prepayment speed assumption is critical to this accounting estimate. At purchase date, management uses prepayment speed assumptions from reputable sources. Then, for purposes of computing amortization or accretion on mortgage-backed securities and collateralized mortgage obligations, management adjusts the prepayment speed assumptions on a regular basis. Included in the mortgage-backed securities are hybrid adjustable rate mortgage-backed securities with reset dates ranging between three and seven years. Premium amortization or discount accretion on these hybrid adjustable rate mortgage-backed securities is generally based on a prepayment rate applied up to the initial reset date. In the current interest rate environment, management has experienced significant prepayments on these hybrid adjustable rate mortgage-backed securities by the time of or immediately following the initial reset date. In periods of falling market interest rates, accelerated loan prepayment speeds require an acceleration of the premium amortization or discount accretion for these mortgage-backed securities and collateralized mortgage obligations.

25

Comparison of Operating Results for the Years Ended December 31, 2005 and 2004 and the Twelve Months Ended December 31, 2003

Table 1: Summary Income Statements

					Ended			Change
	Year Ended December 31,				December 31,
							2005/2004					2004/2003
(Dollars in thousands, except per share data)	2005		2004		2003		Amount			Percent		Amount			Percent
Net interest income	$	176,109	$	146,220	$	74,174	$	29,889		20	%	$	72,046		97	%
Provision for loan losses		400		600		-		(200	)	(33	)		600		-
Non-interest income		45,524		35,746		17,774		9,778		27			17,972		101
Operating expenses		139,084		119,142		60,908		19,942		17			58,234		96
Contribution to NewAlliance Foundation		-		40,040		-		(40,040	)	(100	)		40,040		-
Conversion and merger related charges		2,156		17,591		4,032		(15,435	)	(88	)		13,559		336
Income before income taxes		79,993		4,593		27,008		75,400		1,642			(22,415	)	(83	)
Income tax expense		27,394		524		9,091		26,870		5,128			(8,567	)	(94	)
Net income	$	52,599	$	4,069	$	17,917	$	48,530		1,193	%	$	(13,848	)	(77	)%
Basic and diluted earnings per share	$	0.50		n/a		n/a

Earnings Summary
As shown in Table 1, net income increased by $48.5 million, to $52.6 million for the year ended December 31, 2005 from $4.1 million for the year ended December 31, 2004. The increase in earnings was primarily a result of higher net interest income and non-interest income, lower conversion and merger charges related to the Connecticut Bancshares and Alliance acquisitions completed on April 1, 2004 and the contribution in 2004 to the Foundation, partially offset by increased operating and income tax expenses. The rise in net interest income was driven primarily by an increase in average net interest-earning assets of $208.3 million resulting from the acquisitions of Connecticut Bancshares and Alliance and growth in the loan and investment securities portfolios subsequent to these acquisitions. Higher non-interest income and non-interest expenses were predominantly due to the acquisitions, costs associated with being a public company and expenses related to the implementation of the 2005 Long-Term Compensation Plan (“LTCP”) in June of 2005. The contribution of Company stock to the Foundation was a one-time event.

Due to an increase in market interest rates, the average yield earned increased for all categories of interest-earning assets and the average rate paid increased in virtually all categories of interest-bearing liabilities. The average rate paid on the total of all interest-bearing liabilities increased more than the increase in the average yield earned on the total of all interest-earning assets, causing a decrease of 6 basis points in the interest rate spread for the year ended December 31, 2005 compared to the year ended December 31, 2004. However, this interest rate spread decrease did not lead to a decline in net interest income as the decrease in spread was mitigated by the increase in the net interest-earning assets average balance of $208.3 million primarily as a result of the acquisitions of Connecticut Bancshares and Alliance in April of 2004. Overall, net interest income increased $29.9 million. Non-interest income increased due to the acquisitions of Connecticut Bancshares and Alliance in 2004 and Trust Company in 2005 and income resulting from non-recurring transactions. These increases were partially offset by increases in salaries and benefits resulting from the acquisitions and the implementation of the LTCP.

Net income decreased by $13.8 million, to $4.1 million for the year ended December 31, 2004 from net income of $17.9 million for the twelve months ended December 31, 2003. The decrease in earnings was primarily the result of increased operating expenses, conversion and merger charges and the contribution to the Foundation, all of which are directly related to the Connecticut Bancshares and Alliance acquisitions and the conversion to a stock bank. This decrease was partially offset by higher net interest and non-interest income, also primarily due to these two acquisitions.

The rise in net interest income for the year ended December 31, 2004 was driven by an increase in interest-earning assets of $2.57 billion due to the acquisitions, partially offset by a decrease in the average yield earned resulting from the lower interest rate environment. The increase in average interest bearing liabilities of $2.07 billion was less than the increase in average interest bearing assets and the cost of interest bearing liabilities decreased 7 basis points, which also contributed to the increase in net interest income. Higher non-interest income and non-interest expenses were due to the expansion of the Company’s geographic area due to the acquisitions, costs associated with being a public company and the contribution to the Foundation. The contribution of Company stock to the then newly formed Foundation at the time of the conversion from a mutual to a stock savings bank is a one-time event.

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Table 2: Reconciliation of GAAP Net Income to Proforma Net Earnings

	Year Ended				Twelve Months Ended
	December 31,				December 31,
(In thousands, except per share data)	2005		2004			2003
Net income	$	52,599	$	4,069		$	17,917
After-tax operating adjustments:
Foundation contribution		-		26,026			-
Conversion and merger related charges		1,401		11,434			2,621
Proforma net earnings	$	54,000	$	41,529		$	20,538
Basic and diluted proforma net earnings per share	$	0.51		n/a			n/a

In addition to the earnings results presented above in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company provides certain earnings results on a non-GAAP, or proforma basis. The determination of proforma net earnings excludes the effects of conversion and merger related charges and contribution to the Foundation, which the Company considers to be non-operating, but does not exclude other non-related, nonrecurring items. These conversion and merger related charges include accounting, legal, consulting and branding expenses directly associated with the acquisitions. Performance measured by proforma net earnings is considered by management to be a useful measure for gauging the underlying performance of the Company by eliminating the volatility caused by voluntary transaction-based items.

Presented in Table 2 is a reconciliation of GAAP-based net income to proforma net earnings. As reflected in the table, proforma net earnings for the year ended December 31, 2005 was $54.0 million compared to net income of $52.6 million. Conversion and merger related charges for 2005 primarily included Trust Company costs and the commencement of the Cornerstone costs. Management anticipates that the acquisition of Cornerstone will cause these costs to continue in 2006. For the year ended December 31, 2004, proforma net earnings were $41.5 million. The primary reasons for the difference between the GAAP net income and proforma net earnings were the contribution to the Foundation of $40.0 million (after-tax $26.0 million) and Connecticut Bancshares and Alliance conversion and merger related charges of $17.6 million (after-tax $11.4 million). The twelve month period ended December 31, 2003 was also affected by conversion and merger related charges in the amount of $4.0 million (after tax $2.6 million).

The conversion to a stock bank occurred on April 1, 2004, resulting in shares outstanding only for the nine months ended December 31, 2004. Therefore, earnings per share for the year ended December 31, 2004 and the twelve months ended December 31, 2003 are not shown in Tables 1 or 2. Further information regarding earnings per share can be found in Note 18 of the Notes to Consolidated Financial Statements.

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

27

Table 3: Average Balance Sheets for the Years Ended December 31, 2005 and 2004 and the Twelve Months Ended December 31, 2003

	Year Ended December 31,														Twelve Months Ended December 31,
	2005							2004								2003
					Average							Average							Average
	Average				Yield/			Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Loans
Residential real estate	$	1,594,607	$	82,667		5.18	%	$	1,403,023	$	71,328		5.08	%	$	611,656	$	34,220		5.59	%
Commercial real estate		744,450		45,276		6.08			632,280		37,178		5.88			288,320		19,294		6.69
Commercial business		319,669		20,463		6.40			272,360		14,935		5.48			92,814		5,481		5.91
Consumer		526,059		29,001		5.51			441,312		20,163		4.57			231,836		11,932		5.15
Total Loans		3,184,785		177,407		5.57			2,748,975		143,604		5.22			1,224,626		70,927		5.79
Short-term investments		56,758		1,763		3.11			84,500		1,083		1.28			16,844		193		1.15
Investment securities		2,533,381		97,400		3.84			2,072,917		63,345		3.06			1,097,896		33,450		3.05
Total interest-earning assets		5,774,924	$	276,570		4.79	%		4,906,392	$	208,032		4.24	%		2,339,366	$	104,570		4.47	%
Non-interest-earning assets		702,923							548,241							91,628
Total assets	$	6,477,847						$	5,454,633						$	2,430,994
Interest-bearing liabilities
Deposits
Money market	$	721,128	$	12,984		1.80	%	$	733,450	$	11,344		1.55	%	$	443,950	$	7,223		1.63	%
NOW		327,050		614		0.19			451,977		977		0.22			146,195		229		0.16
Savings		859,922		4,054		0.47			862,753		4,251		0.49			531,500		3,308		0.62
Time		1,364,996		37,839		2.77			961,223		17,255		1.80			519,989		12,040		2.32
Total interest-bearing deposits		3,273,096		55,491		1.70			3,009,403		33,827		1.12			1,641,634		22,800		1.39
Repurchase agreements		187,142		4,061		2.17			159,322		1,481		0.93			26,357		267		1.01
FHLB advances and other borrowings		1,099,487		40,909		3.72			730,768		26,504		3.63			160,817		7,329		4.56
Total interest-bearing liabilities		4,559,725		100,461		2.20	%		3,899,493		61,812		1.59	%		1,828,808		30,396		1.66	%
Non-interest-bearing demand deposits		450,032							353,207							169,292
Other non-interest-bearing liabilities		71,015							62,618							32,776
Total liabilities		5,080,772							4,315,318							2,030,876
Equity		1,397,075							1,139,315							400,118
Total liabilities and equity	$	6,477,847						$	5,454,633						$	2,430,994
Net interest-earning assets	$	1,215,199						$	1,006,899						$	510,558
Net interest income			$	176,109						$	146,220						$	74,174
Interest rate spread						2.59	%						2.65	%						2.81	%
Net interest margin (net interest income as a percentage of total interest-earning assets)						3.05	%						2.98	%						3.17	%
Ratio of total interest-earning assets to total interest-bearing liabilities						126.65	%						125.82	%						127.92	%

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 earning assets.

Table 3 displays net interest income of $176.1 million for the year ended December 31, 2005, an increase of $29.9 million, or 20.4%, compared to the prior year. Increases in average interest-earning assets and interest-bearing liabilities were primarily driven by the acquisitions of Connecticut Bancshares and Alliance, the conversion from a mutual savings bank to a stock bank and general increases in loans, investment securities, borrowings and time deposits during the period.

Interest and dividend income increased $68.6 million, or 32.9%, to $276.6 million from $208.0 million for the year ended December 31, 2005 and 2004, respectively. The average rate on earning assets increased 55 basis points to 4.79% from 4.24% in the prior period. Investment income increased $34.7 million, mainly due to an increase in mortgage-backed securities income of $29.8 million due to a 36 basis point increase in the average rate earned and an increase in the average balance of $623.6 million on these securities. Several factors contributed to the increase in investment income including (a) the movement of short-term investments into higher yielding mortgage-backed securities during the second quarter of 2004, (b) the acquisitions of Connecticut Bancshares and Alliance in the second quarter of 2004, (c) additional purchases during 2005, and (d) a rising market interest rate environment. Income from loans increased $33.8 million of which $23.8 million related to increases in average loan balances of $435.8 million, primarily attributable to the acquisitions of Connecticut Bancshares and Alliance during the second quarter of 2004, as well as higher originations and loan purchases and $10.0 million was due to an increase of 35 basis points in the average rate earned on these loans resulting from the general increase in market interest rates during the period.

28

The cost of funds for the year ended December 31, 2005 increased $38.6 million, or 62.5%, to $100.5 million from $61.8 million in the prior year period. The average rate on interest-bearing liabilities increased 61 basis points to 2.20% from 1.59%. Interest expense on deposits increased $21.7 million and was mainly driven by a 97 basis point increase in the average rate paid on time deposits and a $403.8 million increase in the average balance of time deposits. The increase was due to market interest rate increases as well as the Company’s strategy of offering promotional rates to customers who either had or established a checking relationship with the Bank. Interest expense on FHLB advances and other borrowings increased $14.4 million over the prior year period to $40.9 million from $26.5 million. This increase was primarily due to an increase of $367.1 million in the average balance of FHLB advances in order for the Company to originate and purchase residential mortgages, purchase investment securities and to fund its stock buy-back program while taking advantage of special borrowing programs and products currently being offered by the FHLB.

Net interest income for the year ended December 31, 2004 was $146.2 million, compared to $74.2 million for the twelve months ended December 31, 2003. This increase is due to an increase in average interest-earning assets of $2.57 billion, partially offset by a decrease in the average yield of 23 basis points. The increase in average interest-bearing liabilities of $2.07 billion was less than the increase in interest-earning assets and the average rate paid on interest-bearing liabilities decreased 7 basis points, which also contributed to the increase in net interest income. This change in volume was primarily driven by the two acquisitions and the conversion from a mutual savings bank to a stock bank.

Interest income for the year ended December 31, 2004 was $208.0 million, compared to $104.6 million for the comparative period ended December 31, 2003, an increase of $103.4 million, or 98.9%. Substantially all of the increase in interest income resulted from an increase in the average balance on interest-earning assets of $2.57 billion. The increase in the average balance was primarily due to funds received from the stock offering and interest-earning assets acquired from the Connecticut Bancshares and Alliance transactions that were completed on April 1, 2004. The most significant change occurred in the loan balances, which increased by $1.52 billion. Higher loan balances were attributable to $1.97 billion of loans acquired in the two acquisitions partially offset by a decrease in loan balances subsequent to the acquisitions as management focused on integration and customer retention. The decrease in organic loan growth was driven principally by decreasing originations of new residential and commercial real estate loans, which did not fully compensate for loan payoffs. The decrease was partially offset by continuing demand in home equity loans and lines of credit and commercial loans and lower prepayment rates. The 57 basis point decline in the average yield on loans was due to the lower interest rate environment.

Average balances for short-term investments and investment securities for the twelve months ended December 31, 2004 increased $1.04 billion, or 93.5%, which was mainly attributable to the transactions. The Company acquired investment securities of $725.4 million. Excluding the acquired securities, investment securities increased by $397.1 million primarily due to investing the net remaining proceeds raised by the initial public offering. The 3 basis point increase in the average yield on short-term investments and investment securities resulted from the ability of the Company to move away from investing in short-term low yielding assets due to liquidity raised by the initial public offering, as well as a decrease in prepayment speeds on mortgage-backed securities which resulted in less premium amortization this period versus the same period a year ago.

The cost of funds for the year increased $31.4 million compared to the prior twelve-month period, primarily resulting from the acquisition of Connecticut Bancshares and Alliance. Upon completion of the two transactions the Company acquired approximately $1.97 billion in deposits and approximately $751.6 million in borrowings. The increase in interest expense on deposits of $11.0 million was due to an increase in the average balance of $1.37 billion, which more than offset the 27 basis point decrease in the average rate paid on these liabilities. The decrease in the rate paid on time deposits is mainly due to management’s competitive positioning and off-term pricing strategy. Interest expense on FHLB advances and other borrowings and repurchase agreements increased $20.4 million, from $7.6 million for the twelve months ended December 31, 2003 to $28.0 million for the same period in 2004. The increase in expense is due primarily to the increase in the average balance, partially offset by a 93 basis point decrease in the cost of these funds. The decrease in the average yield on these borrowings is a result of the lower rate environment as well as the premium amortization related to the fair value adjustment on acquired borrowings.

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Rate/Volume Analysis

The following table 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) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

Table 4: Rate/Volume Analysis

	Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004									Year Ended December 31, 2004 Compared to the Twelve Months Ended December 31, 2003
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
(In thousands)	Rate			Volume			Net			Rate			Volume		Net
Interest-earning assets
Loans
Residential real estate	$	1,431		$	9,908		$	11,339		$	(3,392	)	$	40,500	$	37,108
Commercial real estate		1,312			6,786			8,098			(2,599	)		20,483		17,884
Commercial business		2,713			2,815			5,528			(417	)		9,871		9,454
Consumer		4,581			4,257			8,838			(1,474	)		9,705		8,231
Total loans		10,037			23,766			33,803			(7,882	)		80,559		72,677
Short-term investments		1,131			(451	)		680			26			864		890
Investment securities		18,303			15,752			34,055			98			29,797		29,895
Total interest-earning assets	$	29,471		$	39,067		$	68,538		$	(7,758	)	$	111,220	$	103,462
Interest-bearing liabilities
Deposits
Money market	$	1,834		$	(194	)	$	1,640		$	(373	)	$	4,494	$	4,121
NOW		(117	)		(246	)		(363	)		113			635		748
Savings		(183	)		(14	)		(197	)		(794	)		1,737		943
Time		11,618			8,966			20,584			(3,186	)		8,401		5,215
Total interest-bearing deposits		13,152			8,512			21,664			(4,240	)		15,267		11,027
Repurchase agreements		2,281			299			2,580			(25	)		1,239		1,214
FHLB advances and other borrowings		702			13,703			14,405			(1,786	)		20,961		19,175
Total interest-bearing liabilities	$	16,135		$	22,514		$	38,649		$	(6,051	)	$	37,467	$	31,416
Increase (decrease) in net interest income	$	13,336		$	16,553		$	29,889		$	(1,707	)	$	73,753	$	72,046

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

Management performs a monthly review of the loan portfolio, and based on this review determines the level of the provision necessary to maintain an adequate allowance for loan losses (“allowance”). Management recorded a provision for loan losses of $400,000 for the year ended December 31, 2005. The provision was recorded to partially offset net charge-offs during the 3^rd quarter of $914,000. The allowance was deemed adequate despite not fully providing for the total year-to-date net charge-offs of $1.0 million, certain of which were provided for in prior years, as improvements were noted in other asset quality indicators including, nonperforming assets to total assets, nonperforming loans to total loans, the allowance for loan loss as a percent of nonperforming loans, as well as positive trends in delinquencies. This compares to a provision for loan losses of $600,000 recorded for the year ended December 31, 2004 and no provision recorded for the twelve months ended December 31, 2003.

30

At December 31, 2005, the allowance for loan losses was $35.6 million, which represented 481.02% of nonperforming loans and 1.08% of total loans. This compared to the allowance for loan losses of $36.2 million at December 31, 2004 representing 353.40% of nonperforming loans and 1.15% of total loans. The allowance acquired in the Connecticut Bancshares and Alliance acquisitions was $21.5 million. At December 31, 2003, the allowance for loan losses was $17.7 million, which represented 321.9% of nonperforming loans and 1.35% of total loans. The reduction in the ratio of allowance for loan losses to total loans reflects growth in lower risk loan portfolios and improved asset quality measures.

Management takes a long-term view in establishing the loss rates in each risk rating category. As a result, allowance allocations by risk rating category consider higher levels of charge-offs experienced during the last economic downturn beginning in the early 1990’s. During the last significant downturn in the early 1990’s, nonperforming assets increased from $53.5 million (3.9% of loans) in 1990 to $128 million (8.7% loans) in 1993. Subsequent net charge-offs and OREO losses reached a peak in 1995 at $23.9 million or 1.68% of the loan portfolio. Throughout the 1990’s, management added to the allowance in response to deterioration in the loan portfolio resulting in a ratio of allowance to total loans of 2.11% in 1998. For the 3-year period ending March 31, 1998, annualized net charge-offs were $13 million (0.92%), $7.4 million (0.54%) and $15.5 million (1.24%), respectively. Including OREO write-downs, the three year total losses were $58 million or an average of $19.3 million per year, which equates to annual credit related losses of 1.44% of the average loan portfolio during this same three-year period.

Beginning in 1999, improvements in the local real estate market began to have a positive impact on our customers, and asset quality began to improve. Nonperforming assets were reduced from $30.7 million at March 31, 1998 to $11.5 million at March 31, 1999 and continued to decrease on a percent of loans outstanding basis through December 31, 2005. Net charge-offs to average interest-earning loans over the last 5 years have ranged from 0.03% to 0.22% and ended fiscal year December 31, 2005 at 0.03%. As asset quality indicators for the portfolio, as a whole, continued to improve, management has reduced the loss rates in certain risk rating categories used in the calculation of the allocation for loan losses.

Table 5: Non-interest Income

						Twelve Months			Change
						Ended
	Year Ended December 31,					December 31,				2005/2004					2004/2003
(Dollars in thousands)		2005			2004		2003		Amount			Percent		Amount			Percent
Depositor service charges	$	22,627		$	18,628	$	7,596		$	3,999		21	%	$	11,032		145	%
Loan and servicing income		3,038			2,646		2,114			392		15			532		25
Trust fees		4,753			2,415		1,963			2,338		97			452		23
Investment and insurance fees		6,117			5,692		2,585			425		7			3,107		120
Bank owned life insurance		2,416			1,828		-			588		32			1,828		-
Rent		3,210			3,078		3,014			132		4			64		2
Net (loss) gain on limited partnership		(80	)		5		(1,529	)		(85	)	(1,700	)		1,534		(100	)
Net securities gains		40			616		750			(576	)	(94	)		(134	)	(18	)
Net gain on sale of loans		297			305		838			(8	)	(3	)		(533	)	(64	)
Other		3,106			533		443			2,573		483			90		20
Total non-interest income	$	45,524		$	35,746	$	17,774		$	9,778		27	%	$	17,972		101	%

Non-Interest Income Analysis
The Company has two primary sources of non-interest income: (a) banking services related to loans, deposits and other core customer activities typically provided through the branch network as well as Merchant Services and (b) financial services, comprised of trust, investment and insurance products and brokerage and investment advisory services. The principal categories of non-interest income are shown in table 5.

The increase in total non-interest income of $9.8 million for the year ended December 31, 2005 from the comparable period in 2004 was primarily due to the acquisitions of Connecticut Bancshares and Alliance in 2004, the resulting expansion of our market and branch network and the acquisition of Trust Company on July 1, 2005, which more than doubled the Company’s trust assets under management to $1.15 billion. The acquisitions were the main reasons for increases in investment and insurance fees, bank owned life insurance and trust fees. Depositor service charges increased due to new product and service initiatives implemented during 2005 as well as the acquisitions of Connecticut Bancshares and Alliance. Loan and servicing income increased $392,000 due to an increase in the valuation of mortgage servicing rights, partially offset by a net decrease in loan fees, principally commercial real estate loan prepayment fees as the prepayment penalty period had expired on many of the loans that prepaid in 2005. The increase in other income was largely attributable to several items of a non-recurring nature, including interest on income tax refunds, gains on two lease terminations, sales of excess real estate originally acquired in connection with the Connecticut Bancshares acquisition, and a gain on the sale of a portion of the merchant services book of business. However, approximately $407,000 of the increase in other income is

31

recurring and was due to an increase in amounts earned on the outstanding balances of bank checks processed by a third-party vendor, which is also due to the acquisition of Connecticut Bancshares in 2004.

Non-interest income increased $17.9 million to $35.7 million for the year ended December 31, 2004 from the twelve months ended December 31, 2003. Most of the increase was directly attributable to the acquisitions of Connecticut Bancshares and Alliance. Depositor service charges increased $11.0 million with approximately $9.3 million of the increase due to the acquisitions. The remaining $1.7 million increase was due to an increase in check fees and other service charges related to an increase in volume and an increase in ATM fees. Loan and servicing income increased $532,000, which was comprised of an increase of approximately $848,000 resulting from the acquisitions, offset by a decrease in prepayment fees and lower increases in the value of the mortgage servicing rights. The increase of $452,000 in trust fees is primarily due to increased value of assets under management which drives trust fee income. Investment and insurance fees increased $3.1 million due to the acquisitions given the expansion of our market and branch network and an increase in the number of brokers selling investment and insurance products as well as the favorable market for insurance products during the year. Additionally, the Bank established its own broker dealer in the first quarter of 2004 thereby realizing higher commissions on sales of investment products. The $1.8 million increase in bank owned life insurance was due to assets acquired in the acquisitions. The $1.5 million increase in gain on limited partnerships from the prior period was due to a write down in 2003 on limited partnerships that was required to reflect the fair value of the partnerships. The decrease in net gain on sale of loans was due to a decrease in fixed rate mortgage loans originated and sold in the secondary market due to the reduced refinancing activity industry-wide.

Table 6: Non-interest Expense

					Twelve Months		Change
					Ended
	Year Ended December 31,				December 31,			2005/2004					2004/2003
(Dollars in thousands)		2005		2004		2003		Amount		Percent			Amount	Percent
Salaries and employee benefits	$	72,837	$	60,272	$	35,983	$	12,565		21	%	$	24,289	68	%
Occupancy		12,540		10,456		6,916		2,084		20			3,540	51
Furniture and fixtures		6,363		6,326		4,006		37		1			2,320	58
Outside services		18,243		15,671		7,119		2,572		16			8,552	120
Advertising, public relations, and sponsorships		4,584		2,976		2,133		1,608		54			843	40
Contribution to the Foundation		-		40,040		-		(40,040	)	(100	)		40,040	-
Amortization of identifiable intangible assets		10,699		11,327		27		(628	)	(6	)		11,300	41,852
Conversion and merger related charges		2,156		17,591		4,032		(15,435	)	(88	)		13,559	336
Other		13,818		12,114		4,724		1,704		14			7,390	156
Total non-interest expense	$	141,240	$	176,773	$	64,940	$	(35,533	)	(20	)%	$	111,833	172	%

Non-interest Expense Analysis
As shown in table 6, expenses for the year ended December 31, 2005 decreased significantly over the comparable period in 2004, principally due to the $40.0 million contribution to the Foundation and $17.6 million in conversion and merger related charges recorded in 2004 as compared with $2.2 million during 2005. In April 2005, the Company announced two then pending acquisitions, the Trust Company, which was completed on July 1, 2005 and Cornerstone, which closed on January 2, 2006. The Company expects that conversion and merger related charges resulting from the Cornerstone acquisition will continue in future periods.

Excluding the contribution to the Foundation and conversion and merger related charges, non-interest expense increased $19.9 million with almost every expense category rising. These increases are primarily attributable to the LTCP which was implemented in 2005 and additional operating expenses resulting from the acquisitions and the conversion to a public company. The conversion to a stock bank and the simultaneous acquisitions of Connecticut Bancshares and Alliance occurred on April 1, 2004. Therefore, the current year expenses include twelve months of the combined banks, whereas the prior year expenses include only nine months of the combined banks. Additionally, the acquisition of Trust Company occurred on July 1, 2005 and has contributed to the increase in current year expenses.

Salaries and employee benefits increased $12.6 million primarily due to increases related to the LTCP, increased salaries resulting from the Trust Company acquisition and higher expenses for medical insurance, pension and employee stock ownership plan (“ESOP”) costs. ESOP costs increased due to the three additional months of expense recorded as the ESOP was established in April of 2004. Medical insurance and pension costs also increased due to the additional three months as well as an increase of approximately 17% for medical insurance year over year and a decrease in the discount rate used by the Company to calculate net periodic benefit cost. The anticipated earnings impact of the LTCP is discussed in Note 13 of the Notes to Consolidated Financial Statements. Occupancy expense increased primarily due to the acquisitions and the opening of a new branch in September of 2005. Outside services increased $2.6 million due to increases in audit and data processing fees, partially offset by a decrease in consultant fees. Data

32

processing fees increased due to the increased transactional volume and core system usage related to the outsourcing of certain processing functions of Connecticut Bancshares and as a result of new processing fees incurred relating to Trust Company. Audit fees have increased due in part to additional benefit plan audits of the acquired banks and Sarbanes Oxley (“SOX”) testing fees. Consultant fees decreased due to costs incurred in the prior-year for the completion of a strategic business plan, partially offset by current year costs relating to SOX compliance. Advertising increased due to the Company’s expanded market area. Other expense increased $1.7 million due to increases in general operating expenses primarily due to the acquisitions.

Non-interest expense increased $111.8 million to $176.7 million for the year ended December 31, 2004 from the twelve months ended December 31, 2003. The increase in the contribution to the Foundation, conversion and merger related charges, salaries and employee benefits and the amortization of acquisition related intangible assets were the primary causes for the increase in non-interest expense for the year ended December 31, 2004. The contribution to the Foundation was a one-time event, as management does not expect to make future contributions to the Foundation. Conversion and merger related charges included primarily legal, accounting and consulting assistance, and advertising expenses related to the integration of the acquired companies and rebranding the Bank as “NewAlliance Bank”.

Excluding the one-time event of the contribution to the Foundation, salaries and employee benefits represented the largest increase in expenses during the year. Approximately 66%, or $16.3 million, of the $24.8 million increase was directly attributable to the acquisitions of Connecticut Bancshares and Alliance. The remaining 34%, or $8.5 million, increase was mainly a result of increased salaries and benefits due to increased staffing levels and restructuring of benefit plans as the Bank converted from a mutual savings bank to a stock bank. Occupancy and furniture and fixtures expenses increased as we added 36 branches to our network with the acquisitions. Management expects occupancy expense to decrease slightly in future periods as nine branches were consolidated in September and a tenth in December. Outside services increased $8.6 million and were driven mainly by increases in data processing fees for the increased transactional volume and core system usage, and additional legal, accounting and consulting fees related to the additional responsibilities of being a newly formed public company. The increase in advertising and public relations expense is due to an increase in marketing campaigns conducted and sponsorships granted throughout our expanded geographical area. The $11.3 million increase in amortization of identifiable intangible assets is directly attributable to the acquisitions of Connecticut Bancshares and Alliance and is primarily the amortization of non-compete agreements and core deposit intangible assets. Other expenses increased $6.9 million with approximately 42%, or $2.9 million, of the increase related to general operating costs for the 36 branches added in the acquisitions. The bulk of the remaining increase, approximately $3.1 million, is due to increases in director and officer liability insurance coverage. Premiums for this coverage increased due to the Bank’s conversion to a public company, and the Company increasing the level of its coverage.

Income Tax Expense
Income tax expense was $27.4 million for the year ended December 31, 2005, which resulted in an effective tax rate of 34.25% compared to $524,000 for the year ended December 31, 2004, which resulted in an effective tax rate of 11.4%. Absent the impact that the charitable contribution to the Foundation had on the effective tax rate as of December 31, 2004, the effective tax rate would have been 32.6%. For the year ended December 31, 2003, the income tax expense of $9.1 million resulted in an effective tax rate of 33.7%. The change in the effective tax rate for the year ended December 31, 2005 in comparison to the year ended December 31, 2004 is primarily due to excess remuneration pursuant to Internal Revenue Code 162(m) and to the increase in the valuation allowance required for the charitable contribution to the Foundation. The change in the effective tax rate for the year ended December 31, 2004 in comparison to the twelve months ended December 31, 2003 is primarily due to the tax benefit associated with bank owned life insurance and the dividend received deduction.

Comparison of Financial Condition at December 31, 2005 and December 31, 2004

Financial Condition Summary
From December 31, 2004 to December 31, 2005, total assets and liabilities increased approximately $297.3 million and $402.8 million, respectively, due mainly to increases in loans, investments and borrowings. Stockholders equity decreased $105.5 million to $1.31 billion due primarily to treasury shares acquired, dividends and a decrease in the after tax fair value of investment securities, partially offset by net income and stock issued to acquire Trust Company.

Lending Activities
The Company originates residential real estate loans secured by one- to four-family residences, commercial real estate loans, residential and commercial construction loans, commercial loans, multi-family loans, home equity lines of credit and fixed rate loans and other consumer loans throughout the State of Connecticut.

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The following table summarizes the composition of the Company’s total loan portfolio as of the dates presented:

Table 7: Loan Portfolio Analysis

	At December 31,																		At March 31,
	2005						2004						2003						2003						2002
(Dollars in thousands)	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
Real estate loans
Residential	$	1,650,527			50.4	%	$	1,576,046			50.1	%	$	644,854			49.3	%	$	594,603			50.4	%	$	638,013			54.6	%
Commercial		768,582			23.4			731,309			23.2			295,178			22.6			285,108			24.2			283,458			24.2
Total real estate loans		2,419,109			73.8			2,307,355			73.3			940,032			71.9			879,711			74.6			921,471			78.8
Commercial loans		314,562			9.6			325,835			10.4			92,869			7.1			89,667			7.6			86,559			7.4
Consumer loans
Equity loans and lines of credit		520,290			15.9			475,051			15.1			239,584			18.3			163,332			13.9			113,466			9.7
Other		22,745			0.7			36,416			1.2			35,040			2.7			45,661			3.9			47,397			4.1
Total consumer loans		543,035			16.6			511,467			16.3			274,624			21.0			208,993			17.8			160,863			13.8
Total loans		3,276,706			100.0	%		3,144,657			100.0	%		1,307,525			100.0	%		1,178,371			100.0	%		1,168,893			100.0	%
Allowance for loan losses		(35,552	)					(36,163	)					(17,669	)					(18,932	)					(20,805	)
Loans, net	$	3,241,154					$	3,108,494					$	1,289,856					$	1,159,439					$	1,148,088

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As shown in Table 7, gross loans were $3.28 billion at December 31, 2005, up $132.0 million from year-end 2004. The increase in gross loan balances was primarily attributable to increases in residential and commercial real estate loans and home equity loans and lines of credit.

Residential real estate loans continue to represent the largest segment of the Company’s loan portfolio as of December 31, 2005, comprising approximately 50% of gross loans. The increase in the balance of $74.5 million since December 31, 2004 was due to loan portfolio originations and purchases, partially offset by a decrease in organic loan balances. The purchased portfolio includes adjustable rate and 10 and 15 year fixed rate residential real estate loans with property locations predominately in the Northeast. For the year ended December 31, 2005, loan purchases accounted for $186.4 million of new residential real estate loans. The Company plans to expand its geographical target area for residential real estate loan purchases to supplement the organic portfolio. The Company also continues to originate 30 year fixed rate mortgages for sale, which amounted to $55.2 million during the year.

Home equity loans and lines of credit increased $45.2 million from December 31, 2004 to December 31, 2005. These products were promoted by the Company through attractive pricing and marketing campaigns as the Company is committed to growing this loan segment while maintaining credit quality as a higher yielding alternative to investments.

Commercial real estate loans increased $37.3 million from December 31, 2004 to December 31, 2005. The increase was attributable to increases in both the number and average balance of loan originations as a result of the Company’s improved competitive position in the Connecticut commercial real estate lending market subsequent to the acquisitions of Connecticut Bancshares and Alliance. The Company’s continued strategy is to have a larger percentage of the Company’s assets be attributable to commercial loans including real estate, construction and other commercial loans. To accomplish this goal, the Company is expanding penetration of its geographical target area as well as promoting stronger business development efforts to obtain new business banking relationships, while still maintaining credit quality.

Selected Loan Maturities
The following table shows the contractual maturity of the Company’s construction and commercial business loan portfolios at December 31, 2005.

Table 8: Contractual Maturities and Interest Rate Sensitivity of Selected Loan Categories

	Real Estate		Commercial
(In thousands)	Construction		Business		Total
Amounts due
One year or less	$	73,245	$	106,928	$	180,173
Over one year through five years		32,474		134,697		167,171
Over five years		4,262		72,937		77,199
Total	$	109,981	$	314,562	$	424,543
Interest rate terms on amounts due after one year
Fixed	$	5,375	$	86,257	$	91,632
Adjustable		31,361		121,377		152,738
Total	$	36,736	$	207,634	$	244,370

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 all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period. For the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003, had interest been accrued at contractual rates on nonaccrual and renegotiated loans, interest income would have increased by approximately $558,000, $562,000 and $168,000, respectively.

The following table sets forth information regarding nonaccrual loans, restructured loans, and other real estate owned:

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Table 9: Nonperforming Assets

	At December 31,									At March 31,
(Dollars in thousands)	2005			2004			2003			2003			2002
Nonaccruing loans (1)
Real estate loans
Residential	$	1,808		$	1,473		$	1,399		$	2,333		$	4,089
Commercial		2,889			4,268			700			990			5,587
Total real estate loans		4,697			5,741			2,099			3,323			9,676
Commercial business		2,446			4,079			3,319			369			1,361
Consumer loans
Home equity and equity lines of credit		29			196			15			157			141
Other consumer		219			217			56			73			42
Total consumer		248			413			71			230			183
Total nonaccruing loans		7,391			10,233			5,489			3,922			11,220
Real estate owned		-			-			23			66			-
Total nonperforming assets	$	7,391		$	10,233		$	5,512		$	3,988		$	11,220
Allowance for loan losses as a percent of total loans (2)		1.08	%		1.15	%		1.35	%		1.61	%		1.78	%
Allowance for loan losses as a percent of total nonperforming loans(2)		481.02	%		353.40	%		321.90	%		482.71	%		185.43	%
Total nonperforming loans as a percentage of total loans(2)		0.23	%		0.33	%		0.42	%		0.33	%		0.96	%
Total nonperforming assets as a percentage of total assets		0.11	%		0.16	%		0.22	%		0.17	%		0.50	%

(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 adjustment on acquired loans.

As displayed in Table 9, nonperforming assets at December 31, 2005 decreased to $7.4 million compared to $10.2 million at December 31, 2004. Nonperforming loans as a percent of total loans outstanding at December 31, 2005 was 0.23%, down from 0.33% at December 31, 2004. The allowance for loan losses to nonperforming loans ratio, a general measure of coverage adequacy, was 481.02% at December 31, 2005, favorably higher than the ratio of 353.40% at year-end 2004. The allowance for loan losses to total loans was 1.08% at the end of the December 31, 2005 as compared with 1.15% at year-end 2004.

The following table sets forth delinquencies for 60 – 89 days and 90 days or more in the Company’s loan portfolio as of the dates indicated:

Table 10: Selected Loan Delinquencies

	At December 31,
	2005										2004										2003
	60-89 Days					90 Days or More					60-89 Days					90 Days or More					60-89 Days					90 Days or More
	Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal			Number		Principal
	of		Balance			of		Balance			of		Balance			of		Balance			of		Balance			of		Balance
(Dollars in thousands)	Loans		of Loans			Loans		Loans			Loans		Loans			Loans		Loans			Loans		Loans			Loans		of Loans
Real estate loans
Residential		7	$	626			21	$	1,808			8	$	494			33	$	1,473			7	$	422			26	$	1,399
Commercial		-		-			9		2,889			4		962			11		4,268			-		-			2		700
Total real estate loans		7		626			30		4,697			12		1,456			44		5,741			7		422			28		2,099
Commercial business		7		213			36		2,446			17		2,638			67		4,079			1		8			13		3,319
Consumer
Home equity		3		49			1		29			1		20			7		196			-		-			1		15
Other consumer		24		173			20		219			35		202			62		217			11		17			8		56
Total consumer		27		222			21		248			36		222			69		413			11		17			9		71
Total		41	$	1,061			87	$	7,391			65	$	4,316			180	$	10,233			19	$	447			50	$	5,489
Delinquent loans to total loans				0.03	%				0.23	%				0.14	%				0.33	%				0.04	%				0.42	%

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Other Real Estate Owned
The Company classifies property acquired through foreclosure or acceptance of a deed-in-lieu of foreclosure as other real estate owned in its financial statements. When a property is placed in other real estate owned, the excess of the loan balance over the estimated fair market value of the collateral, based on a recent appraisal, is charged to the allowance for loan losses. Estimated fair value usually represents the sales price a buyer would be willing to pay on the basis of current market conditions, including normal loan terms from other financial institutions, less the estimated costs to sell the property. Management inspects all other real estate owned properties periodically. Subsequent writedowns in the carrying value of other real estate owned are charged to expense if the carrying value exceeds the estimated fair value. At December 31, 2005, the Company had no other real estate owned.

Classification of Assets and Loan Review
The Chief Credit Officer is responsible for this evaluation process and is assisted by the use of an independent third party loan review company. An internal risk rating system is used to monitor and evaluate the credit risk inherent in its loan portfolio. At the time of loan approval, all commercial and commercial real estate loans are assigned a risk rating based on all of the factors considered in originating the loan. The initial risk rating is recommended by the loan officer who originated the loan and approved by the loan approval authority.

Under our internal risk rating system, we currently classify problem and potential problem assets as “substandard,” “doubtful” or “loss". An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. In addition, assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated “special mention."

The Company engages an independent third party to conduct semi-annual loan reviews of the commercial and commercial real estate loan portfolios, including a penetration of the commercial loan portfolio (by dollar amount) within a range of 70% to 80%. The loan reviews provide a credit evaluation of individual loans to ensure the appropriateness of the risk rating classification. In addition, there is an independent loan review of the residential mortgage and consumer loan portfolios through a quarterly review of a sampling of new loans closed during the period.

On a quarterly basis, a Criticized Asset Committee composed of the Chief Credit Officer, Executive Vice President of Business Banking and other senior officers meet to review Criticized Asset Reports on commercial and commercial real estate loans that are risk rated Special Mention, Substandard, or Doubtful. The reports focus on the current status, strategy, financial data, and appropriate risk rating of the criticized loan.

At December 31, 2005, loans classified as substandard (both accruing and nonaccruing) totaled $18.0 million, and consisted of $6.3 million in commercial real estate loans and $11.7 million in commercial loans. Special mention loans totaled $73.5 million, and consisted of $52.8 million of commercial real estate loans and 20.7 million of commercial loans. There were no loans classified as doubtful at December 31, 2005.

Allowance For Loan Losses
The Board of Directors and management of the Company are committed to the establishment and maintenance of an adequate allowance for loan losses, determined in accordance with GAAP. Our approach is to follow the most recent guidelines that have been provided by our regulators and the SEC. Management believes that the methodology it employs to develop, monitor and support the allowance for loan losses is consistent with those guidelines.

While management believes that it has established adequate specific and general allowances for probable losses on loans, there can be no assurance that the regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for losses, thereby negatively affecting the Company’s financial condition and earnings. Moreover, actual losses may be dependent upon future events and, as such, further additions to the allowance for loan losses may become necessary.

The allowance for loan losses is established through provisions for loan losses based on management’s on-going evaluation of the risks inherent in the Company’s loan portfolio. Charge-offs against the allowance for loan losses are taken on loans when it is determined that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.

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The following table sets forth activity in the Company’s allowance for loan losses for the periods indicated:

Table 11: Schedule of Allowance for Loan Losses

							At or For the
	At or For the Year Ended						Twelve Months Ended			At or For the Nine Months Ended						At or For the Year Ended
	December 31,						December 31,			December 31,						March 31,
(Dollars in thousands)	2005			2004			2003			2003			2002			2003			2002
Balance at beginning of period	$	36,163		$	17,669		$	19,321		$	18,932		$	20,805		$	20,805		$	23,290
Net allowances gained through acquisition		-			21,498			-			-			-			-			-
Provision for loan losses		400			600			-			-			-			-			-
Charge-offs
Residential and commercial mortgage loans		12			161			501			6			808			1,323			3,079
Commercial loans		3,347			4,705			2,667			2,619			2,307			2,354			298
Consumer loans		286			346			278			218			271			331			368
Total charge-offs		3,645			5,212			3,446			2,843			3,386			4,008			3,745
Recoveries
Residential and commercial mortgage loans		490			650			1,062			982			1,505			1,611			366
Commercial loans		1,987			784			598			500			204			302			775
Consumer loans		157			174			134			98			193			222			119
Total recoveries		2,634			1,608			1,794			1,580			1,902			2,135			1,260
Net charge-offs		1,011			3,604			1,652			1,263			1,484			1,873			2,485
Balance at end of period	$	35,552		$	36,163		$	17,669		$	17,669		$	19,321		$	18,932		$	20,805
Ratios
Net loan charge-offs to average interest-earning loans		0.03	%		0.13	%		0.13	%		0.10	%		0.13	%		0.16	%		0.22	%
Allowance for loan losses to total loans		1.08			1.15			1.35			1.35			1.64			1.61			1.78
Allowance for loan losses to nonperforming loans		481.02			353.40			321.90			321.90			416.94			482.71			185.43
Net loans charged-off to allowance for loan losses		2.84			9.97			9.35			7.15			7.68			9.89			11.94
Recoveries to charge-offs		72.26			30.85			52.06			55.58			56.17			53.27			33.64

As displayed in Table 11, net charge-offs of $1.0 million were recorded for the year ended December 31, 2005 and were predominantly attributable to the commercial loan portfolio. This compares to net charge-offs of $3.6 million for the year ended December 31, 2004. As a result of the net charge-offs for the year ended December 31, 2005, a provision for loan losses of $400,000 was recorded. Management believes that the allowance for loan losses is adequate and consistent with positive asset quality and nonaccrual delinquency indicators. The Company had an allowance of $35.6 million and $36.2 million at December 31, 2005 and December 31, 2004, respectively.

The following table sets forth the Company’s percent of allowance by loan category and the percent of the loans to total loans in each of the categories listed at the dates indicated:

Table 12: Allocation of Allowance for Loan Losses

	At December 31,																At March 31,
	2005					2004					2003						2003					2002
			Percent of					Percent of					Percent of						Percent of					Percent of
			Loans in					Loans in					Loans in						Loans in					Loans in
			Each					Each					Each						Each					Each
			Category to					Category to					Category to						Category to					Category to
(Dollars in thousands)	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans				Amount		Total Loans			Amount		Total Loans
Residential real estate	$	6,177		50.37	%	$	5,881		50.12	%	$	2,917		49.32	%		$	2,868		50.46	%	$	4,585		54.58	%
Commercial real estate		8,941		23.46			9,573		23.25			5,798		22.57				6,861		24.19			7,333		24.25
Commercial business		13,782		9.60			14,872		10.36			5,868		7.10				5,313		7.61			4,698		7.41
Consumer		4,320		16.57			4,208		16.27			2,957		21.01				2,783		17.74			2,482		13.76
Unallocated		2,332		-			1,629		-			129		-				1,107		-			1,707		-
Total allowance for loan losses	$	35,552		100.00	%	$	36,163		100.00	%	$	17,669		100.00	%	$		18,932		100.00	%	$	20,805		100.00	%

The allowance for loan losses and the provision are 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, nonperforming 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, and historical loss rates over the business cycle. Management follows a guiding principle that the level of the allowance for loan losses should be directionally consistent with asset quality indicators.

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The allowance is computed by segregating the portfolio into pools of loans that have similar loan product type and risk rating characteristics. Management uses historical default and loss rates, internal risk ratings, industry data, peer comparisons, and other risk-based characteristics. The data is then analyzed and estimates of losses inherent in the portfolio are determined using formula allowances for homogeneous pools of loans and criticized loans, and specific allowances for impaired loans. The provision and allowance for loan losses are then reviewed and approved by the Company’s Board of Directors on a quarterly basis.

Investment Securities
The following table sets forth certain financial information regarding the amortized cost and market value of the Company’s investment portfolio at the dates indicated.

Table 13: Investment Securities

	2005				2004				2003
	Amortized		Fair		Amortized		Fair		Amortized		Fair
(In thousands)	cost		value		cost		value		cost		value
Available for sale
U.S. Government and Agency obligations	$	167,885	$	166,131	$	193,299	$	191,905	$	57,482	$	57,548
Corporate obligations		54,831		53,617		93,716		93,461		54,784		54,877
Other bonds and obligations		120,663		119,848		153,559		153,033		57,923		58,170
Marketable and trust preferred equity securities		161,122		160,806		173,559		173,067		104,539		103,420
Mortgage-backed securities		1,899,374		1,863,069		1,674,416		1,671,235		844,073		846,031
Total available for sale		2,403,875		2,363,471		2,288,549		2,282,701		1,118,801		1,120,046
Held to maturity
Mortgage-backed securities and other bonds		91,734		90,707		1,000		1,000		350		350
Total held to maturity		91,734		90,707		1,000		1,000		350		350
Total securities	$	2,495,609	$	2,454,178	$	2,289,549	$	2,283,701	$	1,119,151	$	1,120,396

At December 31, 2005 the Company had total investments of $2.46 billion, or 37.4%, of total assets. This is an increase of $171.5 million, or 7.5%, from $2.28 billion at December 31, 2004. The increase was primarily the result of purchases of mortgage-backed securities.

The Company’s investment strategy has been to purchase hybrid adjustable rate mortgage-backed securities, five and seven year balloon mortgage-backed securities, ten year pass through mortgage-backed securities and collateralized mortgage obligations based off fifteen-year mortgage collateral. These securities have been emphasized due to their limited extension risk in a rising rate environment and for their monthly cash flows that provide the Company with liquidity. This strategy has been supplemented with select purchases of bullet and callable agency and asset-backed securities. For mortgage-backed securities, the average life at purchase has ranged between 1.5 and 3.5 years and the maturity dates for Agency obligations have ranged between one and five years. The Company is amortizing any premium paid on hybrid adjustable rate mortgage-backed securities to the initial reset date due to management’s experience with prepayments by the initial reset date.

SFAS No. 115 requires the Company to designate its securities as held to maturity, available for sale or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of December 31, 2005, $2.36 billion, or 96.3% of the portfolio, was classified as available for sale and $91.7 million of the portfolio was classified as held to maturity. The net unrealized loss on securities classified as available for sale as of December 31, 2005 was $40.4 million compared to an unrealized loss of $5.8 million as of December 31, 2004. The depreciation in the market value of securities available for sale was primarily due to fluctuations in market interest rates during the period. Management has performed a review of all investments with unrealized losses and noted that none of these investments had other-than-temporary impairment.

The following table sets forth certain information regarding the carrying value, weighted average yield and contractual maturities of the Company’s investment portfolio as of December 31, 2005. In the case of mortgage backed securities and asset-backed securities, the table shows the securities by their contractual maturities; however, there are scheduled principal payments and there will be unscheduled prepayments prior to their contractual maturity. Income on obligations of states and political subdivisions are taxable and no yield adjustment for dividend receivable deduction is made because it is not material.

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Table 14: Investment Maturities Schedule

						Over one year					Over five years
	One year or less					through five years					through ten years					Over ten years					Total
			Weighted					Weighted					Weighted					Weighted					Weighted
	Amortized		average			Amortized		average			Amortized		average			Amortized		average			Amortized		average
(Dollars in thousands)	cost		yield			cost		yield			cost		yield			cost		yield			cost		yield
Available for sale
U.S. Government and Agency obligations	$	98,882		3.31	%	$	56,387		3.49	%	$	4,050		4.33	%	$	8,566		4.43	%	$	167,885		3.45	%
Corporate obligations		13,061		2.35			36,780		4.03			4,990		4.54			-		-			54,831		3.67
Other bonds and obligations		52,400		4.25			34,881		3.37			3,881		3.24			29,501		3.84			120,663		3.86
Marketable and trust preferred equity securities		25,000		3.37			1,077		4.35			-		-			135,045		5.04			161,122		4.78
Mortgage-backed securities		3		6.46			301,186		4.03			324,668		4.17			1,273,517		4.26			1,899,374		4.21
Total available for sale		189,346		3.51			430,311		3.91			337,589		4.17			1,446,629		4.33			2,403,875		4.17
Held to maturity
Mortgage-backed securities and other bonds		150		5.15			3,295		4.04			22,470		4.84			65,819		4.78			91,734		4.77
Total held to maturity		150		5.15			3,295		4.04			22,470		4.84			65,819		4.78			91,734		4.77
Total securities	$	189,496		3.51	%	$	433,606		3.91	%	$	360,059		4.21	%	$	1,512,448		4.35	%	$	2,495,609		4.19	%

Intangible Assets
At December 31, 2005, the Company had intangible assets of $477.0 million, an increase of $3.7 million from $473.3 million at December 31, 2004. The increase was predominately due to the acquisition of Trust Company on July 1, 2005, which resulted in the Company recording additional goodwill of $6.2 million and a customer list intangible of $7.3 million, partially offset by year-to-date amortization expense of $10.7 million. In accordance with SFAS No. 141, the assets acquired and liabilities assumed are recorded based on their fair values on the acquisition date. In connection with determining the fair market values, the Company retained the services of third parties to provide fair value appraisals of the core deposit and customer list intangibles and to review the value of the non-compete agreements. The Company also utilized third parties to compute the market value for loans, deposits and certain fixed assets.

Identifiable intangible assets are amortized on a straight-line or accelerated basis, over their estimated lives. Management assesses the recoverability of intangible assets subject to amortization whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If carrying amount exceeds fair value an impairment charge is recorded to income. Goodwill is not amortized, but instead is reviewed for impairment on an annual basis. For 2005, the goodwill evaluation occurred in the first quarter and no impairment was recorded, and no events or circumstances subsequent to that evaluation indicate that the carrying value of the Company’s goodwill may not be recoverable.

Other Assets
The Company’s other assets increased $16.9 million, or 19.2%, to $105.3 million at December 31, 2005 from $88.4 million at December 31, 2004. This net increase was primarily due to increases for a $14.3 million cash prepayment for the Cornerstone acquisition which closed on January 2, 2006, $4.6 million increase in accrued interest receivable and a prepaid pension asset of $11.9 million as a result of the Company’s cash contribution to its pension plan during 2005 which relieved the accrued pension liability recorded at December 31, 2004, offset by a decrease of $15.3 million in the current Federal income tax receivable.

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

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Table 15: Deposits

	December 31,
(In thousands)	2005		2004		Change
Savings	$	781,346	$	942,363	$	(161,017	)
Money market		554,079		806,035		(251,956	)
NOW		342,268		345,539		(3,271	)
Demand		486,528		448,670		37,858
Time		1,633,891		1,159,405		474,486
Total deposits	$	3,798,112	$	3,702,012	$	96,100

As displayed in Table 15, deposits increased $96.1 million, or 2.6%, as compared to December 31, 2004, due to increases in time deposits and demand deposits, partially offset by decreases in the other categories, particularly money market and savings.

Time and demand deposits increased by $474.5 million and $37.9 million, respectively, which resulted from the Company’s strategy of offering premium time deposit rates to customers who either have or establish a checking relationship with the Company coupled with the offering of new free checking products to both retail and commercial customers. Money market accounts decreased $252.0 million since December 31, 2004 as the Company supplemented promotional offerings on money market accounts with promotional offerings on time deposits. Savings decreased $161.0 million due in part to the market interest rate environment and promotionally driven migration to time deposits as a result of more favorable and rate sensitive pricing of these products.

The Company had $483.8 million in time deposits of $100,000 or more outstanding as of December 31, 2005, maturing as follows:

Table 16: Time Deposit Maturities of $100,000 or more

			Weighted
			average
(Dollars in thousands)	Amount		rate
Three months or less	$	142,128		3.75	%
Over three months through six months		150,367		3.89
Over six months through twelve months		110,209		3.99
Over twelve months		81,123		4.13
Total time deposits$100,000 or more	$	483,827		3.91	%

The following table summarizes the Company’s recorded borrowings of $1.38 billion at December 31, 2005. Borrowings increased $316.0 million, or 29.7%, from the balance recorded at December 31, 2004, mainly in FHLB advances. This increase in FHLB advances was due to funding investment security purchases, loan growth and the Company’s stock buy-back program, while managing interest rate risk and liquidity. At December 31, 2005, all of the Company’s outstanding FHLB advances were at fixed rates.

Table 17: Borrowings

	December 31,
(In thousands)	2005		2004		Change
FHLB advances (1)	$	1,191,280	$	860,009	$	331,271
Repurchase agreements		179,970		194,972		(15,002	)
Mortgage loans payable		1,716		1,830		(114	)
Junior subordinated debentures issued to affiliated trusts (2)		7,809		8,005		(196	)
Total borrowings	$	1,380,775	$	1,064,816	$	315,959

(1)	Includes fair value adjustments on acquired borrowings of $18.2 million and $24.3 million at December 31, 2005 and 2004, respectively.
(2)	Includes fair value adjustments on acquired borrowings of $700,000 and $900,000 at December 31, 2005 and 2004, respectively.

Other Liabilities
Other liabilities decreased $9.3 million, or 11.5%, to $71.6 million at December 31, 2005 compared to $80.9 million at December 31, 2004. This decrease was primarily due to the Company’s $24.5 million cash contribution to its pension plan during the year ended December 31, 2005. The contribution exceeded the accrued pension liability and therefore, the Company has recorded a prepaid pension asset as of December 31, 2005. The Company expects that future pension expense will be reduced as a result of this contribution.

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Stockholders’ Equity
Total stockholders equity equaled $1.31 billion at December 31, 2005, $105.5 million lower than the balance at December 31, 2004. The decrease consisted primarily of shares repurchased of $88.0 million, dividends of $22.3 million, unearned compensation of $41.3 million related to the Company’s LTCP and a decrease of $19.0 million in other comprehensive income resulting from an after tax depreciation in the fair value of investments available for sale. These decreases were partially offset by net income of $52.6 million and common stock issued for the Trust Company acquisition of $10.1 million. For information regarding our compliance with applicable capital requirements, see Liquidity and Capital Resources below. Book value per share amounted to $12.05 and $12.41 at December 31, 2005 and December 31, 2004, respectively.

Liquidity and Capital Resources
Liquidity is the ability to meet current and future short-term financial obligations. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers as well as maintaining the flexibility to take advantage of investment opportunities. The Company’s primary sources of funds consist of deposit inflows, loan repayments and sales, maturities, paydowns and sales of investment and mortgage-backed securities, borrowings from the Federal Home Loan Bank and repurchase agreements.

The Company has expanded its use of borrowings from the Federal Home Loan Bank to fund purchases of investments and residential mortgage loans while managing interest rate risk and liquidity. At December 31, 2005, total borrowings from the Federal Home Loan Bank amounted to $1.17 billion, exclusive of $18.2 million in purchase accounting adjustments, and the Company had the capacity to increase that total to $1.35 billion. Additional borrowing capacity would be 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 December 31, 2005 the Company’s repurchase agreement lines of credit totaled $100.0 million, $50.0 million of which was available on that date.

The Company determines its cash position daily. The Investment Department compiles reports detailing the Company’s cash activity and cash balances occurring at its various correspondents and through its various funding sources. The Investment Department then settles all correspondent and bank accounts either investing excess funds or borrowing to cover the projected shortfall.

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 December 31, 2005, cash and due from banks, short-term investments and debt securities maturing within one year amounted to $389.9 million, or 5.9% of total assets.

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 December 31, 2005, the Company had commitments to originate loans, unused outstanding lines of credit and standby letters of credit totaling $670.2 million. Management anticipates that it will have sufficient funds available to meet its current loan commitments. Time deposits maturing within one year from December 31, 2005 amount to $1.26 billion.

The following tables present information indicating various obligations and commitments made by the Company as of December 31, 2005 and the respective maturity dates. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses.

Table 18: Contractual Obligations

					Over one year		Over three years
					through three		through five
(In thousands)	Total		One year or less		years		years		Over Five Years
FHLB advances (1)	$	1,173,064	$	73,500	$	477,211	$	232,448	$	389,905
Repurchase agreements		179,970		179,970		-		-		-
Junior subordinated debentures issued to affiliated trusts		7,109		-		-		-		7,109
Operating leases (2)		10,674		2,045		3,571		2,619		2,439
Total contractual obligations	$	1,370,817	$	255,515	$	480,782	$	235,067	$	399,453

(1)	Secured under a blanket security agreement on qualifying assets, principally, mortgage loans.
(2)	Represents non-cancelable operating leases for offices.

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Table 19: Other Commitments

					Over one year		Over three
			One year or		through three		years through		Over five
(In thousands)	Total		less		years		five years		years
Loan commitments (1)	$	68,160	$	68,160	$	-	$	-	$	-
Unadvanced portion of construction loans (2)		98,360		57,808		40,552		-		-
Standby letters of credit		11,701		10,208		1,212		251		30
Unadvanced portion of lines of credit (3)		491,977		97,542		61,466		9,304		323,665
Total commitments	$	670,198	$	233,718	$	103,230	$	9,555	$	323,695

(1)	Commitments for loans are extended to customers for up to 180 days after which they expire.
(2)	Unadvanced portions of construction loans are available to be drawn on at any time by the borrower for up to 2 years.
(3)	Unadvanced portions of home equity loans are available to be drawn on at any time by the borrower for up to 10 years.

At December 31, 2005, the Company’s Tier 1 leverage ratio, a primary measure of regulatory capital was 14.3%, which is above the threshold level of 5% to be considered “well-capitalized.” The Tier 1 risk-based capital ratio stood at 25.0% and the Total risk-based capital ratio stood at 26.0%. The Bank also exceeded all of its regulatory capital requirements with a Tier 1 leverage ratio of 10.0%, which is above the required level of 4%, Tier 1 risk-based capital ratio of 17.6% and Total risk-based capital ratio of 18.6%. These ratios qualify the Bank as a “well capitalized” institution under federal capital guidelines

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

Management Of Market And Interest Rate Risk

General
Market risk is the exposure to losses resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company has no foreign currency or commodity price risk. Credit risk related to investment securities is low as substantially all are investment grade or have government guarantees. The chief market risk factor affecting financial condition and operating results is interest rate risk. Interest rate risk is the exposure of current and future earnings and capital arising from adverse movements in interest rates. This risk is managed by periodic evaluation of the interest rate risk inherent in certain balance sheet accounts, determination of the level of risk considered appropriate given the Company’s capital and liquidity requirements, business strategy, performance objectives and operating environment and maintenance of such risks within guidelines approved by the Board of Directors. Through such management, the Company seeks to reduce the vulnerability of its net earnings to changes in interest rates. The Asset/Liability Committee, comprised of several senior executives, is responsible for managing interest rate risk. On a quarterly basis, the Board of Directors reviews the Company’s gap position and interest rate sensitivity exposure described below and Asset/Liability Committee minutes detailing the Company’s activities and strategies, the effect of those strategies on the Company’s operating results, interest rate risk position and the effect changes in interest rates would have on the Company’s net interest income. The extent of movement of interest rates is an uncertainty that could have a negative impact on earnings.

The principal strategies used to manage interest rate risk include (i) emphasizing the origination and retention of adjustable rate loans, and origination 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.

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 December 31, 2005, the Company’s cumulative one-year interest rate gap (which is the difference between the amount of interest-earning assets maturing or repricing within one year and interest-bearing liabilities maturing or repricing within one year), was negative $58.5 million, or negative 0.89% 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

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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.

The following table sets forth the Company’s cumulative maturity distribution of interest-earning assets and interest-bearing liabilities at December 31, 2005, interest rate sensitivity gap, cumulative interest rate sensitivity gap, cumulative interest rate sensitivity gap ratio, and cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities ratio. This table indicates the time periods in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. Assumptions are made on the rate of prepayment of principal on loans and investment securities. However, this table does not necessarily indicate the impact of general interest rate movements on the Company’s net interest yield because the repricing of various categories of assets and liabilities is discretionary and is subject to competitive and other pressures. Additionally, certain assets, such as adjustable rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the gap analysis. As a result, various assets and liabilities indicated as repricing within the same time period may, in fact, reprice at different times and at different rate levels. It should also be noted that this table reflects certain assumptions regarding the categorization of assets and liabilities and represents a one-day position; in fact, variations occur daily as management adjusts interest rate sensitivity throughout the year.

Interest Rate Sensitivity Gap

	December 31, 2005
	1 - 3			4 - 6			7 - 12			1 - 5
(Dollars in thousands)	Months			Months			Months			Years			5+ Years			Total
Interest-earning assets
Investment securities	$	390,725		$	172,991		$	329,020		$	1,416,169		$	186,194		$	2,495,099
Loans		710,385			168,007			317,802			1,597,310			459,368			3,252,872
Short-term investments		46,497			-			-			-			-			46,497
Total interest-earning assets		1,147,607			340,998			646,822			3,013,479			645,562			5,794,468
Interest-bearing liabilities
Savings deposits		16,109			16,109			82,781			205,521			460,826			781,346
NOW deposits		-			-			37,093			206,311			98,864			342,268
Money market deposits		151,305			101,548			190,293			110,933			-			554,079
Time deposits		371,523			491,415			408,692			356,594			-			1,628,224
FHLB advances and other borrowings		186,112			48,816			92,164			848,053			186,714			1,361,859
Total interest-bearing liabilities		725,049			657,888			811,023			1,727,412			746,404			4,667,776
Interest rate sensitivity gap	$	422,558		$	(316,890	)	$	(164,201	)	$	1,286,067		$	(100,842	)	$	1,126,692
Cumulative interest rate sensitivity gap	$	422,558		$	105,668		$	(58,533	)	$	1,227,534		$	1,126,692
Cumulative interest rate sensitivity gap ratio		6.4	%		1.6	%		(0.9	)%		18.7	%		17.2	%
Cumulative interest-earning assets as a
percentage of cumulative interest-
bearing liabilities		158.3	%		107.6	%		97.3	%		131.3	%		124.1	%

Income Simulation Analysis
Income simulation analysis considers the maturity and repricing characteristics of assets and liabilities, as well as the relative sensitivities of these balance sheet components over a range of interest rate scenarios. Tested scenarios include instantaneous rate shocks, rate ramps over a six-month or one-year period, static rates, non-parallel shifts in the yield curve and a forward rate scenario. The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a three-year period. Simulation analysis involves projecting future balance sheet structure and interest income and expense under the various rate scenarios. The Company’s internal guidelines on interest rate risk specify that for all interest rate scenarios, the estimated net interest margin over the next 12 months should decline by less than 12% as compared to the forecasted net interest margin in the base case scenario. However, in practice, interest rate risk is managed well within these 12% guidelines.

For the base case rate scenario the forward yield curve as of December 31, 2005 was utilized. This resulted in a yield curve that increased approximately 30 basis points at the front end of the yield curve and increased approximately 10 basis points at the long end of the yield curve. The overnight rate was modeled to increase by 75 BP. This interest rate scenario most closely approximates management’s expectations for interest rate movements over the next twelve months.

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As of December 31, 2005, the Company’s estimated exposure as a percentage of estimated net interest margin for the next twelve-month period as compared to the forecasted net interest margin in the base case scenario are as follows:

	Percentage change in
	estimated net interest margin
	over twelve months
100 basis point instantaneous and sustained increase in rates		0.17	%
100 basis point instantaneous and sustained decrease in rates		(1.45	)%

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

Based on the scenarios above, net interest income would be adversely affected in the 12-month period after an immediate decrease in rates, and would increase slightly after an immediate increase in rates. Computation of prospective effects of hypothetical interest rate changes are based on a number of assumptions including the level of market interest rates, the degree to which certain assets and liabilities with similar maturities or periods to repricing react to changes in market interest rates, the degree to which non-maturity deposits react to changes in market rates, the expected prepayment rates on loans and investments, the degree to which early withdrawals occur on time deposits and other deposit flows. As a result, these computations should not be relied upon as indicative of actual results. Further, the computations do not reflect any actions that management may undertake in response to changes in interest rates.

Item 8.      Financial Statements and Supplementary Data

For the Company’s Consolidated Financial Statements, see index on page 47.

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

As of December 31, 2005, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation in the fourth quarter 2005.

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 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.

Item 9B.   Other Information

On February 23, 2006, NewAlliance received approval from the Connecticut Banking Commissioner on its application to repurchase up to 10 million shares of its common stock. The adoption of the plan by NewAlliance’s Board of Directors was previously announced in a press release issued January 31, 2006, subject to regulatory approval.

Receipt of the Commissioner’s approval permits NewAlliance to begin implementation of its stock repurchase plan. The repurchases may be effected from time to time through open market purchases and unsolicited or solicited privately negotiated transactions at NewAlliance’s discretion, subject to market conditions and other factors deemed appropriate to repurchase decisions from time to time by management.

45

PART III

Item 10.   Directors and Executive Officers of the Registrant
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s definitive proxy statement (the “Definitive Proxy Statement”) for its 2006 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2005.

Item 11.   Executive Compensation
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s definitive proxy statement (the “Definitive Proxy Statement”) for its 2006 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2005.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s definitive proxy statement (the “Definitive Proxy Statement”) for its 2006 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2005.

Item 13.   Certain Relationships and Related Transactions
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s definitive proxy statement (the “Definitive Proxy Statement”) for its 2006 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2005.

Item 14.   Principal Accountant Fees and Services
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s definitive proxy statement (the “Definitive Proxy Statement”) for its 2006 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2005.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a)(1)        Financial Statements

The following consolidated financial statements of NewAlliance Bank and subsidiaries are filed as part of this document under Item 8:
	-	Management’s Report on Internal Control Over Financial Reporting
	-	Report of Independent Registered Public Accounting Firm
	-	Consolidated Balance Sheets as of December 31, 2005 and 2004
	-	Consolidated Statements of Income for the Years Ended December 31, 2005 and 2004, the Twelve Months Ended
		December 31, 2003 (unaudited), and the Nine Months Ended December 31, 2003 and 2002 (unaudited)
	-	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2005 and 2004, and
		the Nine Months Ended December 31, 2003
	-	Consolidated Statements of Cash Flows for the Years Ended December 31, 2005 and 2004 and the Nine Months
		Ended December 31, 2003
	-	Notes to Consolidated Financial Statements

(a)(2)      Financial Statement Schedules

Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

46

Index to Consolidated Financial Statements		Page
Management’s Report on Internal Control Over Financial Reporting			48
Report of Independent Registered Public Accounting Firm			49
Consolidated Financial Statements
	Consolidated Balance Sheets as of December 31, 2005 and 2004		50
	Consolidated Statements of Income for the Years Ended December 31, 2005 and 2004, the Twelve Months Ended December 31, 2003 (unaudited), and the Nine Months Ended December 31, 2003 and 2002 (unaudited)		51
	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2005 and 2004, and the Nine Months Ended December 31, 2003		52
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2005 and 2004, and the Nine Months Ended December 31, 2003		53
	Notes to Consolidated Financial Statements		54

47

Management’s Report on Internal Control Over Financial Reporting

NewAlliance Bancshares, Inc.

The management of NewAlliance Bancshares, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on the criteria established in Internal Control – Integrated Framework.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report appearing on page 49, which expresses unqualified opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005.

Peyton R. Patterson	Merrill B. Blanksteen
Chairman of the Board, President and	Executive Vice President, Chief
Chief Executive Officer	Financial Officer and Treasurer

48

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
NewAlliance Bancshares, Inc.:

We have completed an integrated audit of NewAlliance Bancshares, Inc.’s 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated Financial Statements
In our opinion, accompanying consolidated balance sheets and the related consolidated statements of income, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows present fairly, in all material respects, the financial position of NewAlliance Bancshares, Inc. and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for the twelve-month periods ended December 31, 2005 and 2004, and for the nine-month period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal Control Over Financial Reporting
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Hartford, Connecticut
February 24, 2006

49

NEWALLIANCE BANCSHARES, INC.
Consolidated Balance Sheets

	December 31,			December 31,
(In thousands, except per share data)	2005			2004
Assets
Cash and due from banks, noninterest bearing	$	127,290		$	101,099
Short-term investments		46,497			100,000
Cash and cash equivalents		173,787			201,099
Investment securities available for sale (note 5)		2,363,471			2,282,701
Investment securities held to maturity (note 5)		91,734			1,000
Loans held for sale		1,222			501
Loans (note 6)
Residential real estate		1,650,527			1,576,046
Commercial real estate		768,582			731,309
Commercial business		314,562			325,835
Consumer		543,035			511,467
Total loans		3,276,706			3,144,657
Less allowance for loan losses		(35,552	)		(36,163	)
Total loans, net		3,241,154			3,108,494
Premises and equipment, net (note 7)		50,399			53,704
Cash surrender value of bank owned life insurance		57,325			54,965
Goodwill (note 8)		424,436			417,307
Identifiable intangible assets (note 8)		52,581			56,003
Other assets (note 9)		105,293			88,364
Total assets	$	6,561,402		$	6,264,138
Liabilities
Deposits (note 10)
Non-interest bearing	$	486,528		$	448,670
Savings, interest-bearing checking and money market		1,677,693			2,093,937
Time		1,633,891			1,159,405
Total deposits		3,798,112			3,702,012
Borrowings (note 11)		1,380,775			1,064,816
Other liabilities		71,647			80,938
Total liabilities		5,250,534			4,847,766
Commitments and contingencies (note 15)
Stockholders’ Equity
Preferred stock, $0.01 par value; authorized 38,000 shares; none issued		-			-
Common stock, $0.01 par value; authorized 190,000 shares; 114,897 and 114,159 shares issued at December 31, 2005 and 2004, respectively		1,149			1,142
Additional paid-in capital		1,137,806			1,128,953
Unallocated common stock held by ESOP		(103,356	)		(107,018	)
Unearned share-based compensation		(41,302	)		-
Treasury stock, at cost (6,073 and 0 shares, at December 31, 2005 and 2004, respectively		(87,998	)		-
Retained earnings		430,971			400,704
Accumulated other comprehensive loss (note 17)		(26,402	)		(7,409	)
Total stockholders’ equity		1,310,868			1,416,372
Total liabilities and stockholders’ equity	$	6,561,402		$	6,264,138

See accompanying notes to consolidated financial statements.

50

NEWALLIANCE BANCSHARES, INC.
Consolidated Statements of Income

						Twelve Months			Nine Months			Nine Months
						Ended			Ended			Ended
	Year Ended December 31,					December 31,			December 31,			December 31,
(In thousands, except per share data)	2005			2004		2003			2003			2002
						(unaudited)						(unaudited)
Interest and dividend income
Real estate mortgage loans	$	82,667		$	71,328	$	34,220		$	25,286		$	30,440
Commercial real estate loans		45,276			37,178		19,294			14,331			15,064
Commercial business loans		20,463			14,935		5,481			4,016			4,841
Consumer loans		29,001			20,163		11,932			8,958			8,897
Investment securities		97,400			63,345		33,450			25,151			29,240
Short-term investments		1,763			1,083		193			125			1,629
Total interest and dividend income		276,570			208,032		104,570			77,867			90,111
Interest expense
Deposits		55,491			33,827		22,800			16,202			26,901
Borrowings		44,970			27,985		7,596			6,057			4,578
Total interest expense		100,461			61,812		30,396			22,259			31,479
Net interest income before provision for loan losses		176,109			146,220		74,174			55,608			58,632
Provision for loan losses(note 6)		400			600		-			-			-
Net interest income after provision for loan losses		175,709			145,620		74,174			55,608			58,632
Non-interest income
Depositor service charges		22,627			18,628		7,596			5,790			4,983
Loan and servicing income		3,038			2,646		2,114			1,592			74
Trust fees		4,753			2,415		1,963			1,509			1,403
Investment and insurance fees		6,117			5,692		2,585			1,621			2,236
Bank owned life insurance		2,416			1,828		-			-			-
Rent		3,210			3,078		3,014			2,340			2,020
Net (loss) gain on limited partnerships		(80	)		5		(1,529	)		(1,554	)		(2,554	)
Net securities gains (note 5)		40			616		750			153			3,254
Net gain on sale of loans		297			305		838			446			1,141
Other		3,106			533		443			345			518
Total non-interest income		45,524			35,746		17,774			12,242			13,075
Non-interest expense
Salaries and employee benefits (notes 12 and 13)		72,837			60,272		35,983			27,316			24,155
Occupancy		12,540			10,456		6,916			5,054			4,781
Furniture and fixtures		6,363			6,326		4,006			3,042			2,915
Outside services		18,243			15,671		7,119			5,269			5,485
Advertising, public relations, and sponsorships		4,584			2,976		2,133			1,515			2,570
Contribution to NewAlliance Foundation		-			40,040		-			-			-
Amortization of identifiable intangible assets		10,699			11,327		27			20			20
Conversion and merger related charges		2,156			17,591		4,032			4,022			-
Other		13,818			12,114		4,724			3,547			4,484
Total non-interest expense		141,240			176,773		64,940			49,785			44,410
Income before income taxes		79,993			4,593		27,008			18,065			27,297
Income tax provision (note 14)		27,394			524		9,091			5,989			9,260
Net income	$	52,599		$	4,069	$	17,917		$	12,076		$	18,037
Basic and diluted earnings per share (note 18)	$	0.50
Weighted-average shares outstanding (note 18)
Basic		105,110
Diluted		105,517
Dividends per share	$	0.21

See accompanying notes to consolidated financial statements.

51

NEWALLIANCE BANCSHARES, INC.
Consolidated Statements of Changes in stockholders’ Equity

									Unallocated												Accumulated
For the Nine Months Ended December 31, 2003	Common			Par Value		Additional			Common												Other			Total
and the Years Ended December 31, 2004 and 2005	Shares			Common		Paid-in			Stock Held			Unearned			Treasury			Retained			Comprehensive			Stockholders
(In thousands, except per share data)	Outstanding			Stock		Capital			by ESOP			Compensation			Stock			Earnings			Income (Loss)			Equity
Balance March 31, 2003		-		$	-	$	-		$	-		$	-		$	-		$	393,096		$	3,054		$	396,150
Comprehensive income
Net income																			12,076						12,076
Other comprehensive loss, net of tax (note 17)																						(2,225	)		(2,225	)
Total comprehensive income																									9,851
Balance December 31, 2003		-			-		-			-			-			-			405,172			829			406,001
Issuance of common stock for initial public offering, net of expenses of $14.8 million (note 3)		102,494			1,025		1,009,911																		1,010,936
Issuance of common stock to NewAlliance Foundation, net of tax benefit		4,000			40		42,529																		42,569
Issuance of stock for acquisition		7,665			77		76,573																		76,650
Dividends declared ($0.08 per share)																			(8,537	)					(8,537	)
Shares purchased for ESOP										(109,451	)														(109,451	)
Allocation of ESOP shares, net of tax							(60	)		2,433															2,373
Comprehensive income
Net income																			4,069						4,069
Other comprehensive loss, net of tax (note 17)																						(8,238	)		(8,238	)
Total comprehensive loss																									(4,169	)
Balance December 31, 2004		114,159			1,142		1,128,953			(107,018	)		-			-			400,704			(7,409	)		1,416,372
Common stock issued for acquisition		738			7		10,096																		10,103
Dividends declared ($0.21 per share)																			(22,332	)					(22,332	)
Allocation of ESOP shares, net of tax							(138	)		3,662															3,524
Treasury shares acquired (note 14)		(9,498	)													(138,473	)								(138,473	)
Treasury stock issued for employee benefit plans		3,425					(1,196	)					(41,302	)		50,475									7,977
Other, net							91																		91
Comprehensive income
Net income																			52,599						52,599
Other comprehensive loss, net of tax (note 17)																						(18,993	)		(18,993	)
Total comprehensive income																									33,606
Balance December 31, 2005		108,824		$	1,149	$	1,137,806		$	(103,356	)	$	(41,302	)	$	(87,998	)	$	430,971		$	(26,402	)	$	1,310,868

See accompanying notes to consolidated financial statements.

52

NEWALLIANCE BANCSHARES, INC.
Consolidated Statements of Cash Flows

	Year Ended						Nine Months Ended
	December 31,						December 31,
(In thousands)	2005			2004			2003
Cash flows from operating activities
Net income	$	52,599		$	4,069		$	12,076
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		400			600			-
Contribution of common stock to the NewAlliance Foundation		-			40,000			-
Restricted stock compensation expense		7,977			-			-
ESOP expense including tax effect of release		3,524			2,373			-
Amortization of identifiable intangible assets		10,699			11,327			20
Net amortization/accretion of fair market adjustments from net assets acquired		(8,781	)		(7,383	)		-
Net amortization/accretion on investment securities		6,776			8,690			4,505
Change in deferred income taxes		5,213			(5,851	)		1,084
Depreciation and amortization		5,939			6,433			2,977
Net securities gains		(40	)		(616	)		(153	)
Net gain on sales of performing loans		(297	)		(305	)		(446	)
Net gain on sale of fixed assets		(642	)		(14	)		-
Net loss (gain) on sales of other real estate owned		-			16			(160	)
Provision for loss on limited partnerships		80			-			1,560
Increase in cash surrender value of bank owned life insurance		(2,416	)		(1,828	)		-
(Increase) decrease in other assets		(6,108	)		(22,698	)		1,237
Decrease in other liabilities		(13,016	)		(15,381	)		(1,254	)
Net cash provided by operating activities		61,907			19,432			21,446
Cash flows from investing activities
Purchase of securities		(1,006,617	)		(8,583,724	)		(695,588	)
Proceeds from maturity of securities		210,475			7,461,272			174,975
Proceeds from sales and calls of securities		16,681			352,792			65,592
Proceeds from principal reductions of securities		566,664			445,738			414,544
Net (increase) decrease in loans		(190,134	)		103,577			(161,173	)
Proceeds from sales of loans		54,131			18,465			31,868
Proceeds from sales of other real estate owned		-			146			1,133
Net cash paid for acquisitions		(995	)		(529,260	)		-
Proceeds from bank owned life insurance		26			11			-
Purchase of premises and equipment		(5,796	)		(6,686	)		(4,226	)
Disposal of premises and equipment		3,839			1,683			-
Net cash used in investing activities		(351,726	)		(735,986	)		(172,875	)
Cash flows from financing activities
Net increase (decrease) in deposits		101,953			(74,668	)		(1,549	)
Net (decrease) increase in short-term borrowings		(55,002	)		59,412			(2,383	)
Proceeds from long-term borrowings		626,198			1,081,644			593,649
Repayments of long-term borrowings		(249,837	)		(1,101,317	)		(455,086	)
Net proceeds from common stock offering		-			1,010,936			-
Acquisition of common stock by ESOP		-			(109,451	)		-
Acquisition of treasury shares		(138,473	)		-			-
Dividends paid		(22,332	)		(8,537	)		-
Net cash provided by financing activities		262,507			858,019			134,631
Net (decrease) increase in cash and cash equivalents		(27,312	)		141,465			(16,798	)
Cash and equivalents, beginning of period		201,099			59,634			76,432
Cash and equivalents, end of period	$	173,787		$	201,099		$	59,634
Supplemental information
Cash paid for
Interest on deposits and borrowings	$	98,908		$	59,548		$	22,091
Income taxes paid, net		3,201			(2,195	)		(1,119	)
Noncash transactions
Loans transferred to other real estate owned		-			51			930

See accompanying notes to consolidated financial statements.

53

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

1.     Summary of Significant Accounting Policies

Financial Statement Presentation
The consolidated financial statements of NewAlliance Bancshares, Inc. (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Effective December 31, 2003, the Company changed its fiscal year end from March 31 to December 31.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant near-term change relate to the determination of the allowance for loan losses, the obligation and expense for pension and other postretirement benefits, the valuation of mortgage servicing rights and estimates used to evaluate asset impairment including other-than-temporary declines in the value of securities, income tax accruals and the recoverability of goodwill and other intangible assets.

Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks and short-term investments with original maturities of three months or less. At December 31, 2005, included in the balance of cash and due from banks were cash on hand of $21.6 million and required reserves in the form of deposits with the Federal Reserve Bank of $26.8 million. Short-term investments included money market funds and commercial paper of $46.5 million and money market funds of $100.0 million at December 31, 2005 and 2004, respectively.

Investment Securities
Marketable equity and debt securities (other than those reported as short-term investments) are classified as either trading, available for sale, or held to maturity (applies only to debt securities). Management determines the appropriate classifications of securities at the time of purchase. Trading securities are bought and held principally for the purpose of selling them in the near term. Held to maturity securities are debt securities for which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. Federal Home Loan Bank (“FHLB”) stock is a non-marketable security reported at cost. At December 31, 2005 and December 31, 2004, the Company had no debt or equity securities classified as trading.

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

Premiums and discounts on debt securities are amortized or accreted into interest income over the term of the securities using the level yield method. A decline in market value of a security below amortized cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. Gains and losses on sales of securities are recognized at the time of sale on a specific identification basis.

The Company invests in limited partnerships. As of December 31, 2005 and December 31, 2004, the carrying value of the Company’s investment in twelve limited partnerships, which are accounted for at the lower of cost or net realizable value and included in other assets, was approximately $4.0 million and $3.4 million, respectively. Income, generally in the form of distributions from the partnerships, is recognized on the cash basis and included in non-interest income. Six of the twelve limited partnerships are real estate related.

Loans Held for Sale
Loans held for sale are valued at the lower of cost (less principal payments received and net of deferred fees and costs) or estimated fair value. Fair value is estimated using quoted market prices provided by government-sponsored entities. Loans are sold by the Company without recourse.

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

54

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

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

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

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

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

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

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

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

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

Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method using the estimated lives of the assets. Estimated lives are 5 to 40 years for building and improvements and 3 to 10 years for furniture, fixtures and equipment. Amortization of leasehold improvements is calculated on

55

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

a straight-line basis over the terms of the related leases or the life of the asset, whichever is shorter. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renovations are capitalized.

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

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

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

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

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

Trust Assets
The Bank had approximately $1.15 billion and $440.6 million of assets under management at December 31, 2005 and December 31, 2004, respectively, in a fiduciary or agency capacity for customers. These assets are not included in the accompanying consolidated financial statements since they are not owned by the Bank.

Pension and Other Postretirement Benefit Plans
The Company has a noncontributory pension plan covering substantially all employees. Pension costs related to this plan are based upon actuarial computations of current and future benefits for employees based on years of service and the employee’s highest career earnings over a five-year consecutive period. Costs are charged to non-interest expense and are funded in accordance with requirements of the Employee Retirement Income Security Act. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

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

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

The Company uses a September 30 measurement date. In accordance with SFAS No. 87, “Employers’ Accounting for Pensions”, the discount rate is set for the retirement plans by reference to investment grade bond and yields. The expected long-term rate of return on

56

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

the assets held in our defined pension plan is based on market and economic conditions, the Plan’s asset allocation and other factors. Based on our review of rates at September 30, the discount rate for all of our employee benefit plans was reduced from 5.75% to 5.50% and the expected long-term rate of return on the pension plan assets remained the same at 8.25% for 2004 and 2005. Pension expense is very sensitive to changes in the discount rate and the expected return on assets. Continued volatility in pension expense is expected as assumed investment returns vary from actual.

Stock-Based Compensation
The Company accounts for stock options and restricted stock in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, compensation expense is not recognized for fixed stock options if the exercise price of the option equals the fair value of the underlying stock at the grant date. The fair value of restricted stock awards, measured at grant date, is amortized to compensation expense on a straight-line basis over the vesting period. SFAS No. 123, “Accounting for Stock-Based Compensation”, encourages recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period. However, as permitted by SFAS No. 123, the Company continues to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 through December 31, 2005 and disclosed certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied.

The Financial Accounting Standards Board (“FASB”) has issued a revised SFAS No.123 (“SFAS No. 123R”), “Share Based Payment”, which required the expensing of options, based on their fair value at grant date, beginning with the first reporting period after December 31, 2005. The Company adopted the provisions of SFAS No. 123R as of January 1, 2006. The anticipated financial impact of the implementation of SFAS No. 123R is discussed in Notes 2 and 13 of the Notes to Consolidated Financial Statements.

Related Party Transactions
Directors and executive officers of the Company and its subsidiaries and their associates have been customers of and have had transactions with the Company, and management expects that such persons will continue to have such transactions in the future. See Note 6 of the Notes to Consolidated Financial Statements for further information with respect to loans to related parties. All deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers who are not related parties and, in the opinion of management, the transactions did not involve more than normal risks of collectability, favored treatment or terms, or present other unfavorable features.

Comprehensive Income
The purpose of reporting comprehensive income is to report a measure of all changes in an entity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Comprehensive income includes net income and certain changes in capital that are not recognized in the statement of income (such as changes in net unrealized gains and losses on securities available for sale). The Company has reported comprehensive income for the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003 in the consolidated statement of changes in stockholders’ equity. The components of comprehensive income are presented in Note 17 of the Notes to Consolidated Financial Statements.

Segment Reporting
The Company’s only business segment is Community Banking. During the years ended 2005, 2004 and 2003 this segment represented all the revenues and income of the consolidated group and therefore, is the only reported segment as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

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

The conversion to a stock bank occurred on April 1, 2004, resulting in shares outstanding only for the nine months ended December 31, 2004. Earnings per share for the year ended December 31, 2005 can be found in Note 18 of the Notes to Consolidated Financial Statements.

57

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

2.     Recent Accounting Pronouncements

In December 2004, the FASB issued revised SFAS No. 123R, “Share-Based Payment”, which requires entities to measure the cost of employees services received in exchange for an award of equity instruments based on the estimated grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide service in exchange for the award (usually the vesting period).

The estimated grant-date fair value of employee share options will be determined using option-pricing models adjusted for the unique characteristics of those instruments and the notes to the financial statements will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements.

On April 14, 2005 the Securities and Exchange Commission issued a final rule that allows companies to delay the implementation of SFAS No. 123R to the beginning of a company’s next fiscal year. As of the effective date, the Company will apply SFAS No. 123R using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion outstanding of awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or proforma disclosure purposes. The Company adopted SFAS No. 123R on January 1, 2006. The anticipated financial impact of the implementation of SFAS No. 123R is discussed in Note 13.

In November 2005, the FASB issued Staff Position (“FSP”) No. FAS 115-1, “The Meaning of Other-Than-Temporary and Its Application to Certain Investments”. The FSP nullifies certain requirements of EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”, but carries forward certain disclosure requirements of the pronouncement, which the Company adopted as of December 31, 2004 and references other existing other-than-temporary guidance. The Company adopted the provisions of the FSP as of December 31, 2005. The adoption did not have a material impact on the financial statements.

3.     Conversion to Stock Form of Ownership

In 2003, the Company was organized as a Delaware business corporation, in connection with the planned conversion of the Bank, formerly New Haven Savings Bank, from mutual to capital stock form. On April 1, 2004 the Bank completed its Plan of Conversion (the “Plan”) at which time the Bank converted from a state-chartered mutual bank to a state-chartered stock bank and changed its name to NewAlliance Bank. All of the outstanding common stock of the Bank was sold to the holding company, NewAlliance Bancshares, Inc., which sold its stock in accordance with the Plan. All of the stock of the Company issued in the conversion was offered to eligible and supplemental eligible account holders, employee benefit plans of the Bank and certain other eligible subscribers in a subscription offering pursuant to subscription rights in order of priority as set forth in the Plan. The Company sold 102,493,750 shares of common stock at $10.00 per share in the conversion offering and contributed 4,000,000 shares of common stock to the NewAlliance Foundation as discussed below. All of the stock in the offering was purchased by eligible account holders. The Company established an Employee Stock Ownership Plan (“ESOP”) for the benefit of eligible employees, which became effective upon the conversion. The ESOP borrowed from NewAlliance Bancshares, Inc. the proceeds necessary to fund the purchase of 7% of the common stock issued. The ESOP did not purchase any shares in the conversion because the offering was oversubscribed, but completed its purchases in the open market on April 19, 2004. The Bank expects to make annual contributions adequate to fund the payment of the regular debt service requirements attributable to the indebtedness of the ESOP.

The Bank established the NewAlliance Foundation (the “Foundation”) as a new charitable foundation in connection with the conversion. The Foundation was funded with the above-mentioned contribution of 4,000,000 shares of the Company’s common stock and $40,000 of cash. This contribution resulted in the recognition of expense, equal to the offering price ($10) of the shares contributed and $40,000 in cash, during the quarter ended June 30, 2004, net of tax benefits. The Company realized an additional tax benefit of $3.9 million that was recorded as an increase to stockholders’ equity because the basis for the contribution for tax purposes is the fair market value of the stock on the first day of trading (approximately $15 per share). The Foundation is dedicated to charitable purposes including community development activities within the Bank’s local communities.

Upon the completion of the conversion, a special “liquidation account”, which will be maintained for a period of ten years, was established for the benefit of eligible account holders in an amount equal to the surplus of the Bank as of September 30, 2003. Account holders who continue to maintain deposit accounts at the Bank will be entitled, on a complete liquidation of the Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of the Bank. The Bank’s surplus will be substantially restricted with respect to payment of dividends to stockholders due to the liquidation account. Subsequent to the offering, the Company and the Bank may not declare or pay dividends on, nor repurchase any of, its shares of common stock, if the

58

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

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.

4.     Business Combinations

The following table summarizes acquisitions completed between April 1, 2004 and December 31, 2005.

			Balance at
			Acquisition Date				Transaction Related Items
														Total
	Acquisition								Identifiable		Cash		Shares	Purchase
(In thousands)	Date		Assets		Equity		Goodwill		Intangibles		Paid		Issued	Price
Connecticut Bancshares, Inc.		4/1/2004		$2,541,575	$	239,139		$368,775		$56,609		$610,600	-		$610,600
Alliance Bancorp of New England, Inc.		4/1/2004		427,631		26,664		49,464		10,010		191	7,665		76,841
Trust Company of Connecticut		7/1/2005		5,611		4,937		6,197		7,277		5,132	738		15,509

The transactions were accounted for using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” Accordingly, the purchase price was allocated based on the estimated fair market values of the assets and liabilities acquired.

Trust Company of Connecticut Acquisition

On July 1, 2005 the Company completed the acquisition of Trust Company of Connecticut (“Trust Company”) a non-depository trust company organized under the laws of the State of Connecticut. Trust Company had approximately $5.6 million of assets and $4.9 million of stockholders’ equity on July 1, 2005. Under terms of the agreement and as a result of Trust Company shareholder elections, the Company paid approximately $5.1 million in cash and issued 737,871 shares of stock for an aggregate merger consideration of approximately $15.5 million. The definitive agreement called for additional merger consideration in the form of Company stock or cash, which could increase the aggregate merger consideration to approximately $19.5 million payable to Trust Company shareholders following December 31, 2005, based on certain performance criteria. On February 28, 2006, the Company will pay additional merger consideration of approximately $4.0 million based on the original agreement which will bring the total merger consideration to approximately $19.5 million.

2006 Cornerstone Bancorp, Inc. Acquisition

On January 2, 2006, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), the parent company of Cornerstone Bank. Under terms of the purchase agreement, each outstanding share of Cornerstone common stock was converted into the right to receive 2.518 shares of the Company’s common stock, $35.00 in cash, or a combination thereof, plus in each case, cash in lieu of any fractional share interests. All outstanding options to acquire shares of Cornerstone common stock were converted into the right to receive a lump sum cash payout in the amount equal to any excess of $35.00 over the per share exercise price of such stock options. As a result of the elective option, the merger consideration each Cornerstone shareholder elects to receive was adjusted, so that 70% of the total merger consideration was paid in Company stock. The aggregate merger consideration is valued at approximately $48.7 million. At December 31, 2005, Cornerstone had assets and stockholders’ equity of approximately $212.0 million and $21.6 million, respectively.

59

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

5.     Investment Securities

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of investment securities at December 31, 2005 and December 31, 2004 are as follows:

	December 31, 2005									December 31, 2004
			Gross		Gross							Gross		Gross
	Amortized		unrealized		unrealized			Fair		Amortized		unrealized		unrealized			Fair
(In thousands)	cost		gains		losses			value		cost		gains		losses			value
Available for sale
U.S. Government and Agency obligations	$	167,885	$	20	$	(1,774	)	$	166,131	$	193,299	$	52	$	(1,446	)	$	191,905
Corporate obligations		54,831		48		(1,262	)		53,617		93,716		140		(395	)		93,461
Other bonds and obligations		120,663		191		(1,006	)		119,848		153,559		303		(829	)		153,033
Marketable and trust preferred equity securities		161,122		783		(1,099	)		160,806		173,559		585		(1,077	)		173,067
Mortgage-backed securities		1,899,374		537		(36,842	)		1,863,069		1,674,416		5,602		(8,783	)		1,671,235
Total available for sale		2,403,875		1,579		(41,983	)		2,363,471		2,288,549		6,682		(12,530	)		2,282,701
Held to maturity
Mortgage-backed securities and other bonds		91,734		81		(1,108	)		90,707		1,000		-		-			1,000
Total held to maturity		91,734		81		(1,108	)		90,707		1,000		-		-			1,000
Total securities	$	2,495,609	$	1,660	$	(43,091	)	$	2,454,178	$	2,289,549	$	6,682	$	(12,530	)	$	2,283,701

At December 31, 2005, the net unrealized loss on securities available for sale of $40.4 million, net of income taxes of $14.1 million, is included in the Company’s Consolidated Balance Sheets accumulated other comprehensive loss of $26.4 million in equity. At December 31, 2004, the net unrealized loss on securities available for sale of $5.8 million, net of income taxes of $2.0 million, is included in accumulated other comprehensive loss of $7.4 million in equity.

The following tables present the age of gross unrealized losses and fair values at December 31, 2005 and 2004 by investment category.

	December 31, 2005
	Less Than 12 Months				More Than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Government and agency obligations	$	73,544	$	182	$	87,830	$	1,592	$	161,374	$	1,774
Corporate obligations		9,776		238		38,792		1,024		48,568		1,262
Other bonds and obligations		17,722		157		45,884		923		63,606		1,080
Marketable and trust preferred equity obligations		3,867		122		24,643		977		28,510		1,099
Mortgage-backed securities		1,068,954		15,506		752,101		22,370		1,821,055		37,876
Total securities with unrealized losses	$	1,173,863	$	16,205	$	949,250	$	26,886	$	2,123,113	$	43,091

	December 31, 2004
	Less Than 12 Months				More Than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Government and agency obligations	$	171,661	$	1,446	$	-	$	-	$	171,661	$	1,446
Corporate obligations		43,275		303		9,907		92		53,182		395
Other bonds and obligations		93,719		803		1,974		26		95,693		829
Marketable and trust preferred equity obligations		12,243		535		23,807		542		36,050		1,077
Mortgage-backed securities		911,945		7,306		86,148		1,477		998,093		8,783
Total securities with unrealized losses	$	1,232,843	$	10,393	$	121,836	$	2,137	$	1,354,679	$	12,530

60

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Of the issues summarized above, 213 had unrealized losses for less than twelve months, and 242 had unrealized losses for twelve months or more as of December 31, 2005. Management believes that no individual unrealized loss as of December 31, 2005 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-backed securities relate to securities issued by FNMA, FHLMC and AAA rated securities issued by private institutions. The unrealized losses reported for trust-preferred securities, corporate obligations and other bonds and obligations relate to securities that are investment grade, and the unrealized losses on these securities are attributable to changes in market interest rates. The Company has the intent and ability to hold these securities for the time necessary to recover the unrealized losses.

As of December 31, 2005, 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		Amortized cost		Fair value
December 31, 2005
Due in one year or less	$	179,149	$	178,574	$	150	$	150
Due after one year through five years		154,618		152,198		2,490		2,429
Due after five years through ten years		13,203		13,013		1,490		1,477
Due after ten years		20,365		20,239		500		500
Mortgage-backed and asset-backed securities		1,936,348		1,899,465		87,104		86,151
Total debt securities	$	2,303,683	$	2,263,489	$	91,734	$	90,707

Securities with an amortized cost of $6.5 million and a fair value of $6.4 million at December 31, 2005 were pledged to secure public deposits.

The following is a summary of realized gains and losses on sales of securities available for sale during the periods presented:

	Debt Securities							Equity Securities
	Year Ended					Nine Months		Year Ended					Nine Months
	December 31,					Ended		December 31,					Ended
						December 31,							December 31,
(In thousands)	2005		2004			2003		2005		2004			2003
Realized gains	$	40	$	987		$	140	$	-	$	44		$	13
Realized losses		-		(411	)		-		-		(4	)		-

61

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

6.     Loans

The composition of the Company’s loan portfolio was as follows:
	December 31,
(In thousands)	2005			2004
Residential real estate	$	1,650,527		$	1,576,046
Commercial real estate		768,582			731,309
Commercial business		314,562			325,835
Consumer
Home equity and equity lines of credit		520,290			475,051
Other		22,745			36,416
Total consumer		543,035			511,467
Total loans		3,276,706			3,144,657
Allowance for loan losses		(35,552	)		(36,163	)
Total loans, net	$	3,241,154		$	3,108,494

As of December 31, 2005 and 2004, the Company’s residential real estate loan portfolio was entirely collateralized by one- to four- family homes and condominiums, located predominantly in Connecticut. The commercial real estate loan portfolio was collateralized primarily by multi-family, commercial and investment properties predominantly located in Connecticut. A variety of different assets, including accounts receivable, inventory and property and plant and equipment, collateralized the majority of business loans.

Mortgage Servicing Rights

The components of mortgage servicing rights are as follows:
	Year Ended
	December 31,						Nine Months Ended
							December 31,
(In thousands)	2005			2004			2003
Mortgage servicing rights
Balance at beginning of year	$	2,058		$	1,933		$	2,188
Additions		549			730			273
Amortization		(540	)		(588	)		(760	)
Change in valuation allowance		635			(17	)		232
Balance, end of period	$	2,702		$	2,058		$	1,933
Valuation reserve
Balance at beginning of year	$	(748	)	$	(731	)	$	(963	)
Net reductions (additions)		635			(17	)		232
Balance, end of period	$	(113	)	$	(748	)	$	(731	)

At December 31, 2005 and December 31, 2004 the fair value of the capitalized mortgage servicing rights approximated its carrying value. The Company services residential real estate mortgage loans that it has sold without recourse to third parties. The aggregate of loans serviced for others approximates $282.8 million and $287.6 million as of December 31, 2005 and 2004, respectively.

Related Party Loans
As of December 31, 2005 and 2004, loans to related parties totaled approximately $154,000 and $180,000, respectively. Related parties include directors and executive officers of the Company and its subsidiaries and their respective affiliates in which they have a controlling interest, immediate family members and owners of 10% or more of the Company’s stock. For the years ended December 31, 2005 and 2004, all related party loans were performing.

62

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Allowance for Loan Losses

The following is an analysis of the allowance for loan losses for the periods presented:

	Year Ended						Nine Months
	December 31,						Ended
							December 31,
(In thousands)	2005			2004			2003
Balance at beginning of period	$	36,163		$	17,669		$	18,932
Net allowances gained through acquisitions		-			21,498			-
Provision charged to operation		400			600			-
Recoveries on loans previously charged off		2,634			1,608			1,580
Loans charged off		(3,645	)		(5,212	)		(2,843	)
Balance at end of period	$	35,552		$	36,163		$	17,669

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 December 31, 2005 and 2004. As of December 31, 2005 and 2004, nonperforming assets were:

	December 31,
(In thousands)	2005		2004
Non-accrual loans	$	7,391	$	10,233
Renegotiated loans		-		-
Other real estate owned		-		-
Total nonperforming assets	$	7,391	$	10,233

For the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003 had interest been accrued at contractual rates on nonaccrual and renegotiated loans, such income would have approximated $558,000, $562,000 and $168,000, respectively. As of December 31, 2005, 2004 and 2003, no significant additional funds were committed to customers whose loans have been renegotiated or were nonperforming.

Impaired Loans
As of December 31, 2005 and 2004, the recorded investment in loans considered to be impaired was approximately $4.3 million and $7.5 million, respectively. As of December 31, 2005 and 2004, all loans considered impaired by the Company had an allowance for loan losses totaling approximately $524,000 and $396,000, respectively. The average recorded investment in impaired loans for the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003 was approximately $8.0 million, $7.1 million and $2.1 million, respectively. For the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003 interest income recognized on impaired loans was approximately $824,000, $648,000 and $273,000, respectively. As of December 31, 2005, there were no commitments to lend additional funds for loans considered impaired.

63

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

7.     Premises and Equipment

As of December 31, 2005 and 2004, premises and equipment consisted of:
	December 31,
(In thousands)	2005			2004
Land and land improvements	$	3,246		$	4,379
Buildings		60,814			61,265
Furniture and equipment		44,252			41,279
Leasehold improvements		5,004			4,787
		113,316			111,710
Less accumulated depreciation and amortization		(62,917	)		(58,006	)
Premises and equipment, net	$	50,399		$	53,704

Total depreciation and amortization expenses amounted to $5.9 million and $6.4 million for the years ended December 31, 2005 and 2004, respectively and $3.0 million for the nine months ended December 31, 2003.

8.     Goodwill and Identifiable Intangible Assets

The changes in the carrying amount of goodwill and identifiable intangible assets for the year ended December 31, 2005 are summarized as follows:

						Other			Total
			Core Deposit			Identifiable			Identifiable
			and Customer			Intangible			Intangible
(In thousands)	Goodwill		Relationships			Assets			Assets
Balance, December 31, 2004	$	417,307	$	49,359		$	6,644		$	56,003
Trust Company acquisition		6,197		7,277			-			7,277
Adjustments to purchase accounting estimates		932		-			-			-
Amortization expense		-		(7,580	)		(3,119	)		(10,699	)
Balance, December 31, 2005	$	424,436	$	49,056		$	3,525		$	52,581
Estimated amortization expense for the year ending:
2006			$	5,721		$	1,938		$	7,659
2007				5,641			983			6,624
2008				5,641			27			5,668
2009				5,641			13			5,654
2010				5,641			-			5,641
Thereafter				20,771			-			20,771

The components of identifiable intangible assets are as follows:
	Original				Balance
	Recorded		Cumulative		December 31,
(In thousands)	Amount		Amortization		2005
Identifiable intangible assets
Core deposit and customer relationship	$	64,138	$	15,082	$	49,056
Other		10,721		7,196		3,525
Total	$	74,859	$	22,278	$	52,581

64

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

9.     Other Assets

Selected components of other assets are as follows:
	December 31,
(In thousands)	2005		2004
Deferred tax asset	$	27,971	$	26,488
Current Federal income tax receivable		2,579		17,845
Accrued interest receivable		25,684		21,058
Prepaid pension		11,921		-
Wire transfer for January 2, 2006 Cornerstone acquisition		14,254		-
Receivable arising from securities transactions		3,262		4,403
Investments in limited partnerships and other investments		7,997		6,556
Mortgage servicing rights		2,702		2,058

10.     Deposits

A summary of deposits by account types is as follows:
	December 31,
(In thousands)	2005		2004
Savings	$	781,346	$	942,363
Money market		554,079		806,035
NOW		342,268		345,539
Demand		486,528		448,670
Time		1,633,891		1,159,405
Total deposits	$	3,798,112	$	3,702,012

A summary of time deposits by remaining period to maturity is as follows:
	December 31,
(In thousands)	2005		2004
Within three months	$	353,563	$	248,503
After three months, but within one year		903,201		502,929
After one year, but within three years		299,368		311,588
After three years		77,759		96,385
Total time deposits	$	1,633,891	$	1,159,405

As of December 31, 2005 and 2004 time deposits in denominations of $100,000 or more were approximately $483.8 million and $243.2 million respectively. Interest expense paid on these deposits was approximately $13.4 million, $5.1 million and $1.8 million for the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003, respectively.

11.     Borrowings

A summary of the Company’s borrowings is as follows:

65

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

	December 31,		Weighted		December 31,		Weighted
(Dollars in thousands)	2005		Average Rate		2004		Average Rate
FHLB advances (1)	$	1,191,280	3.87	%	$	860,009	3.68	%
Repurchase agreements		179,970	2.80			194,972	1.21
Mortgage loans payable		1,716	5.41			1,830	5.51
Junior subordinated debentures issued to affiliated trusts (2)		7,809	7.34			8,005	7.34
Total borrowings	$	1,380,775	3.75	%	$	1,064,816	3.25	%

(1) Includes fair value adjustments on acquired borrowings of $18.2 million and $24.3 million at December 31, 2005 and 2004, respectively.
(2) Includes fair value adjustments on acquired borrowings of $700,000 and $900,000 at December 31, 2005 and 2004, respectively.

The following schedule presents the contractual maturities of the Company’s borrowings as of December 31, 2005.

(In thousands)	2006		2007		2008		2009		2010		2011+		Total
FHLB advances (1)	$	73,500	$	206,661	$	270,550	$	111,874	$	120,574	$	389,905	$	1,173,064
Repurchase agreements		179,970		-		-		-		-		-		179,970
Mortgage loans payable		-		-		-		-		-		1,716		1,716
Junior subordinated debentures issued to affiliated trusts (2)		-		-		-		-		-		7,109		7,109
Total borrowings	$	253,470	$	206,661	$	270,550	$	111,874	$	120,574	$	398,730	$	1,361,859

(1) Balances are contractual maturities and exclude $18.2 million in fair value adjustments on acquired balances.
(2) Balances are contractual maturities and exclude $700,000 in fair value adjustments on acquired balances.

FHLB advances are secured by the Company’s investment in FHLB stock and a blanket security agreement. This agreement requires the Bank to maintain as collateral, certain qualifying assets, principally, mortgage loans. At December 31, 2005 and 2004, the Bank was in compliance with the FHLB collateral requirements. At December 31, 2005, the Company had additional borrowing capacity with the FHLB of $181.1 million, inclusive of a line of credit of approximately $20.0 million. Additional borrowing capacity would be available by pledging eligible securities as collateral. The Company also has borrowing capacity at the Federal Reserve Bank of Boston’s discount window which was approximately $193.5 million as of December 31, 2005, all of which was available on that date. At December 31, 2005, all of the Company’s outstanding FHLB advances were at fixed rates.

12.     Pension and Other Postretirement Benefit Plans

Defined Benefit and Other Postretirement Plans
The Company provides various defined benefit pension plans and other postretirement benefit plans (postretirement health and life insurance benefits) to substantially all employees, including employees of the former Connecticut Bancshares, Alliance and Trust Company. Former employees of Connecticut Bancshares and Alliance retained as employees of the Company after the acquisition became eligible for the Company’s defined benefit pension plan and postretirement benefit plans as of the merger date, but received no credit for past service except for eligibility and vesting purposes. Plan benefits of the former Connecticut Bancshares and Alliance defined benefit pension plans and postretirement benefit plans were frozen as of the acquisition date, and plan assets were merged into the Company’s existing plans during 2005. The fair values of the net liabilities associated with the obligations assumed for the former Connecticut Bancshares and Alliance plans have been recorded as a purchase accounting adjustment.

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. The benefits under the Supplemental Plans 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. The Company has amended one of the Supplemental Plans in connection with its conversion to a stock bank to freeze the accrual of benefits. Because future benefits were reduced, this event resulted in a gain of $943,000 being recorded in the three months ended March 31, 2004.

66

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

The following table sets forth changes in the benefit obligation, changes in Plan assets and the funded status of the Plans for the periods ended December 31, 2005 and 2004. The table also provides a reconciliation of the Plan’s funded status and the amounts recognized in the Company’s consolidated balance sheets:

							Supplemental
							Executive						Other Postretirement
	Qualified Pensions						Retirement Plans						Benefits
(In thousands)	2005			2004			2005			2004			2005			2004
Change in benefit obligation
Projected benefit obligation at beginning of year	$	83,641		$	28,585		$	10,132		$	8,731		$	6,910		$	1,368
Acquired benefit obligation		-			49,400			-			2,493			-			4,614
Service cost		2,841			2,283			413			337			172			119
Interest cost		4,692			3,746			567			532			377			268
Plan participant contributions		-			-			-			-			224			-
Plan ammendments		-			659			-			49			-			-
Actuarial loss (gain)		(2,183	)		1,564			612			606			(775	)		733
Benefits paid		(4,209	)		(2,596	)		(556	)		(529	)		(565	)		(192	)
Curtailments, settlements, special termination benefits		-			-			-			(2,086	)		-			-
Projected benefit obligation at end of year		84,782			83,641			11,168			10,133			6,343			6,910
Change in plan assets
Fair value of plan assets at beginning of year		61,118			24,308			-			-			-			-
Acquired plan assets		-			37,568			-			-			-			-
Actual return on plan assets		6,578			1,838			-			-			-			-
Employer contributions		28,440			-			556			529			341			192
Plan participant contributions		-			-			-			-			224			-
Benefits paid		(4,209	)		(2,596	)		(556	)		(529	)		(565	)		(192	)
Fair value of plan assets at end of year		91,927			61,118			-			-			-			-
Funded status at end of year		7,145			(22,523	)		(11,168	)		(10,133	)		(6,343	)		(6,910	)
Employer contributions after measurement date		-			3,818			139			139			80			98
Unrecognized transition obligation		-			-			-			-			271			323
Unrecognized prior service cost		696			746			85			112			-			-
Unrecognized net actuarial loss (gain)		4,080			7,911			56			30			(98	)		674
Additional minimum liability		-			(5,414	)		(79	)		(55	)		-			-
Net amount recognized in Company’s consolidated balance sheets	$	11,921		$	(15,462	)	$	(10,967	)	$	(9,907	)	$	(6,090	)	$	(5,815	)
Accumulated benefit obligation	$	78,680		$	78,438		$	9,316		$	8,903		$	6,343		$	6,910

67

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

The components of net periodic pension cost for the periods indicated were as follows (in thousands):

	Year Ended						Nine Months
	December 31,						Ended
							December 31,
Qualified pension	2005			2004			2003
Service cost - benefits earned during the period	$	2,841		$	2,283		$	722
Interest cost on projected benefit obligation		4,693			3,746			1,164
Expected return on plan assets		(5,036	)		(4,205	)		(1,601	)
Amortization and deferral		51			(133	)		15
Recognized net loss (gain)		105			93			(103	)
Net periodic pension cost	$	2,654		$	1,784		$	197
Supplemental retirement plans
Service cost - benefits earned during the period	$	413		$	337		$	303
Interest cost on projected benefit obligation		567			532			370
Expected return on plan assets		-			-			-
Amortization and deferral		27			28			604
Recognized net loss		585			999			-
Additional amount due to settlement, curtailment or special termination benefits		-			(2,033	)		-
Additional amount recognized due to creation of SERP		-			1,090			-
Net periodic benefit cost	$	1,592		$	953		$	1,277
Other postretirement benefits
Service cost - benefits earned during the period	$	172		$	119		$	16
Interest cost on projected benefit obligation		377			268			54
Expected return on plan assets		-			-			-
Amortization and deferral		52			52			39
Recognized net gain		(2	)		(5	)		(9	)
Net periodic benefit cost	$	599		$	434		$	100

Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

					Other
	Qualified		Nonqualified		Postretirement
(In thousands)	Pensions		Pensions		Benefits
2006	$	4,125	$	556	$	678
2007		4,181		555		626
2008		4,286		562		519
2009		4,391		585		510
2010		4,526		609		451
2011 - 2015		25,855		3,805		2,229

Significant actuarial assumptions used in determining the actuarial present value of the projected obligation were as follows:

68

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Assumptions used to determine benefit obligations as of December 31,

	2005		2004
Discount Rate	5.50	%	5.75	%
Rate of compensation increase	4.00		4.00

Assumptions used to determine net periodic cost for years ended December 31,

	2005		2004
Discount rate (1)	5.75	%	6.00	%
Expected return on plan assets	8.25		8.25
Rate of compensation increase	4.00		4.00

(1) Purchase accounting calculation was performed at April 1, 2004 on the acquired pension plans using a discount rate of 5.75%.

Assumed health care cost trends rates at December 31,

	2005		2004
Health care cost trend rate assumed for next year	11.00	%	12.00	%
Rate that the cost trend rate gradually declines to	5.00		5.00
Year that the rate reaches the rate it is assumed to remain at	2011		2011

Effect of one-percentage change in assumed health care cost trend rates in 2005

(In thousands)	1% Increase		1% Decrease
Effect on total service and interest components	$	45	$	(37	)
Efect on postretirement benefit obligation		318		(281	)

Plan assets are to be managed within an ERISA framework so as to provide the greatest probability that the following long-term objectives for the defined benefit pension plan are met in a prudent manner.

• Ensure that there is an adequate level of assets to support benefit obligations to participants and retirees over the life of the Plan, taking into consideration the nature and duration of Plan liabilities.

• Maintain liquidity in Plan assets sufficient to cover ongoing benefit payments.

• Manage volatility of investment results in order to achieve long-term Plan objectives and to minimize level and volatility of pension expenses.

It is recognized that the attainment of these objectives is, for any given time period, largely dictated by the returns available from the capital markets in which Plan assets are invested.

The asset allocation of Plan assets reflects the Company’s long-term return expectations and risk tolerance in meeting the financial objectives of the Plan. Plan assets should be adequately diversified by asset class, sector and industry to reduce the downside risk to total Plan results over short-term time periods, while providing opportunities for long-term appreciation.

69

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

The following table summarizes the Plan’s weighted-average asset allocation for the periods indicated and the Plan’s long-term asset allocation structure.

	Actual percentage of fair value				Allocation
Asset Class	2005		2004		Range
Equity securities	62.1	%	61.0	%	50 - 70	%
Debt securities	35.3		37.0		25 - 45
Other	2.6		2.0		-

Cash held by a particular manager will be viewed as belonging to the asset class in which the manager primarily invests. It is expected that individual managers over time will exceed the median return of the appropriate manager universe composed of professionally managed institutional funds in the same asset class and style.

Rebalancing and Investment of New Contributions
These asset allocation ranges are guidelines and deviations may occur periodically as a result of market movements. In order to balance the benefits of rebalancing with associated transaction costs, assets will be rebalanced if they are outside the range noted above based on quarter-end market values. In addition, the Retirement and Investment Committee reserves the right to rebalance at any time it deems necessary and prudent. New contributions to the Plan assets will be invested in a manner that rebalances the Plan assets to the greatest extent possible.

Plan Contributions
The Company expects to contribute $0 to the pension plan, $556,000 to the SERP and $678,000 to its other postretirement plan in 2006.

Savings and Profit Sharing Plans
The NewAlliance Bank 401(k) Savings Plan (the “Savings Plan”) is a tax qualified defined contribution plan with a qualified cash or deferred arrangement under Section 401(k) of the Internal Revenue Code. The Savings Plan currently provides participants with savings and retirement benefits based on employee deferrals of compensation and a matching feature provided through the Company’s ESOP.

Cash contributions made by the Bank to the Savings Plan maintained for employees meeting certain eligibility requirements amounted to $104,000 for the year ended December 31, 2004 and $433,000 for the nine months ended December 31, 2003. No cash contributions were made for the year ended December 31, 2005.

In connection with the conversion of the Bank to a state-chartered stock bank, the Company established an ESOP in April 2004, to provide substantially all employees of the Company the opportunity to also become shareholders. The ESOP borrowed $109.7 million of a $112.0 million line of credit from the Company and used the funds to purchase 7,454,562 shares of common stock in the open market subsequent to the subscription offering. The loan will be repaid principally from the Company’s discretionary contributions to the ESOP over a period of 30 years. The unallocated ESOP shares are pledged as collateral on the loan.

At December 31, 2005, the loan had an outstanding balance of $106.4 million and an interest rate of 4.0%. The Company accounts for its ESOP in accordance with Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans” (“SOP 93-6”). Under SOP 93-6, unearned ESOP shares are not considered outstanding for purposes of computing earnings per share and are shown as a reduction of shareholders’ equity as unearned compensation. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, this differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s financial statements. Dividends on unallocated shares are used to pay the ESOP debt. The ESOP compensation expense for the year ended December 31, 2005 and 2004 was approximately $3.6 million and $2.3 million, respectively. The amount of loan repayments made by the ESOP is used to reduce the unallocated common stock held by the ESOP.

70

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

The ESOP shares as of December 31, 2005 were as follows:

Shares released for allocation		415,108
Unreleased shares		7,039,454
Total ESOP shares		7,454,562
Market value of unreleased shares at
December 31, 2005 (in thousands)	$	102,354

In April of 2004, the Company also established a supplemental profit sharing plan and a supplemental ESOP (the “Supplemental Savings Plans”) that provide benefits for certain key executive officers, which are unfunded. Compensation expense related to the Supplemental Savings Plans was $529,000 and $277,000 for the years ended December 31, 2005 and 2004, respectively.

13.     Share-Based Compensation

As provided for under the Company’s 2005 Long-Term Compensation Plan (the “LTCP”), on June 17, 2005 the Company’s Compensation Committee awarded 8,551,600 stock options at an exercise price of $14.39 and 3,424,500 restricted stock awards with a value of $14.39 to directors and selected employees. An additional 215,000 stock options were awarded during the second half of 2005 at a weighted-average exercise price of $14.71.

The options are for a term of 10 years and will vest 40% at year-end 2005, and 20% at year-end of each of the years 2006 through 2008. It is anticipated that the implementation of SFAS No. 123R will result in an after tax increase in expense of approximately $3.1 million, $3.0 million and $2.8 million in 2006, 2007 and 2008, respectively. The weighted-average strike price of options granted under the LTCP was $14.40 as of December 31, 2005. The weighted-average option grant-date fair value of $2.61 was determined using the Black-Scholes Option Pricing Model and the following weighted-average assumptions: risk-free interest rate of 3.81%, expected life of 3.84 years, expected volatility of 19.85% and an expected dividend yield of 1.53%. Approximately 3.5 million options became exercisable as of the close of business on December 31, 2005. No options were exercised and 9,500 options had been forfeited as of December 31, 2005.

The restricted stock will vest 15% on January 1st of each of the years beginning 2006 through 2011 and 10% on January 1, 2012, while the associated expense on the awarded stock will be recorded from the award date through 2011. For the year ended December 31, 2005, the Company recorded after tax expense of $5.7 million and will record an after tax expense of approximately $6.0 million, $5.8 million, $5.2 million, $4.9 million, $4.8 million and $3.1 million in calendar years 2006 through 2011, respectively in connection with the restricted stock awards.

The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123:

71

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

					Nine Months
	Year Ended				Ended
	December 31,				December 31,
(In thousands, except per share data)	2005		2004		2003
Net income, as reported	$	52,599	$	4,069	$	12,076
Add: Stock-based employee compensation
expense included in reported net income, net of
related tax effects		5,851		-		-
Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects		11,799		-		-
Proforma net income	$	46,651	$	4,069	$	12,076
Basic EPS
As reported	$	0.50	$	n/a	$	n/a
Proforma		0.44		n/a		n/a
Diluted EPS
As reported	$	0.50	$	n/a	$	n/a
Proforma		0.44		n/a		n/a

14.     Income Taxes

The components of income tax expense are summarized as follows:

						Nine Months
	Year Ended					Ended
	December 31,					December 31,
(In thousands)	2005		2004			2003
Current tax expense (benefit)
Federal	$	22,128	$	6,297		$	5,191
State		53		78			(286	)
Total current		22,181		6,375			4,905
Deferred tax expense (benefit) net of valuation reserve
Federal		5,213		(5,851	)		1,084
State		-		-			-
Total deferred		5,213		(5,851	)		1,084
Total income tax expense	$	27,394	$	524		$	5,989

For the year ended December 31, 2005 and 2004 and the nine months ended December 31, 2003, the provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate of 35% to pre-tax income for the following reasons:

72

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

							Nine Months
	Year Ended						Ended
	December 31,						December 31,
(In thousands)	2005			2004			2003
Provision for income taxes at statutory rate	$	27,998		$	1,608		$	6,323
Increase (decrease) in taxes resulting from:
State income tax expense (benefit)		34			50			(186	)
Dividends received deduction		(382	)		(275	)		(88	)
Bank-owned life insurance		(846	)		(640	)		-
Low income housing and other tax credits		(78	)		(261	)		(292	)
Excess compensation - 162(m)		544			-			-
Valuation allowance adjustment, charitable contribution		373			-			-
Valuation allowance adjustment, capital loss		(64	)		-			-
Tax exempt obligations		(211	)		-			-
Other, net		26			42			232
Provision for income taxes	$	27,394		$	524		$	5,989

The tax effects of temporary differences and tax carryforwards that give rise to deferred tax assets and liabilities are presented below:

	December 31,
(In thousands)	2005			2004
Deferred tax assets
Bad debts	$	14,343		$	14,589
Pension and postretirement benefits		4,169			12,676
Certificate of deposits		2,260			4,594
Borrowings		11,967			14,120
Noncompete agreements		3,087			2,090
Charitable contribution carryover		20,586			20,984
Federal net operating loss carryover		1,127			1,711
State net operating loss carryover		11,223			6,071
Unrealized loss on available for sale securities		14,142			2,048
Restricted stock		2,712			-
Other, net		2,145			257
Total gross deferred tax assets		87,761			79,140
Less valuation allowance		(19,110	)		(14,096	)
Total deferred tax assets, net of valuation allowance		68,651			65,044
Deferred tax liabilities
Core deposit intangible		19,669			19,682
Loans		2,836			3,792
Premises and equipment, principally due to difference in depreciation		2,657			681
Limited partnerships		4,432			4,334
Net deferral of loan origination costs		2,906			3,006
Bond accretion		920			762
Investments		6,043			5,728
Other		1,217			571
Total gross deferred tax liabilities		40,680			38,556
Net deferred tax asset	$	27,971		$	26,488

73

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

The allocation of deferred tax benefit involving items charged to income, items charged directly to stockholders’ equity and items charged to goodwill are as follows:

	Year Ended December 31,										Nine Months Ended
	2005					2004						December 31,2004
(In thousands)	Federal			State		Federal			State		Federal			State
Deferred tax (benefit) expense allocated to:
Stockholders’ equity, tax effect of unrealized losses
on marketable equity securities	$	(12,060	)	$	-	$	(2,410	)	$	-	$	(446	)	$	-
Stockholders’ equity, tax benefit for difference between
book and tax basis for the Foundation contribution,
net of a $3.7 million valuation allowance		-			-		(2,569	)		-		-			-
Stockholders’ equity, tax impact of change in minimum
pension liability		1,887			-		(1,914	)		-		-			-
Goodwill		3,477			-		(11,184	)		-		-			-
Income (loss)		5,2l3			-		(5,851	)		-		2,182			-
Total deferred tax (benefit) expense	$	(1,483	)	$	-	$	(23,928	)	$	-	$	1,736		$	-

Management believes it is more likely than not that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance.

The Company has federal net operating loss carryforwards of $3.2 million at December 31, 2005, which expire in 2024. This carryforward is from the acquisition of Alliance and is subject to limitation under Internal Revenue Code Section 382. The yearly limitation on usage of the net operating loss is $3.3 million and management expects to utilize this carryforward in 2006. The Company has state net operating loss carryforwards at December 31, 2005 of $230.0 million of which $68.2 million expires between 2020 and 2024, $84.8 million expires in 2025 and $77.0 million expires in 2026. As of December 31, 2005 and 2004, the Company had a valuation allowance of $13.5 million and $8.9 million, respectively, against its state deferred tax asset, including the state net operating loss carryforwards, in connection with the creation of a Connecticut passive investment company pursuant to legislation enacted in 1998. Under this legislation, Connecticut passive investment companies are not subject to the Connecticut Corporate Business Tax and dividends paid by the passive investment company to the Company are exempt from the Connecticut Corporate Business Tax. During 2005, the Company increased its valuation allowance by $4.6 million to offset an increase in the state deferred tax asset attributable to net deductible temporary differences and net operating loss carryforwards arising during the year.

At December 31, 2005, the Company has charitable contribution carryforwards of $54.0 million, which expire in 2009. The charitable contribution carryforward primarily resulted from the charitable contribution of 4,000,000 shares of the Company’s stock and $40,000 of cash to the NewAlliance Foundation in 2004. The utilization of charitable contributions for any tax year is limited to 10% of taxable income without regard to charitable contributions, net operating losses, and dividend received deductions. A corporation is permitted to carry over to the five succeeding tax years contributions that exceeded the 10% limitation, but deductions in those years are also subject to the maximum limitation. At December 31, 2005 and 2004, the Company has a valuation allowance of $5.2 million and $4.9 million, respectively against charitable contributions that are expected to expire in 2009 unused based on Management’s estimate of future taxable income. The estimate of future taxable income is based on significant judgment as to the amount and timing of various income and expense amounts. Management will reassess the estimate of future taxable income as facts and circumstances dictate. Changes in judgment concerning future taxable income may result in a change to the valuation allowance.

Capital losses can only be used to offset capital gains. Excess losses over gains can be carried back three years or carried forward five years. As of December 31, 2005, there is a partial valuation allowance of $331,000 for the tax effect of capital loss carryforwards associated with realized and unrealized capital losses on capital assets. $253,000 of this partial valuation allowance does not have an impact on earnings. The valuation allowance increased by $10,000 of which $64,000 was credited to continuing operations, $34,000 was charged to equity and $40,000 was charged to goodwill relating to the Trust Company acquisition.

A deferred tax liability has not been recorded for the tax reserve for bad debts of approximately $49.6 million that arose in tax years beginning before December 31, 1987 (the “base year amount”). A deferred tax liability is not recognized for the base year amount unless it becomes apparent that those temporary differences will reverse into taxable income in the foreseeable future. The base year amount will only be recognized into taxable income if the Bank ceases to be a bank or if the Bank makes distributions of property to a shareholder with respect to its stock that is in excess of the Bank’s earnings and profits accumulated in taxable years beginning after

74

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

December 31, 1951. No deferred tax liability has been established as these two events are not expected to occur in the foreseeable future.

15.     Commitments and Contingencies

Cash and Due from Banks Withdrawal and Usage Restrictions
The Company is required to maintain reserves against its transaction accounts and non-personal time deposits. As of December 31, 2005, and 2004, the Company was required to have deposits at the Federal Reserve Bank of approximately $26.8 million and $33.0 million, respectively, to meet these requirements.

Leases
The Company leases certain of its premises and equipment under lease agreements, which expire at various dates through September 30, 2012. The Company has the option to renew certain of the leases at fair rental values. Rental expense was approximately $2.2 million for the year ended December 31, 2005 and 2004, respectively and $708,000 for the nine months ended December 31, 2003.

Future minimum payments, by fiscal year in the aggregate, under non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following:

(In thousands)	Amount
2006	$	2,045
2007		1,893
2008		1,678
2009		1,431
2010		1,188
thereafter		2,439
Total	$	10,674

Commitments to Extend Credit
The table below shows commitments to extend credit as of December 31, 2005.

	December 31,
(In thousands)	2005		2004
Loan commitments	$	68,160	$	47,865
Unadvanced portion of construction loans		98,360		71,768
Standby letters of credit		11,701		8,103
Unadvanced portion of lines of credit		491,977		474,967
Total commitments	$	670,198	$	602,703

Forward sale commitments are entered into with respect to certain individual residential loan origination commitments, with delivery conditional on the closing of the related loans. The forward sale commitments generally require delivery within 60 days from application of the related loan, and conformity with standard secondary market guidelines including loan documentation. The total outstanding amount of forward mortgage sale commitments was $2.0 million at December 31, 2005 and $1.1 million at December 31, 2004. The Company has no other off-balance sheet financial instruments that qualify as derivative instruments. Changes in the fair value of forward sale commitments and related origination commitments are equal in amount due to the Bank’s practice of entering into a sale commitment at the time it issues an origination commitment for a particular loan. Forward sales commitments related to closing loans are accounted for as fair value hedges under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” Because the forward sale commitments relate to specific closed loans, changes in the fair value of the forward commitments offset changes in the fair value of the related loans.

These financial instruments involve, to varying degrees, elements of credit and interest rate risk. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for existing loans. Credit risk related to these financial instruments is controlled through credit approvals, limits and monitoring procedures and the receipt of collateral when deemed necessary.

75

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include income producing commercial properties, accounts receivable, inventory and property, plant and equipment.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in existing loan facilities to customers. The Company holds real estate and marketable securities as collateral supporting those commitments for which collateral is deemed necessary.

Investment Commitments
As of December 31, 2005, and 2004, the Company was contractually committed under four limited partnership agreements to make additional partnership investments of approximately $3.7 million and $4.2 million, respectively.

Litigation
There are various legal proceedings and unasserted claims against the Company arising out of its business. Although it is not feasible to predict with certainty the outcome of any of these cases, in the opinion of management and based on discussions with legal counsel, the outcome of these matters is not expected to result in a material adverse effect on the financial position or future operating results of the Company.

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

16.     Stockholders’ Equity

At December 31, 2005, stockholders’ equity amounted to $1.31 billion, or 20.0% of total assets, compared to $1.42 billion, or 22.6%, at December 31, 2004. The Company paid cash dividends of $0.21 and $0.08 per share on common stock during the years ended December 31, 2005 and 2004, respectively.

Regulatory Capital
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the banking regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total capital and Tier 1 capital to risk weighted assets and of Tier 1 capital to average assets. Management believes that as of December 31, 2005 and December 31, 2004 the Company and the Bank met all capital adequacy requirements to which it was subject.

As of December 31, 2005, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. Management believes that there are no events or conditions, which have occurred subsequent to the notification that would change the Bank’s

76

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

capital category. The following is a summary of the Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2005 and 2004, compared to the required amounts and ratios for minimum capital adequacy and for classification as a well capitalized institution:

											To Be Well
						For Capital					Capitalized Under
						Adequacy					Prompt Corrective
	Actual					Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
NewAlliance Bank
December 31, 2005
Tier 1 Capital (to Average Assets)	$	601,971		10.0	%	$	241,043		4.0	%	$	301,303		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		601,971		17.6			136,899		4.0			205,349		6.0
Total Capital (to Risk Weighted Assets)		637,523		18.6			273,798		8.0			342,248		10.0
December 31, 2004
Tier 1 Capital (to Average Assets)	$	577,347		10.0	%	$	231,248		4.0	%	$	289,060		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		577,347		16.5			139,991		4.0			209,987		6.0
Total Capital (to Risk Weighted Assets)		613,510		17.5			279,982		8.0			349,978		10.0
NewAlliance Bancshares, Inc.
December 31, 2005
Tier 1 Capital (to Average Assets)	$	866,567		14.3	%	$	242,239		4.0	%	$	302,799		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		866,567		25.0			138,686		4.0			208,029		6.0
Total Capital (to Risk Weighted Assets)		902,119		26.0			277,372		8.0			346,715		10.0
December 31, 2004
Tier 1 Capital (to Average Assets)	$	946,496		16.3	%	$	231,958		4.0	%	$	289,948		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		946,496		27.0			140,308		4.0			210,462		6.0
Total Capital (to Risk Weighted Assets)		989,764		28.2			280,615		8.0			350,769		10.0

Dividends
The Company and the Bank are subject to dividend restrictions imposed by various regulators. Connecticut banking laws limit the amount of annual dividends that the Bank may pay to the Company to an amount that approximates the Bank’s net income retained for the current year plus net income retained for the two previous years. In addition, the Bank may not declare or pay dividends on, and the Company may not repurchase any of its shares of its common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements.

Share Repurchase Plan
On May 9, 2005, the Company’s Board of Directors authorized the repurchase of up to approximately 10.7 million shares or 10% of the then outstanding Company common stock. The Company had repurchased approximately 9.5 million shares of common stock at a weighted average price of $14.58 per share as of December 31, 2005. On January, 31, 2006, the Company’s Board of Directors authorized the repurchase of up to an additional 10.0 million shares or approximately 10% of the then outstanding Company common stock. There is no set expiration date for either of the repurchase plans.

Liquidation Account
As part of the conversion to a stock bank on April 1, 2004, the Bank established a liquidation account for the benefit of account holders in an amount equal to the Bank’s capital of $403.8 million as of September 30, 2003. The liquidation account will be maintained for a period of ten years after the conversion for the benefit of those deposit account holders who qualified as eligible account holders at the time of the conversion and who have continued to maintain their eligible deposit balances with the Bank following the conversion. The liquidation account, which totaled $195.5 million at December 31, 2005 is reduced annually by an amount equal to the decrease in eligible deposit balances, notwithstanding any subsequent increases in the account. In the event of the complete liquidation of the Bank, each eligible deposit account holder will be entitled to receive his/her proportionate interest in the liquidation account, after the payment of all creditors’ claims, but before distributions to the Company as the sole stockholder of the Bank. The Bank may not declare or pay a dividend on its capital stock if its effect would be to reduce the regulatory capital of the Bank below the amount required for the liquidation account.

77

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

17.     Other Comprehensive Income

The following table summarizes the components of comprehensive income (loss) and other comprehensive loss and the related tax effects for the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003.

							Nine Months
	Year Ended						Ended
	December 31,						December 31,
(In thousands)	2005			2004			2004
Net income	$	52,599		$	4,069		$	12,076
Other comprehensive loss, before tax
Unrealized losses on securities
Unrealized holding losses arising during the period		(34,516	)		(6,477	)		(3,301	)
Reclassification adjustment for gains included in net income		(40	)		(616	)		(153	)
Minimum pension liability adjustment		5,390			(5,469	)		-
Other comprehensive loss, before tax		(29,166	)		(12,562	)		(3,454	)
Income tax benefit net of valuation allowance (1)		10,173			4,324			1,229
Other comprehensive loss, net of tax		(18,993	)		(8,238	)		(2,225	)
Comprehensive income (loss)	$	33,606		$	(4,169	)	$	9,851

(1) Income tax benefit related to securities losses was $12.1 million, $2.4 million and $1.2 million, respectively for the years ended December 31, 2005 and 2004 and the nine months ended December 31, 2003. Income tax expense related to the minimum pension liability was $1.9 million compared to an income tax benefit of $1.9 million, respectively for the years ended December 31, 2005 and 2004 and $0 for the nine months ended December 31, 2003. Included in the income tax benefit related to securities losses for the years ended December 31, 2005 and 2004 is a valuation allowance of $88,000 and $53,000, respectively for the tax effects of unrealized capital losses on equity securities.

18.    Earnings Per Share

The following is an analysis of the Company’s basic and diluted EPS for the periods presented:

	Year Ended
	December 31,
(In thousands, except per share data)	2005
Net income	$	52,599
Weighted-average basic shares outstanding		105,110
Dilutive potential common shares (1)		407
Weighted-average dilutive shares outstanding	$	105,517
Basic EPS		0.50
Diluted EPS		0.50

(1) Options to purchase 215,000 shares of common stock were outstanding during the second half of 2005, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares during the period. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

The conversion to a stock bank occurred on April 1, 2004, resulting in shares outstanding only for the nine months ended December 31, 2004. Therefore, earnings per share for the year ended December 31, 2004 and the nine months ended December 31, 2003 are not shown.

19.     Disclosures About Fair Value of Financial Instruments

Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. 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

78

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by companies 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.

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
Fair values of securities are based on quoted market prices or dealer quotes, except for FHLB stock, which is assumed to have a fair value equal to its carrying value.

Loans held for sale
The fair value of performing residential mortgage loans held for sale is estimated using quoted market prices provided by government-sponsored entities.

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 as of year-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.

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 year-end.

Borrowed Funds
The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings.

The following are the carrying amounts and estimated fair values of the Company’s financial assets and liabilities as of the periods presented:

	December 31, 2005				December 31, 2004
	Carrying		Estimated		Carrying		Estimated
(In thousands)	Amounts		Fair Value		Amounts		Fair Value
Financial Assets
Cash and due from banks	$	127,290	$	127,290	$	101,099	$	101,099
Short-term investments		46,497		46,497		100,000		100,000
Investment securities		2,455,205		2,454,178		2,283,701		2,283,701
Loans held for sale		1,222		1,222		501		501
Loans, net		3,241,154		3,243,241		3,108,494		3,173,662
Accrued income receivable		25,684		25,684		21,058		21,058
Financial Liabilities
Interest and non-interest bearing checking, savings
and money market accounts	$	2,164,221	$	2,164,221	$	2,542,607	$	2,542,607
Time deposits		1,633,891		1,618,983		1,159,405		1,151,151
Borrowed funds		1,380,775		1,337,989		1,064,816		1,052,220

79

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

20.     Selected Quarterly Consolidated Information (unaudited)

The following tables present quarterly financial information of the Company for 2005 and 2004:

	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
(In thousands)	2005		2005		2005			2005
Interest and dividend income	$	72,810	$	70,523	$	68,583		$	64,654
Interest expense		29,342		26,583		24,085			20,451
Net interest income before provision for loan losses		43,468		43,940		44,498			44,203
Provision for loan losses		-		400		-			-
Net interest income after provision for loan losses		43,468		43,540		44,498			44,203
Non-interest income		12,088		12,372		11,177			9,887
Non-interest expense		37,909		35,763		34,057			33,511
Income before taxes		17,647		20,149		21,618			20,579
Income tax provision		5,996		7,405		7,108			6,885
Net income	$	11,651	$	12,744	$	14,510		$	13,694
	Three Months Ended
	December 31,		September 30,		June 30,			March 31,
(In thousands)	2004		2004		2004			2004
Interest and dividend income	$	62,137	$	60,822	$	58,015		$	27,058
Interest expense		18,585		18,255		16,955			8,017
Net interest income before provision for loan losses		43,552		42,567		41,060			19,041
Provision for loan losses		300		-		-			300
Net interest income after provision for loan losses		43,252		42,567		41,060			18,741
Non-interest income		9,707		10,634		11,429			3,976
Non-interest expense		36,088		40,925		79,985			19,775
Income (loss) before taxes		16,871		12,276		(27,496	)		2,942
Income tax provision (benefit)		5,309		4,143		(9,893	)		965
Net income (loss)	$	11,562	$	8,133	$	(17,603	)	$	1,977

21.     Parent Company Statements

The parent company began operations on April 1, 2004 in conjunction with the Bank’s mutual-to-stock conversion and the Parent Company’s subscription and direct community offering of its common stock. The following represents the Parent Company’s balance sheet as of December 31, 2005 and 2004, and statements of income and cash flows for the year ended December 31, 2005 and for the period April 1, 2004 through December 31, 2004.

80

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Balance Sheet
	December 31,
(In thousands)	2005		2004
Assets
Interest earning and other bank deposits	$	222,571	$	326,152
Investment securities		197		11,185
Investment in subsidiaries		1,053,322		1,047,238
Other assets		44,613		39,295
Total assets	$	1,320,703	$	1,423,870
Liabilities and shareholders’ equity
Accrued interest and other liabilities	$	2,726	$	393
Borrowings		7,109		7,105
Shareholders equity		1,310,868		1,416,372
Total liabilities and shareholders’ equity	$	1,320,703	$	1,423,870

Income Statement
				For the period
	Year Ended			April 1 through
	December 31,			December 31,
(In thousands)	2005			2004
Revenues
Interest on investments	$	4,751		$	3,626
Other income		9			28
Total revenue		4,760			3,654
Expenses
Contribution to NewAlliance Foundation		-			40,000
Interest on long term notes and debentures		701			528
Other expenses		12,024			922
Total expenses		12,725			41,450
Loss before tax benefit and equity in undistributed net income of subsidiaries		(7,965	)		(37,796	)
Income tax benefit		(2,839	)		(13,370	)
Loss before equity in undistributed net income of subsidiaries		(5,126	)		(24,426	)
Equity in undistributed net income of subsidiaries		57,725			28,495
Net income	$	52,599		$	4,069

81

NEWALLIANCE BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003

Statement of Cash Flows				For the period
	Year Ended			April 1 through
	December 31,			December 31,
(In thousands)	2005			2004
Cash flows from operating activities
Net income	$	52,599		$	4,069
Adjustments to reconcile net income to net cash provided by operating activities
Contribution of common stock to the NewAlliance Foundation		-			40,000
Undistributed income of NewAlliance Bank		(57,725	)		(28,495	)
Distribution of ESOP shares		3,524			2,433
Restricted stock compensation expense		7,977			-
Deferred tax benefit		(2,052	)		(11,830	)
Amortization of investment securities, net		27			84
Net change in other assets and other liabilities		(863	)		8,899
Net cash provided by operating activities		3,487			15,160
Cash flows from investing activities
Purchase of available for sale securities		-			(30	)
Proceeds from maturities and principal reductions of available for sale securities		11,030			17,295
Net investment in bank subsidiary		42,707			(675,911	)
Net cash used in investing activities		53,737			(658,646	)
Cash flows from financing activities
Issuance of common stock, net of issuance costs		-			1,087,626
Acquisition of common stock by ESOP		-			(109,451	)
Acquisition of treasury shares		(138,473	)		-
Cash dividends paid		(22,332	)		(8,537	)
Net cash provided by financing activities		(160,805	)		969,638
Net increase in cash and cash equivalents		(103,581	)		326,152
Cash and cash equivalents, beginning of period		326,152			-
Cash and cash equivalents, end of period	$	222,571		$	326,152

82

(c)	Exhibits Required by Securities and Exchange Commission Regulation S-K
	Exhibit
	Number
		3.1	Amended and Restated Certificate of Incorporation of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 13, 2004.
		3.2	Bylaws of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 13, 2004.
		4.1	See Exhibit 3.1, Amended and Restated Certificate of Incorporation and Exhibit 3.2, Bylaws of NewAlliance Bancshares, Inc.
		10.1	NewAlliance Bank Deferred Compensation Plan. Incorporated herein by reference is Exhibit 10.2 filed with the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed September 30, 2003.
		10.2	Fourth Amendment to NewAlliance Bank Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.2 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
		10.2.1	NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.3 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
		10.3	NewAlliance Bancshares, Inc. Employee Stock Ownership Plan Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.4 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
		10.4	The NewAlliance Bank 401(k) Plan Supplemental Executive Retirement Plan. (Amended and Restated Effective December 31, 2004) Incorporated herein by reference is Exhibit 10.4 filed with the Company’s Quarterly Report on Form 10-Q, filed November 9, 2005.
		10.5	NewAlliance Bank Executive Incentive Plan. Incorporated herein by reference is Exhibit 10.6 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
		10.6	Employee Severance Plan. Incorporated herein by reference is Exhibit 10.8 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
		10.7.1	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Peyton R. Patterson, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.1 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
		10.7.2	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Merrill B. Blanksteen, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.2 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
		10.7.3	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Gail E.D. Brathwaite, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.3 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
		10.7.4	Amended and Restated Employment Agreement between NewAlliance Bank and David H. Purcell, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.4 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
		10.7.5	Amended and Restated Employment Agreement between NewAlliance Bank and Diane L. Wishnafski, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.5 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
		10.7.6	Amended and Restated Employment Agreement between NewAlliance Bank and Brian S. Arsenault, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.6 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.

83

10.7.7	Amended and Restated Employment Agreement between NewAlliance Bank and J. Edward Diamond, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.7 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.8	Amended and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.8 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.9	Form of Change In Control Agreement dated as of January 3, 2006 between NewAlliance Bank and Koon-Ping Chan. Incorporated herein by reference is Exhibit 10.7.9 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.10	Intentionally omitted.
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.
14	Code of Ethics for Senior Financial Officers. Incorporated herein by reference is Exhibit 14 filed with the Company’s Annual Report on Form 10-KT, filed March 30, 2004.
21	Subsidiaries of NewAlliance Bancshares, Inc. and NewAlliance Bank. Incorporated herein by reference is Exhibit 21 filed with the Company’s Annual Report on Form 10-K, filed March 21, 2005.
31.1	Certification of Peyton R. Patterson pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith).
32.2	Certification of Merrill B. Blanksteen pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith).
32.1	Certification of Peyton R. Patterson pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Merrill B. Blanksteen pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NewAlliance Bancshares, Inc.

By:	/s/ Peyton R. Patterson	February 28, 2006
	Peyton R. Patterson
	Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Peyton R. Patterson	Chairman of the Board, President and	February 28, 2006
Peyton R. Patterson	Chief Executive Officer
	(principal executive officer)
/s/ Merrill B. Blanksteen	Executive Vice President, Chief Financial	February 28, 2006
Merrill B. Blanksteen	Officer and Treasurer
	(principal financial officer)
/s/ Mark F. Doyle	Senior Vice President and Chief Accounting	February 28, 2006
Mark F. Doyle	Officer
	(principal accounting officer)
/s/ Roxanne J. Coady	Director	February 28, 2006
Roxanne J. Coady
/s/ John F. Croweak	Director	February 28, 2006
John F. Croweak
/s/ Sheila B. Flanagan	Director	February 28, 2006
Sheila B. Flanagan
/s/ Richard J. Grossi	Director	February 28, 2006
Richard J. Grossi
/s/ Robert J. Lyons, Jr.	Director	February 28, 2006
Robert J. Lyons, Jr.
/s/ Eric A. Marziali	Director	February 28, 2006
Eric A. Marziali
/s/ Julia M. McNamara	Director	February 28, 2006
Julia M. McNamara
/s/ Gerald B. Rosenberg	Director	February 28, 2006
Gerald B. Rosenberg
/s/ Joseph H. Rossi	Director	February 28, 2006
Joseph H. Rossi
/s/ Cornell Scott	Director	February 28, 2006
Cornell Scott
/s/ Nathaniel D. Woodson	Director	February 28, 2006
Nathaniel D. Woodson
/s/ Joseph A. Zaccagnino	Director	February 28, 2006
Joseph A. Zaccagnino

85

EX-31

Exhibit 31.1
CERTIFICATIONS
I, Peyton R. Patterson certify that:
1.	I have reviewed this annual report on Form 10-K of NewAlliance Bancshares, Inc. (“the registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
		b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this annual report based on such evaluation; and
		d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
		a)	All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 28, 2006
		/s/ Peyton R. Patterson
		Peyton R. Patterson
		Chairman of the Board, President and Chief Executive Officer
		(principal executive officer)

EX-31

Exhibit 31.2
CERTIFICATIONS
I, Merrill B. Blanksteen certify that:
1.	I have reviewed this annual report on Form 10-K of NewAlliance Bancshares, Inc. (“the registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
		b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this annual report based on such evaluation; and
		d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
		a)	All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 28, 2006
		/s/ Merrill B. Blanksteen
		Merrill B. Blanksteen
		Executive Vice President, Chief Financial Officer and Treasurer
		(principal financial officer)

EX-32

Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
I, Peyton R. Patterson, Chairman of the Board, President, Chief Executive Officer hereby certify that NewAlliance Bancshares, Inc.’s annual report on Form 10-K for the year ended December 31, 2005 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of NewAlliance Bancshares, Inc.
	/ s / Peyton R. Patterson
	Peyton R. Patterson
	Chairman of the Board, President and
	Chief Executive Officer
Date: February 28, 2006
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to NewAlliance Bancshares, Inc. and will be retained by NewAlliance Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
I, Merrill B. Blanksteen, Executive Vice President, Chief Financial Officer and Treasurer hereby certify that NewAlliance Bancshares, Inc.’s annual report on Form 10-K for the year ended December 31, 2005 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of NewAlliance Bancshares, Inc.
	/ s / Merrill B. Blanksteen
	Merrill B. Blanksteen
	Executive Vice President, Chief Financial
	Officer and Treasurer
Date: February 28, 2006
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to NewAlliance Bancshares, Inc. and will be retained by NewAlliance Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.