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, 2006

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32007

NEWALLIANCE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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 each 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 (229.405 of this chapter) 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 $1.50 billion based upon the closing price of $14.31 as of June 30, 2006 as reported in The Wall Street Journal on July 1, 2006. Solely for the purposes of this calculation, directors and officers of the registrant are deemed to be affiliates. As of February 27, 2007 there were 113,451,940 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 24, 2007 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	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	47
Item 9A.	Controls and Procedures	47
Item 9B.	Other Information	47
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accountant Fees and Services	48
Part IV
Item 15.	Exhibits and Financial Statement Schedules	48

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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.

The Company has focused on growth through acquisitions and since April 1, 2004, three additional acquisitions have been completed.

• 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. Cornerstone had assets and stockholders’ equity of approximately $211.4 and $18.3 million, respectively at December 31, 2005, with six full service offices serving the attractive Fairfield County market in Southern Connecticut; and

• On January 2, 2007 the Company completed its acquisition of Westbank Corporation (“Westbank”), the holding company for Westbank, a commercial bank and trust company. Westbank had assets and stockholders’ equity of approximately $721.0 and $43.0 million, respectively at December 31, 2006. This acquisition has taken the Company into Central and Western Massachusetts primarily along the I-91 corridor, as well as in towns contiguous to NewAlliance branches in northeastern 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.

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

Significant factors management reviews to evaluate achievement of the Company’s operating objectives and its operating results and financial condition include, but are not limited to: net income and earnings per share, performance of acquisitions and integration activities, return on equity and assets, net interest margin, non-interest income, operating expenses and efficiency ratio, asset quality, loan and deposit growth, capital management, liquidity and interest rate sensitivity levels, customer service standards, 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 Deposit 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, 2006, the Company operated 72 banking offices in New Haven, Middlesex, Hartford, Tolland, Windham and Fairfield 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 Westbank, the Company broadened its branch network reaching further north into Central and Western Massachusetts, increased the number of communities served and added 16 banking offices to bring the total number of banking offices to 88. The Company focuses on 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 and purchase residential real estate loans, consumer loans (primarily home equity loans and lines of credit), commercial loans and commercial real estate loans.

The Company retains in its portfolio loans that it originates and purchases except for 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 States of Connecticut and Massachusetts. In 2005, the Company began a strategy of purchasing adjustable rate and 10 and 15 year fixed rate residential mortgages. By the end of 2006, the Company had expanded the program and is now purchasing loans from across the United States with property locations predominantly in the Northeast. The Company anticipates that loan purchases will continue in 2007. Real estate secured the majority of the Company’s loans as of December 31, 2006, 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 States of Connecticut and Massachusetts. 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.

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The Company currently sells all of the fixed rate residential real estate loans it originates with terms of over 15 years except for certain long term fixed rate loans to borrowers in low to moderate income areas. 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 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 originally concentrated in the Northeast following underwriting standards no less stringent than that used for the organic residential loan portfolio, but has since expanded to locations across the United States based on analysis of relevant state economic data and other considerations. The Company also purchases fixed rate mortgages with terms greater than 15 years in low or moderate income areas within its Community Reinvestment Act assessment area.

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 and Massachusetts. 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

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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 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, 2006, the Company’s outstanding commercial loan portfolio included the following business sectors: contractors, real estate rental and leasing, manufacturing, professional services, wholesale trade, retail trade, transportation, 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 the 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, 2006, Trust Services managed approximately 704 account relationships and had assets under management of $1.06 billion. For the years ended December 31, 2006, 2005 and 2004, revenues for this area were $6.4 million, $4.8 million and $2.4 million, respectively.

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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. The Company has an agreement to acquire Connecticut Investment Management Inc., a small investment advisory firm that will be merged into NewAlliance Investments, Inc.

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. As a tool to manage interest rate risk, the flexibility to utilize long term fixed rate investments is quite limited. 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 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 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.

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 and $250,000 for certain retirement plan accounts). 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)

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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.

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 $7.6 million at December 31, 2006.

Westbank Capital Trust II and Westbank Capital Trust III were organized by Westbank solely for the purpose of trust preferred financing. The Company acquired these subsidiaries when it acquired Westbank on January 2, 2007. The Company’s debt to Westbank Capital Trust II and III will be recorded as “Junior Subordinated Debentures issued to affiliated trusts” effective January 2, 2007.

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 $7.5 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. Fairbank Corporation is 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 acquisitions or foreclosure and other collection actions and investments in certain limited partnerships. The Loan Source, Inc. currently has no such foreclosure property under ownership. The subsidiary does have an investment in a limited partnership and ownership of several properties previously owned by a subsidiary of Westbank.

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. 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 NASD/SIPC.

Employees

At December 31, 2006, The Company had 1,107 employees consisting of 904 full-time and 203 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 ownership plan. See Notes 12 and 13 of the Notes to Consolidated Financial Statements contained elsewhere within this report for additional information on certain benefit and stock programs.

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The Foundation

The Bank established the NewAlliance Foundation (the “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, 2006, the Foundation had assets of approximately $51.0 million. Since 1998, the New Haven Savings Bank Foundation and the Foundation have made contributions of approximately $25.6 million to local non-profit organizations.

Market Area

The Company is headquartered in New Haven, Connecticut in New Haven County. With the acquisition of Westbank on January 2, 2007, the Company has 88 banking offices located throughout New Haven, Middlesex, Hartford, Tolland, Windham and Fairfield Counties in Connecticut and Hampden and Worcester Counties in Massachusetts. The Company’s primary deposit gathering area consists of the 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 and Central and Western Massachusetts, although most of the Company’s loans are made to borrowers in its primary deposit marketing area.

Competition

The Company is subject to strong competition from banks and other financial institutions, including savings and loan associations, commercial banks, finance companies, credit unions, consumer finance companies, brokerage firms and insurance companies. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services than NewAlliance. Competition from both bank and non-bank organizations is expected to continue.

The banking industry is also experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. Technological advances are likely to increase competition by enabling more companies to provide cost effective products and services.

The Company faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations, automated services and office hours. Competition for deposits comes primarily from other savings institutions, commercial banks, credit unions, mutual funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized service. Competition for origination of first mortgage loans comes primarily from other savings institutions, mortgage banking firms, mortgage brokers, commercial banks and insurance companies. 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 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.

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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 $160.2 million at December 31, 2006, 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. Similar rules apply in Massachusetts.

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.

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.

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Powers
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 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.

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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, 2006.

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. The agencies also 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 Deposit Insurance Fund (“DIF”). 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. Connecticut and Massachusetts 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 generally a leverage ratio of less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-

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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, 2006, 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

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determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds. An institution’s 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. DIF 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.

In November 2006, the FDIC Board of Directors approved a final rule to implement a One-Time Assessment Credit, as required by the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”). The FDIC will apply an eligible institution’s One-Time Assessment Credit against the institution’s future assessments to the maximum extent allowed by the statute. For 2007 assessment periods, all credits available to an institution may be used to offset the institution’s insurance assessment, effective with the June 2007 invoice. For assessments that become due for periods beginning in the fiscal years 2008, 2009 and 2010, the Federal Deposit Insurance Act provides that credits may not be applied to more than 90 percent of an institution’s assessment. Also as a result of the Reform Act, the FDIC is in the process of revising its risk based assessment system.

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 $45.8 million or less (which may be adjusted by the FRB) the reserve requirement is 3%; and for amounts greater than $45.8 million, 10% (which may be adjusted by the FRB between 8% and 14%), against that portion of total transaction accounts in excess of $45.8 million. The first $8.5 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, 2006 of $93.3 million. At December 31, 2006, the Bank had approximately $1.71 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

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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.

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

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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
The Sarbanes-Oxley Act of 2002 implemented legislative reforms intended to address corporate and accounting fraud. A new accounting oversight board was established to enforce auditing, quality control and independence standards and is funded by fees from all publicly traded companies. The Act 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 addition, the audit partners must be rotated every five years. Chief executive officers and chief financial officers, or their equivalent, must 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. Counsel is 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.

The Sarbanes-Oxley Act also increased 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 2006.

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 2002.

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 $49.8 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 (9.0% for 2006, 7.5% for 2005 and 9.4% for 2004 (including the surcharge on tax) to arrive at Connecticut income tax. The Company is also subject to Massachusetts corporate 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 statute 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.

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	29-31
II.	Investment Portfolio	40,41
III.	Loan Portfolio	35-38
IV.	Summary of Loan Loss Experience	39,40
V.	Deposits	42

17

VI.	Return on Equity and Assets	25
VII.	Short-Term Borrowings	n/a

Availability of Information
NewAlliance makes available free of charge on our website (http://www.newalliancebank.com), our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after we electronically file such reports with or furnish it to the Securities and Exchange Commission (“SEC”). NewAlliance is an electronic filer and as such reports filed with the SEC are also available on their website (http://www.sec.gov). The public may also read and copy any materials filed with the SEC at the SEC’s Public Reference Room, 100 F Street, NE, Washington, DC 20549. Information about the Public Reference Room can be obtained by calling 1-800-SEC-0330. Information on our website is not incorporated by reference into this report. 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 inherent to our business. The material risks and uncertainties that management believes affect the Company are described below. To understand these risks and to evaluate an investment in our common stock, you should read this entire prospectus, including the following risk factors.

If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly.

NewAlliance’s Business Strategy of Growth Through Acquisitions Could Have an Impact on Earnings and Results of Operations That May Negatively Impact the Value of NewAlliance Stock.
In recent years, NewAlliance has focused, in part, on acquisitions. In 2004, Connecticut Bancshares and Alliance Bancorp were acquired. In 2005, Trust Company was acquired and in 2006, Cornerstone was acquired. The Company also completed its acquisition of Westbank in January 2007. From time to time in the ordinary course of business, the Company engages in preliminary discussions with potential acquisition targets. As of the date of this filing, there are no binding or definitive agreements, plans, arrangements, or understandings for such acquisitions by the Company except for an agreement to acquire Connecticut Investment Management, Inc., a small investment advisory firm that will be merged into NewAlliance Investments, Inc. Although, our business strategy includes both internal expansion and acquisitions, there can be no assurance that, in the future, we will successfully identify suitable acquisition candidates, complete acquisitions successfully, integrate acquired operations into our existing operations or expand into new markets. Further, there can be no assurance that acquisitions will not have an adverse effect upon our operating results while the operations of the acquired businesses are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect our earnings. These adverse effects on our earnings and results of operations may have a negative impact on the value of our stock.

Changes in Interest Rates and Spreads Could Have an Impact on Earnings and Results of Operations, Which Could Have a Negative Impact on The Value of NewAlliance Stock.
NewAlliance’s 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 or changes in spreads 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.

The Company measures 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, changes in customer behavior, as well as changes in management’s strategies.

While various monitors of interest-rate risk are used, the Company is 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.

18

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.

NewAlliance May Experience Higher Levels of Loan Loss Due to Recent Growth.
NewAlliance’s 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 and central and western Massachusetts through the acquisition of Westbank.

NewAlliance May Experience Higher Levels of Loan Loss Due to Economic Conditions.
Recent declines in housing activity including declines in building permits, housing starts and home prices may make it more difficult for our borrowers to sell their homes or refinance their debt. Sales may also slow, which could strain the resources of real estate developers and builders. The Bank may suffer higher loan losses as a result of these factors and the resulting impact on our borrowers.

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

NewAlliance May Not Pay You Dividends if NewAlliance is Not Able to Receive Dividends From Its Subsidiary, NewAlliance Bank.
Cash dividends from NewAlliance Bank and our liquid assets are our principal sources of funds for paying cash dividends on our common stock. Unless we receive dividends from NewAlliance Bank or choose to use our liquid assets, we may not be able to pay dividends. NewAlliance Bank’s ability to pay us dividends is subject to its ability to earn net income and to meet certain regulatory requirements.

NewAlliance is Subject To Extensive Government Regulation and Supervision
NewAlliance, primarily through NewAlliance Bank and certain non-bank subsidiaries, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. While NewAlliance has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in Item 1. of this report for further information.

19

NewAlliance May Not Be Able To Attract and Retain Skilled People
NewAlliance’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by the Company can be intense and we may not be able to hire people or to retain them. The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the business because of their skills, knowledge of the market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

NewAlliance Continually Encounters Technological Change
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, its financial condition and results of operations.

NewAlliance’s Controls and Procedures May Fail or Be Circumvented
Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

Customer Information May be Obtained and Used Fraudulently
Risk of theft of customer information resulting from security breaches by third parties exposes the Company to reputation risk and potential monetary loss. The Company has exposure to fraudulent use of our customer’s personal information resulting from its general business operations and through customer use of financial instruments, such as debit cards. If a breach in security does occur in the marketplace and the financial data of our customers is compromised, the Company will react as quickly as possible to protect customer accounts and limit potential losses to the Company.

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 76 banking offices located in Connecticut and 12 banking offices located in Massachusetts. Of the 88 banking offices, 30 are owned and 58 are leased. Lease expiration dates range from 5 months to 15 years with renewal options of 5 to 60 years.

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

	Number of
County	Banking Offices
Connecticut:
New Haven	28
Middlesex	7
Hartford	16
Tolland	12
Windham	6
Fairfield	7
Massachusetts:
Worcester	1
Hampden	11
Total	88

The total net book value of properties and equipment at December 31, 2006 was $52.5 million. For additional information regarding our premises and equipment and lease obligations, see Notes 7 and 15 to the Consolidated Financial Statements.

20

Item 3.   Legal Proceedings

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 claimed 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. The Company disputed the plaintiffs’ allegations and defended the case vigorously. On November 3, 2005, the Court granted Summary Judgment in favor of the Company and denied the Summary Judgment motion of the plaintiffs. The plaintiffs appealed the decision of the District Court to the United States Court of Appeals for the Second Circuit, which upheld the Summary Judgment in favor of the Company during the fourth quarter of 2006.

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

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

None.

21

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 is traded on the New York Stock Exchange under the symbol “NAL”. 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
2006	High		Low		Per Share
First Quarter	$	14.77	$	14.00	$	0.055
Second Quarter		14.59		13.68		0.060
Third Quarter		14.82		13.84		0.060
Fourth Quarter		16.86		14.71		0.060
	Market Price
					Dividends Declared
2005	High		Low		Per Share
First Quarter	$	15.05	$	14.00	$	0.050
Second Quarter		14.39		13.07		0.050
Third Quarter		14.88		13.95		0.055
Fourth Quarter		15.06		14.02		0.055

Holders
As of December 31, 2006, there were 109,554,326 shares of common stock outstanding, which were held by approximately 12,000 holders of record. The number of shareholders of record was determined by American Stock Transfer and Trust Company. 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. See the section captioned “Supervision and Regulation” in Item 1. of this report for further information.

Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2006)

				Number of securities
				remaining available for
	Number of securities to	Weighted-average		future issuance under
	be issued upon	exercise price of		equity compensation
	exercises of outstanding	outstanding		plans (excluding
	options, warants and	options, warrants		securities reflected in
	rights	and rights		column (a))
Plan category	(a)	(b)		(c)
Equity compensation plans approved by security shareholders	8,427,496	$	14.40		4,267,586	(1)
Equity compensation plans not approved by security shareholders	-				-
Total	8,427,496	$	14.40		4,267,586

(1) This figure includes 2,984,578 shares that may be issued pursuant to options presently authorized but unissued, and 1,283,008 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
None.

22

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, 2006.

ISSUER PURCHASES OF EQUITY SECURITIES
		(b) Average		(c) Total Number of Shares	(d) Maximum Number of
		Price Paid per		Purchased as Part of	Shares That May Yet Be
	(a) Total Number of	Share (includes		Publicly Announced Plans	Purchased Under the Plans
	Shares purchased	commission)		or Programs	or Programs
Period
October 1 - 31, 2006	-	$	-	-	9,459,700
November 1 - 30, 2006	-		-	-	9,459,700
December 1 - 31, 2006	-		-	-	9,459,700
Total	-	$	-	-	9,459,700

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

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

Stock Performance Graph

The following graph compares the cumulative total return on the common stock for the period beginning April 1, 2004, the date on which NewAlliance common stock commenced trading, as reported by NASDAQ or NYSE through December 31, 2006, with (i) the cumulative total return on the S&P 500 Index and (ii) the cumulative total return on the Keefe, Bruyette & Woods, Inc. 50 Index for the period.

This graph assumes the investment of $100 on April 1, 2004 in our common stock (at the initial public offering price of $10.00 per share), the S&P 500 Index and the Keefe, Bruyette & Woods, Inc 50 Index and assumes that dividends are reinvested.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG NEWALLIANCE BANCSHARES,
S&P 500 INDEX AND KBW 50 INDEX

23

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. Data for the twelve months ended December 31, 2003 and the nine months ended December 31, 2002 are being shown for comparability purposes.

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. Subsequent acquisitions were also completed in 2005 and 2006. See Notes 3 and 4 of the Notes to Consolidated Financial Statements for additional information related to these transactions.

									For the Twelve								For the Year
									Months Ended			For the Nine Months					Ended
	For the Year Ended December 31,								December 31,			Ended December 31,					March 31,
(In thousands, except per share data)		2006		2005			2004			2003			2003		2002			2003
Selected Operating Data
Interest and dividend income		$	331,032	$	276,570		$	208,032		$	104,570		$	77,867	$	90,111		$	116,812
Interest expense			161,451		100,461			61,812			30,396			22,259		31,479			39,617
Net interest income before
provision for loan losses			169,581		176,109			146,220			74,174			55,608		58,632			77,195
Provision for loan losses			500		400			600			-			-		-			-
Net interest income after
provision for loan losses			169,081		175,709			145,620			74,174			55,608		58,632			77,195
Non-interest income			51,631		45,524			35,746			17,774			12,242		13,075			18,607
Contribution to the Foundation			-		-			40,040			-			-		-			-
Conversion and merger related charges			3,389		2,156			17,591			4,032			4,022		-			-
Other non-interest expense			144,717		139,084			119,142			60,908			45,763		44,410			59,564
Income before provision for
income taxes			72,606		79,993			4,593			27,008			18,065		27,297			36,238
Income tax provision			23,769		27,394			524			9,091			5,989		9,260			12,361
Net income		$	48,837	$	52,599		$	4,069		$	17,917		$	12,076	$	18,037		$	23,877
						For the period
						April 1 through
						December 31, 2004 (1)
Basic and diluted earnings per share		$	0.49	$	0.50		$	0.02
Weighted-average shares outstanding
Basic			99,981		105,110			106,520
Diluted			100,484		105,517			106,520
Dividends per share		$	0.235	$	0.21		$	0.08

	At December 31,								At March 31,
(In thousands)	2006		2005		2004		2003			2003
Selected Financial Data
Total assets	$	7,247,696	$	6,561,402	$	6,264,138	$	2,536,797		$	2,392,733
Loans (2)		3,822,876		3,276,706		3,144,657		1,307,525			1,178,371
Allowance for loan losses		37,408		35,552		36,163		17,669			18,932
Short-term investments		28,077		46,497		100,000		13,000			30,000
Investment securities		2,480,311		2,455,205		2,283,701		1,120,046			1,087,725
Goodwill		454,258		425,001		417,872		564			564
Identifiable intangible assets		49,403		52,016		55,438		146			166
Deposits		3,900,667		3,798,112		3,702,012		1,814,684			1,816,234
Borrowings		1,903,864		1,380,755		1,064,816		277,681			141,501
Stockholders’ equity		1,362,305		1,310,868		1,416,372		406,001			396,150
Nonperforming loans (3)		12,468		7,391		10,233		5,489			3,922
Nonperforming assets (4)		12,468		7,391		10,233		5,512			3,988

24

								At or For
								the Twelve								At or For
								Months Ended			At or For the Nine Months					the Year Ended
	For the Year Ended December 31,							December 31,			Ended December 31,					March 31,
		2006		2005		2004			2003			2003		2002			2003
Selected Operating Ratios and Other Data
Performance Ratios (5)
Average yield on interest-earning assets		5.31	%	4.79	%	4.24	%		4.47	%		4.40	%	5.33	%		5.22	%
Average rate paid on interest-bearing liabilities		3.16		2.20		1.59			1.66			1.61		2.36			2.23
Interest rate spread (6) (8)		2.15		2.59		2.65			2.81			2.79		2.97			2.99
Net interest margin (7) (8)		2.72		3.05		2.98			3.17			3.14		3.47			3.45
Ratio of interest-bearing assets to interest-bearing liabilities		121.99		126.65		125.82			127.92			128.06		126.77			125.79
Ratio of net interest income after provision
for loan losses to non-interest expense		114.16		124.40		82.39			114.22			111.70		132.02			129.60
Non-interest expense as a percent of average assets		2.12		2.18		3.24			2.67			2.71		2.53			2.54
Return on average assets		0.70		0.81		0.07			0.74			0.66		1.03			1.02
Return on average equity		3.65		3.76		0.36			4.48			4.01		6.50			6.35
Ratio of average equity to average assets		19.13		21.57		20.87			16.46			16.40		15.84			16.04
Non-GAAP Ratios
Efficiency ratio (9)		67.39		63.56		97.32			69.46			71.41		60.76			61.49
Regulatory Capital Ratios
Leverage capital ratio		13.20		14.31		16.32			16.10			16.10		16.05			16.45
Tier 1 capital to risk-weighted assets		22.71		24.99		26.98			26.95			26.95		26.64			27.19
Total risk-based capital ratio		23.67		26.02		28.22			28.15			28.15		27.89			28.44
Asset Quality Ratios
Nonperforming loans as a percent of total loans (2) (3)		0.33		0.23		0.33			0.42			0.42		0.39			0.33
Nonperforming assets as a percent of total assets (4)		0.17		0.11		0.16			0.22			0.22		0.19			0.17
Allowance for loan losses as a percent of total loans		0.98		1.08		1.15			1.35			1.35		1.64			1.61
Allowance for loan losses as a percent of non-performing loans		300.03		481.02		353.40			321.90			321.90		416.94			482.71
Net loan charge-offs as a percent of average interest-earning assets		0.01		0.02		0.07			0.07			0.05		0.07			0.08

(1)	Earnings per share for 2004 was calculated using net income and weighted-average shares outstanding from the date of conversion, April 1, 2004, through December 31, 2004. Net income for this nine-month period was $2.1 million. Earnings per share for all other periods are not presented as the Company had no shares outstanding until the second quarter of 2004.
(2)	Loans are stated at their principal amounts outstanding, net of deferred loan fees and costs and net unamortized premium on acquired loans.
(3)	Nonperforming loans include loans for which the Company does not accrue interest (non accrual loans), loans 90 days past due and still accruing interest and renegotiated loans due to a weakening in the financial condition of the borrower.
(4)	Nonperforming assets consist of nonperforming loans and other real estate owned.
(5)	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.
(6)	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.
(7)	Net interest margin represents net interest income as a percentage of average interest-earning assets.
(8)	No tax equivalent adjustments were made due to the fact that ratio would not be materially different.
(9)	The efficiency ratio represents the ratio of non-interest expenses, net of OREO expenses , to the sum of net interest income and non-interest income, excluding security and limited partnership 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.

25

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, 2006 are: 1) Connecticut Bancshares, 2) Alliance, 3) Trust Company and 4) Cornerstone. 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 acquisitions of Trust Company and Cornerstone were completed on July 1, 2005 and January 2, 2006, respectively. Westbank was acquired on January 2, 2007.

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.

Deferred tax assets generally represent items that can be used as a tax deduction or credit in future income tax returns, for which a financial statement tax benefit has already been recognized. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carry back” refund claims could be made. Valuation allowances are established against those deferred tax assets determined not likely to be realized. 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.

Deferred tax liabilities represent items that will require a future tax payment. They generally represent tax expense recognized in our financial statements for which payment has been deferred, or a deduction taken on our tax return but not yet recognized as an expense in our financial statements. Deferred tax liabilities are also recognized for certain “non-cash” items such as certain acquired intangible assets subject to amortization which results in a future financial statement expenses that are not deductible for tax purposes.

For more information about income taxes, see Note 14 of Notes to Consolidated Financial Statements included elsewhere within this Report.

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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. See Note 12 of the Notes to Consolidated Financial Statements for further information.

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.

Comparison of Operating Results for the Years Ended December 31, 2006, 2005 and 2004

Table 1:   Summary Income Statements

										Change
	Year Ended December 31,
										2006/2005							2005/2004
(Dollars in thousands, except per share data)	2006			2005			2004			Amount				Percent			Amount				Percent
Net interest income		$	169,581		$	176,109		$	146,220		$	(6,528	)		(4	)%		$	29,889		20	%
Provision for loan losses			500			400			600			100			25				(200	)	(33	)
Non-interest income			51,631			45,524			35,746			6,107			13				9,778		27
Operating expenses			144,717			139,084			119,142			5,633			4				19,942		17
Contribution to NewAlliance Foundation			-			-			40,040			-			-				(40,040	)	(100	)
Conversion and merger related charges			3,389			2,156			17,591			1,233			57				(15,435	)	(88	)
Income before income taxes			72,606			79,993			4,593			(7,387	)		(9	)			75,400		1,642
Income tax expense			23,769			27,394			524			(3,625	)		(13	)			26,870		5,128
Net income		$	48,837		$	52,599		$	4,069		$	(3,762	)		(7	)%		$	48,530		1,193	%
Basic and diluted earnings per share (1)		$	0.49		$	0.50		$	0.02

(1) The Company only had shares outstanding beginning with the second quarter of 2004, therefore, the 2004 earnings per share was calculated using net income and weighted-average shares outstanding for the period April 1 through December 31, 2004. Net income for this time period was $2.1 million. Further information regarding earnings per share can be found in Note 18 of the Notes to Consolidated Financial Statements.

Earnings Summary
As shown in Table 1, for the year ended December 31, 2006, net income was $48.8 million, a decrease of $3.8 million from the comparative period in 2005. This decrease is primarily a result of higher operating expenses and conversion and merger related charges coupled with a decline in net interest income, partially offset by an increase in non-interest income and a decrease in income tax expense. Higher operating expenses are largely due to the acquisitions of Trust Company and Cornerstone in the areas of salaries and employee benefits and occupancy expenses. Additionally, charges in 2006 associated with the implementation of SFAS No. 123R, “Share Based Payment”, for options which were granted under the Company’s 2005 Long-Term Compensation Plan (“LTCP”) and executive severance benefits paid were also significant factors in the increase of salaries and employee benefits. Conversion and merger related charges were primarily due to the Trust Company and Cornerstone acquisitions and the commencement of charges related to the Westbank acquisition that occurred on January 2, 2007. Net interest income declined as the average balance of interest-bearing liabilities outpaced the growth rate in the average balance of interest-earning assets. The average rate paid on all interest-bearing liabilities increased more than the average yield on all interest-earning assets. Combined, these caused a decrease of 44 basis

27

points in the interest rate spread which was primarily driven by the increase in the average rate paid on time deposits of 107 basis points. Non-interest income increased primarily due to depositor service charges, an increase in net gains on limited partnerships as a result of a cumulative adjustment due to a change from the cost to equity method of accounting on investments in four limited partnerships, an increase in trust fees as a result of the Trust Company acquisition, an increase in Bank owned life insurance income and gains recorded on the sale of Small Business Administration (“SBA”) loans.

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 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.

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Average Balances, Interest and Average Yields/Cost
Table 2 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.

Table 2:   Average Balance Sheets for the Years Ended December 31, 2006, 2005 and 2004

	Year Ended December 31,
	2006								2005							2004
						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		$	1,836,474	$	98,116		5.34	%	$	1,594,607	$	82,667		5.18	%	$	1,403,023	$	71,328		5.08	%
Commercial real estate			901,870		58,584		6.50			744,450		45,276		6.08			632,280		37,178		5.88
Commercial business			347,940		24,927		7.16			319,669		20,463		6.40			272,360		14,935		5.48
Consumer			570,738		36,752		6.44			526,059		29,001		5.51			441,312		20,163		4.57
Total Loans			3,657,022		218,379		5.97			3,184,785		177,407		5.57			2,748,975		143,604		5.22
Short-term investments			66,776		3,351		5.02			56,758		1,763		3.11			84,500		1,083		1.28
Investment securities			2,511,935		109,302		4.35			2,533,381		97,400		3.84			2,072,917		63,345		3.06
Total interest-earning assets			6,235,733	$	331,032		5.31	%		5,774,924	$	276,570		4.79	%		4,906,392	$	208,032		4.24	%
Non-interest-earning assets			754,411							702,923							548,241
Total assets		$	6,990,144						$	6,477,847						$	5,454,633
Interest-bearing liabilities
Deposits
Money market		$	555,127	$	14,737		2.65	%	$	721,128	$	12,984		1.80	%	$	733,450	$	11,344		1.55	%
NOW			352,786		2,160		0.61			327,050		614		0.19			451,977		977		0.22
Savings			782,582		7,868		1.01			859,922		4,054		0.47			862,753		4,251		0.49
Time			1,718,277		65,904		3.84			1,364,996		37,839		2.77			961,223		17,255		1.80
Total interest-bearing deposits			3,408,772		90,669		2.66			3,273,096		55,491		1.70			3,009,403		33,827		1.12
Repurchase agreements			166,557		5,400		3.24			187,142		4,061		2.17			159,322		1,481		0.93
FHLB advances and other borrowings			1,536,266		65,382		4.26			1,099,487		40,909		3.72			730,768		26,504		3.63
Total interest-bearing liabilities			5,111,595		161,451		3.16	%		4,559,725		100,461		2.20	%		3,899,493		61,812		1.59	%
Non-interest-bearing demand deposits			470,919							450,032							353,207
Other non-interest-bearing liabilities			70,373							71,015							62,618
Total liabilities			5,652,887							5,080,772							4,315,318
Equity			1,337,257							1,397,075							1,139,315
Total liabilities and equity		$	6,990,144						$	6,477,847						$	5,454,633
Net interest-earning assets		$	1,124,138						$	1,215,199						$	1,006,899
Net interest income				$	169,581						$	176,109						$	146,220
Interest rate spread							2.15	%						2.59	%						2.65	%
Net interest margin (net interest income as a percentage of total interest-earning assets)							2.72	%						3.05	%						2.98	%
Ratio of total interest-earning assets to total interest-bearing liabilities							121.99	%						126.65	%						125.82	%

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.

As shown in Table 2, net interest income for the year ended December 31, 2006 was $169.6 million, compared to $176.1 million for the same period in 2005. This decrease of $6.5 million is primarily due to the decline in the interest rate spread of 44 basis points which is being driven by the increases in the average rate paid and the average balance of time deposits. The average rate paid and average balance of time deposits has increased 107 basis points and $353.3 million, respectively, since a year ago and reflects both the increase in general market interest rates as well as continuing to offer promotional rates on these deposits to maintain market share. The increase in the interest rate environment also had a positive effect on the average yield of total interest-earning assets, increasing 52 basis points to 5.31% from 4.79%. Even though there has been a $460.8 million increase in the average balances of interest-earning assets due to the acquisition of Cornerstone at the beginning of 2006 and growth in the loan portfolio, it has been outpaced by the increase in the average balances of interest-bearing liabilities mainly as a result of share buybacks, additional borrowings to fund loan growth and the purchase of bank owned life insurance, and to a lesser extent, the net increase in deposit balances. Downward pressure on the net interest margin of 33 basis points was the resulting effect of this decline in net interest-earning assets of $91.1 million when coupled with the increase of 96 basis points in the average rate paid on interest-bearing liabilities. Throughout 2006, the

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net interest margin was also compressed by a reduction in the profitability of new loans and deposits, as competitive pressures reduced the profit margin on new business. The trend is expected to continue in 2007.

Interest income for the twelve months ended December 31, 2006 was $331.0 million, compared to $276.6 million for the year ended December 31, 2005, an increase of $54.4 million, or 19.7%. The increase in interest income was driven primarily by loans due to both an increase in the average balances of $472.2 million and a 40 basis point increase in the average yield earned. While all loan categories experienced increases in average balances and average yields, the commercial and residential real estate loan portfolios were the drivers of growth. The increase in average balances was due to the acquisition of Cornerstone, the Company’s continued strategy of purchasing residential mortgages in the secondary market and increased organic loan originations. The increase in average loan balances accounted for approximately $27.4 million of the increase in interest income. The remainder of the increase in interest income was due to increases in market interest rates of 40 basis points on the loan portfolio and 51 basis points on investment securities.

The cost of funds for the year ended December 31, 2006 increased $61.0 million, or 60.7% to $161.5 million compared to the prior year period. The average rate paid on interest-bearing liabilities increased 96 basis points to 3.16% from 2.20%. The increase in interest expense was primarily due to expenses of time deposits and FHLB advances of $52.5 million. The increase in time deposits interest expense was the result of a 107 basis point increase in the average rate coupled with an average balance increase of $353.3 million due to market interest rate increases and offering promotional rates to customers who either had or established a checking relationship with the Bank. Increasing market interest rates and checking and savings promotions were the primary factors for the higher interest expense in the other deposit categories, but was partially offset by a decline in the average balances of money market and savings deposits as monies shifted to higher paying time deposits or were lost to competitors. The increase in interest expense on FHLB advances was predominantly due to an increase in the average balance of $436.8 million which was used to fund the purchase of residential mortgages, bank owned life insurance, held to maturity investment securities and to a lesser extent helped fund the Company’s stock buy-back program. There was also a 54 basis point increase in the average rate paid on these borrowings due to increases in market interest rates.

Net interest income was $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-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.

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.

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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 3:   Rate/Volume Analysis

	Year Ended												Year Ended
	December 31, 2006												December 31, 2005
	Compared to the												Compared to the
	Year Ended												Year Ended
	December 31, 2005												December 31, 2004
	Increase (Decrease)												Increase (Decrease)
	Due to												Due to
(In thousands)	Rate				Volume				Net				Rate				Volume				Net
Interest-earning assets
Loans
Residential real estate		$	2,593			$	12,856			$	15,449			$	1,431			$	9,908			$	11,339
Commercial real estate			3,241				10,067				13,308				1,312				6,786				8,098
Commercial business			2,562				1,902				4,464				2,713				2,815				5,528
Consumer			5,149				2,602				7,751				4,581				4,257				8,838
Total loans			13,545				27,427				40,972				10,037				23,766				33,803
Short-term investments			1,234				354				1,588				1,131				(451	)			680
Investment securities			12,734				(832	)			11,902				18,303				15,752				34,055
Total interest-earning assets		$	27,513			$	26,949			$	54,462			$	29,471			$	39,067			$	68,538
Interest-bearing liabilities
Deposits
Money market		$	5,206			$	(3,453	)		$	1,753			$	1,834			$	(194	)		$	1,640
NOW			1,494				52				1,546				(117	)			(246	)			(363	)
Savings			4,208				(394	)			3,814				(183	)			(14	)			(197	)
Time			16,759				11,306				28,065				11,618				8,966				20,584
Total interest-bearing deposits			27,667				7,511				35,178				13,152				8,512				21,664
Repurchase agreements			1,826				(487	)			1,339				2,281				299				2,580
FHLB advances and other borrowings			6,504				17,969				24,473				702				13,703				14,405
Total interest-bearing liabilities		$	35,997			$	24,993			$	60,990			$	16,135			$	22,514			$	38,649
(Decrease) increase in net interest income		$	(8,484	)		$	1,956			$	(6,528	)		$	13,336			$	16,553			$	29,889

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 $500,000 for the year ended December 31, 2006. The allowance was deemed adequate despite not fully providing for the total year-to-date net charge-offs of approximately $900,000. Although asset quality remains strong, there has been a slight increase in the ratio of nonperforming assets to total assets and nonperforming loans to total loans, while the allowance for loan losses as a percent of nonperforming loans has decreased. However, net charge-offs as a percentage of the total allowance has improved to 2.32% for the year ended December 31, 2006 from 2.84% and 9.97% for the years ended December 31, 2005 and 2004 respectively. This compares to a provision for loan losses of $400,000 and $600,000 recorded for the years ended December 31, 2005 and 2004, respectively.

At December 31, 2006, the allowance for loan losses was $37.4 million, which represented 300.03% of nonperforming loans and .98% of total loans. In comparison, the allowance for loan losses was $35.6 million at December 31, 2005 representing 481.02% of nonperforming loans and 1.08% of total loans. The allowance acquired in the Cornerstone acquisition was $2.2 million. The reduction

31

in the ratio of allowance for loan losses to total loans reflects growth in lower risk loan portfolios and acceptable asset quality measures.

Table 4:   Non-interest Income

									Change
	Year Ended December 31,
									2006/2005							2005/2004
(Dollars in thousands)		2006		2005			2004			Amount			Percent				Amount			Percent
Depositor service charges		$	25,674	$	22,627		$	18,628		$	3,047			13	%		$	3,999			21	%
Loan and servicing income			2,067		3,038			2,646			(971	)		(32	)			392			15
Trust fees			6,434		4,753			2,415			1,681			35				2,338			97
Investment and insurance fees			5,375		6,117			5,692			(742	)		(12	)			425			7
Bank owned life insurance			4,014		2,416			1,828			1,598			66				588			32
Rent			3,422		3,210			3,078			212			7				132			4
Net gain (loss) on securities and limited partnerships			2,082		(40	)		621			2,122			(5,305	)			(661	)		(106	)
Net gain on sale of loans			1,164		297			305			867			292				(8	)		(3	)
Other			1,399		3,106			533			(1,707	)		(55	)			2,573			483
Total non-interest income		$	51,631	$	45,524		$	35,746		$	6,107			13	%		$	9,778			27	%

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 4.

For the twelve months ended December 31, 2006, non-interest income increased $6.1 million to $51.6 million from $45.5 million for the twelve months ended December 31, 2005. The Company had significant year-to-date increases in depositor service charges, net gain on securities and limited partnerships, trust fees and BOLI. These increases were partially offset by decreases in other income, loan and servicing income, and investment and insurance fees.

The increase in depositor service charges is mainly the result of increases in overdraft fees on demand deposit accounts due to the increase in the number of overdraft transactions resulting in part to the implementation of a check card overdraft program during the second quarter of 2005, additional volume from the accounts acquired from Cornerstone Bank and an increase in the per item fee. The increase in the net gain on securities and limited partnerships was due to implementing the equity method of accounting relating to four investments in limited partnerships which resulted in a cumulative adjustment of $1.9 million. Trust fees increased due to the acquisition of Trust Company in July 2005. The increase in BOLI income is due to income generated on the additional assets from the purchase of $50 million of life insurance coverage during the third quarter and the amount acquired from Cornerstone of $4.7 million as well as an increase in the average yield earned. Net gain on sale of loans has increased primarily due to the Company’s strategy of selling the guaranteed portion of SBA loans that meet certain criteria, a result of the Cornerstone acquisition as Cornerstone was already an active participant in the secondary SBA market.

Other income decreased due to non-recurring income received in the prior year primarily relating to gains on two lease terminations, the sale of excess real estate, income tax refunds, and income received in the prior year related to the sale of a portion of the merchant services book of business that was greater than the income received on a similar sale in the fourth quarter of 2006. Loan and servicing income decreased in part due to a larger write-up of previously recorded impairment in the valuation of the mortgage servicing assets during the year ended December 31, 2005 compared to the same period in 2006. Investment and insurance fees decreased due to the unfavorable market for fixed annuity insurance products.

Non-interest income increased $9.8 million for the year ended December 31, 2005 from the comparable period in 2004, 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 a reduction in the valuation allowance on 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, 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 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.

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Table 5:   Non-interest Expense

								Change
	Year Ended December 31,
								2006/2005					2005/2004
(Dollars in thousands)		2006		2005		2004			Amount		Percent			Amount		Percent
Salaries and employee benefits		$	79,060	$	72,837	$	60,272	$	6,223		9	%	$	12,565		21	%
Occupancy			13,947		12,540		10,456		1,407		11			2,084		20
Furniture and fixtures			6,453		6,363		6,326		90		1			37		1
Outside services			17,164		18,243		15,671		(1,079	)	(6	)		2,572		16
Advertising, public relations and sponsorships			5,656		4,584		2,976		1,072		23			1,608		54
Contribution to the Foundation			-		-		40,040		-		-			(40,040	)	(100	)
Amortization of identifiable intangible assets			9,391		10,699		11,327		(1,308	)	(12	)		(628	)	(6	)
Conversion and merger related charges			3,389		2,156		17,591		1,233		57			(15,435	)	(88	)
Other			13,046		13,818		12,114		(772	)	(6	)		1,704		14
Total non-interest expense		$	148,106	$	141,240	$	176,773	$	6,866		5	%	$	(35,533	)	(20	)%

Non-interest Expense Analysis
Non-interest expense increased $6.9 million to $148.1 million for the year ended December 31, 2006 from $141.2 million for the year ended December 31, 2005. The main driver of this increase is salaries and employee benefits. Other increases include occupancy, conversion and merger related charges and advertising, public relations and sponsorships. The majority of the increase in salaries and employee benefits is due to the additional employees as a result of the acquisitions of Cornerstone Bank and Trust Company that occurred January 2, 2006 and July 1, 2005, respectively, severance that was recorded for an executive who left the Company and expenses associated with the LTCP that was implemented in June 2005. The Company adopted the provisions of SFAS No. 123R as of January 1, 2006 and upon adoption, the Company began expensing stock options that were awarded under the LTCP. These increases in salaries were partially offset by decreases in pension and bonus expenses. The decrease in bonus expense was mainly the result of a modification to the Company’s performance incentive plan and the decrease in pension expense was primarily due to the Company’s 2005 cash contribution to the qualified pension plan in the amount of $24.5 million.

The increase in occupancy expenses was mainly due to the increased branch network resulting from the acquisition of Cornerstone. Conversion and merger related charges increased mostly due to consulting and data processing expenses related to Cornerstone for system conversions, the onset of expenses related to the Westbank acquisition that occurred January 2, 2007 and legal and consulting expenses related to a potential plan of merger that was abandoned during the due-diligence phase in the first quarter of 2006. Additional conversion and merger related charges resulting from the Westbank acquisition will continue into 2007. Advertising expenses, largely newspaper, radio and direct mail campaigns which correlated with the Company’s deployment of various deposit and loan product promotions accounted for much of the increase in advertising, public relations and sponsorships.

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

The net decrease in outside services for the year ended December 31, 2006 compared to the same period in 2005 was comprised of various components including reductions in: i) consulting relating to Sarbanes Oxley (“SOX”), the 2005 LTCP and systems projects; and ii) a reduction in data processing fees due to a new contract extension; partially offset by increases due to: iii) additional transactional volume related to the acquisitions and iv) outsourced internal audit services. Other expense also decreased and was largely due to a reduction in the Company’s operating insurance premiums.

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.

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, 2005 expenses

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include twelve months of the combined banks, whereas 2004 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 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. 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 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 increased due in part to additional benefit plan audits of the acquired banks and 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.

Income Tax Expense
Income tax expense for the year ended December 31, 2006 was $23.8 million and resulted in an effective tax rate of 32.7%. Income tax expense was $27.4 million for the year ended December 31, 2005, which resulted in an effective tax rate of 34.3% and was $524,000 for the year ended December 31, 2004, which resulted in an effective tax rate of 11.4%. The change in the effective tax rate for the year ended December 31, 2006 in comparison to the year ended December 31, 2005 was primarily due to the additional bank owned life insurance purchased in 2006 and due to the decrease in the valuation allowance required for capital assets.

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%. The change in the effective tax rate for the year ended December 31, 2005 in comparison to the year ended December 31, 2004 was 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.

Comparison of Financial Condition at December 31, 2006 and December 31, 2005

Financial Condition Summary
From December 31, 2005 to December 31, 2006, total assets and liabilities increased approximately $686.3 million and $634.9 million, respectively, due mainly to increases in loans and borrowings. Of the total increases, approximately $211.4 million of assets and approximately $194.5 million of liabilities are attributable to the Cornerstone acquisition. Stockholders’ equity increased $51.4 million to $1.36 billion due primarily to stock issued to acquire Cornerstone and year-to-date net income, partially offset by treasury shares acquired and dividends.

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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. Additionally, within the residential real estate loan category are loans with property locations spread throughout the United States, but predominately in the Northeast, as a result of the Company’s residential real estate loan purchase program.

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

Table 6:   Loan Portfolio Analysis

	At December 31,																								At March 31,
	2006						2005						2004						2003						2003
				Percent						Percent						Percent						Percent						Percent
				of						of						of						of						of
(Dollars in thousands)	Amount			Total			Amount			Total			Amount			Total			Amount			Total			Amount			Total
Real estate loans
Residential	$	1,924,648			50.4	%	$	1,650,527			50.4	%	$	1,576,046			50.1	%	$	644,854			49.3	%	$	594,603			50.4	%
Commercial		960,624			25.1			768,582			23.4			731,309			23.2			295,178			22.6			285,108			24.2
Total real estate loans		2,885,272			75.5			2,419,109			73.8			2,307,355			73.3			940,032			71.9			879,711			74.6
Commercial loans		350,507			9.2			314,562			9.6			325,835			10.4			92,869			7.1			89,667			7.6
Consumer loans
Equity loans and lines of credit		570,493			14.9			520,290			15.9			475,051			15.1			239,584			18.3			163,332			13.9
Other		16,604			0.4			22,745			0.7			36,416			1.2			35,040			2.7			45,661			3.9
Total consumer loans		587,097			15.3			543,035			16.6			511,467			16.3			274,624			21.0			208,993			17.8
Total loans		3,822,876			100.0	%		3,276,706			100.0	%		3,144,657			100.0	%		1,307,525			100.0	%		1,178,371			100.0	%
Allowance for loan losses		(37,408	)					(35,552	)					(36,163	)					(17,669	)					(18,932	)
Loans, net	$	3,785,468					$	3,241,154					$	3,108,494					$	1,289,856					$	1,159,439

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As shown in Table 6, total loans were $3.82 billion at December 31, 2006, up $546.2 million from year-end 2005. While the Company experienced increases across all loan categories, the increase in total loan balances was primarily attributable to increases in residential and commercial real estate loans.

Residential real estate loans continue to represent the largest segment of the Company’s loan portfolio as of December 31, 2006, comprising fifty percent of total loans. The increase of $274.1 million is due to loan portfolio purchases, organic originations and balances acquired from Cornerstone, partially offset by principal loan payments. The purchased portfolio includes adjustable rate and 10 and 15 year fixed rate residential real estate loans with property locations throughout the United States, with the largest concentration in the Northeast. For 2006, loan purchases accounted for $353.5 million of the year-to-date increase in residential real estate loans and were primarily purchased with cash flows from the available for sale investment portfolio and funds borrowed from the FHLB. The loan purchase program will continue to be a focus for the Company in the coming year. The acquisition of Cornerstone added approximately $12.1 million in residential loans.

Commercial real estate loans increased $192.0 million from December 31, 2005 to December 31, 2006. The increase was attributable to the acquisition of Cornerstone which added approximately $86.7 million to the portfolio as well as increases in both the number and average balance of organic loan originations partially as a result of the Company’s competitive position in the Connecticut commercial real estate lending market subsequent to the acquisitions of Cornerstone, Connecticut Bancshares and Alliance. Commercial business loans increased $35.9 million to $350.5 million at December 31, 2006, primarily due to $35.5 million acquired through the Cornerstone acquisition and loan originations partially offset by payoffs, loan maturities and sales of the guaranteed portion of SBA loans that met certain criteria. Although there were significant commercial loan originations during 2006, approximately 60% were for lines of credit and the impact on actual balances will not be realized unless the lines are drawn upon. At December 31, 2006 the utilization percentage for these originations was approximately 50%. The Company’s continued strategy is to build a larger percentage of the Company’s assets in commercial loans including real estate, construction and other commercial loans. To accomplish this goal, the Company is expanding penetration of its geographical target area as well as promoting stronger business development efforts to obtain new business banking relationships, while maintaining strong credit quality. With the January 2, 2007 acquisition of Westbank, a commercial bank and trust company, located in Western Massachusetts, the Company’s geographical area and competitive position has been significantly enhanced and will be a catalyst for additional growth.

Home equity loans and lines of credit increased $50.2 million from December 31, 2005 to December 31, 2006, with Cornerstone contributing approximately $2.6 million of the increase. These products were promoted by the Company through competitive pricing and marketing campaigns including the “10 minute loan” and prime -1% pricing, as the Company is committed to growing this loan segment while maintaining credit quality as a higher yielding alternative to investments.

Selected Loan Maturities
The following table shows the contractual maturity of the Company’s construction and commercial business loan portfolios at December 31, 2006.

Table 7:   Contractual Maturities and Interest Rate Sensitivity of Selected Loan Categories

	Real Estate		Commercial
(In thousands)	Construction		Business		Total
Amounts due
One year or less	$	78,052	$	146,382	$	224,434
Over one year through five years		97,235		136,513		233,748
Over five years		7,973		67,612		75,585
Total	$	183,260	$	350,507	$	533,767
Interest rate terms on amounts due after one year
Fixed	$	30,024	$	102,672	$	132,696
Adjustable		75,184		101,453		176,637
Total	$	105,208	$	204,125	$	309,333

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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, 2006, 2005 and 2004 had interest been accrued at contractual rates on nonaccrual and renegotiated loans, interest income would have increased by approximately $612,000, $558,000 and $562,000, respectively.

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

Table 8:   Nonperforming Assets

	At December 31,													At March 31,
(Dollars in thousands)		2006			2005			2004			2003			2003
Nonaccruing loans (1)
Real estate loans
Residential		$	1,716		$	1,808		$	1,473		$	1,399		$	2,333
Commercial			6,906			2,889			4,268			700			990
Total real estate loans			8,622			4,697			5,741			2,099			3,323
Commercial business			3,337			2,446			4,079			3,319			369
Consumer loans
Home equity and equity lines of credit			467			29			196			15			157
Other consumer			42			219			217			56			73
Total consumer			509			248			413			71			230
Total nonaccruing loans			12,468			7,391			10,233			5,489			3,922
Real estate owned			-			-			-			23			66
Total nonperforming assets		$	12,468		$	7,391		$	10,233		$	5,512		$	3,988
Allowance for loan losses as a percent of total loans (2)			0.98	%		1.08	%		1.15	%		1.35	%		1.61	%
Allowance for loan losses as a percent of nonperforming loans			300.03	%		481.02	%		353.40	%		321.90	%		482.71	%
Nonperforming loans as a percent of total loans (2)			0.33	%		0.23	%		0.33	%		0.42	%		0.33	%
Nonperforming assets as a percent of total assets			0.17	%		0.11	%		0.16	%		0.22	%		0.17	%

(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 loan fees and costs and net unamortized premium on acquired loans.

As displayed in Table 8, nonperforming assets at December 31, 2006 increased to $12.5 million compared to $7.4 million at December 31, 2005. The increase is mostly in the commercial real estate category and was primarily the result of commercial construction loans acquired from Cornerstone. Similarly, the increase in the commercial business category was mainly as a result of the Cornerstone acquisition. Nonperforming loans as a percent of total loans outstanding at December 31, 2006 was 0.33%, up from 0.23% at December 31, 2005. The allowance for loan losses to nonperforming loans ratio, a general measure of coverage adequacy, was 300.03% at December 31, 2006, less than the ratio of 481.02% at year-end 2005. The allowance for loan losses to total loans was 0.98% at the end of the December 31, 2006 as compared with 1.08% at year-end 2005.

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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 9:   Selected Loan Delinquencies

	At December 31,
	2006										2005										2004
	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		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans			Loans		of Loans
Real estate loans
Residential		5	$	574			17	$	1,716			7	$	626			21	$	1,808			8	$	494			33	$	1,473
Commercial		1		82			8		6,906			-		-			9		2,889			4		962			11		4,268
Total real estate loans		6		656			25		8,622			7		626			30		4,697			12		1,456			44		5,741
Commercial business		10		398			22		3,337			7		213			36		2,446			17		2,638			67		4,079
Consumer
Home equity		6		237			4		467			3		49			1		29			1		20			7		196
Other consumer		17		119			8		42			24		173			20		219			35		202			62		217
Total consumer		23		356			12		509			27		222			21		248			36		222			69		413
Total		39	$	1,410			59	$	12,468			41	$	1,061			87	$	7,391			65	$	4,316			180	$	10,233
Delinquent loans to total loans				0.04	%				0.33	%				0.03	%				0.23	%				0.14	%				0.33	%

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, 2006, the Company did not have other real estate owned.

Classification of Assets and Loan Review
An internal risk rating system is used to monitor and evaluate the credit risk inherent in the loan portfolio. Under our internal risk rating system, we currently classify problem and potential problem assets as “substandard,” “doubtful” or “loss”. An independent third party conducts loan reviews of all loan portfolios. 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, 2006, loans classified as substandard (both accruing and nonaccruing) totaled $22.7 million, and consisted of $11.3 million in commercial real estate loans and $11.4 million in commercial loans. Special mention loans totaled $113.1 million, and consisted of $82.7 million of commercial real estate loans and $30.4 million of commercial loans. There were no loans classified as doubtful at December 31, 2006.

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. 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 10:   Schedule of Allowance for Loan Losses

										At or For the Twelve									At or For the
										Months Ended			At or For the Nine Months						Year Ended
	At or For the Year Ended December 31,									December 31,			Ended December 31,						March 31,
(Dollars in thousands)	2006			2005			2004			2003			2003			2002			2003
Balance at beginning of period	$	35,552		$	36,163		$	17,669		$	19,321		$	18,932		$	20,805		$	20,805
Net allowances gained through acquisition		2,224			-			21,498			-			-			-			-
Provision for loan losses		500			400			600			-			-			-			-
Charge-offs
Residential and commercial mortgage loans		409			12			161			501			6			808			1,323
Commercial loans		2,552			3,347			4,705			2,667			2,619			2,307			2,354
Consumer loans		481			286			346			278			218			271			331
Total charge-offs		3,442			3,645			5,212			3,446			2,843			3,386			4,008
Recoveries
Residential and commercial mortgage loans		475			490			650			1,062			982			1,505			1,611
Commercial loans		1,975			1,987			784			598			500			204			302
Consumer loans		124			157			174			134			98			193			222
Total recoveries		2,574			2,634			1,608			1,794			1,580			1,902			2,135
Net charge-offs		868			1,011			3,604			1,652			1,263			1,484			1,873
Balance at end of period	$	37,408		$	35,552		$	36,163		$	17,669		$	17,669		$	19,321		$	18,932
Ratios
Net loan charge-offs to average interest-earning loans		0.02	%		0.03	%		0.13	%		0.13	%		0.10	%		0.13	%		0.16	%
Allowance for loan losses to total loans		0.98			1.08			1.15			1.35			1.35			1.64			1.61
Allowance for loan losses to nonperforming loans		300.03			481.02			353.40			321.90			321.90			416.94			482.71
Net loans charged-off to allowance for loan losses		2.32			2.84			9.97			9.35			7.15			7.68			9.89
Recoveries to charge-offs		74.78			72.26			30.85			52.06			55.58			56.17			53.27

As displayed in Table 10, net charge-offs of approximately $900,000 were recorded for the year ended December 31, 2006 and were predominantly attributable to fourth quarter charge-offs in the commercial loan portfolio relating to several commercial relationships. As a result of the net charge-offs for the year ended December 31, 2006, a provision for loan losses of $500,000 was recorded. This compares to net charge-offs of $1.0 million and a provision of $400,000 for the year ended December 31, 2005. Management believes that the allowance for loan losses is adequate based on the Bank’s satisfactory net loss experience, sound asset quality and non-accrual indicators, and partially offset by a softening in the real estate market. The Company had an allowance of $37.4 million and $35.6 million at December 31, 2006 and December 31, 2005, 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 11:   Allocation of Allowance for Loan Losses

	At December 31,																				At March 31,
	2006					2005					2004					2003							2003
			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	$	5,244		50.34	%	$	6,177		50.37	%	$	5,881		50.12	%	$	2,917		49.32	%	$	2,868		50.46	%
Commercial real estate		12,278		25.13			8,941		23.46			9,573		23.25			5,798		22.57			6,861		24.19
Commercial business		13,594		9.17			13,782		9.60			14,872		10.36			5,868		7.10			5,313		7.61
Consumer		5,021		15.36			4,320		16.57			4,208		16.27			2,957		21.01			2,783		17.74
Unallocated		1,271		-			2,332		-			1,629		-			129		-			1,107		-
Total allowance for loan losses	$	37,408		100.00	%	$	35,552		100.00	%	$	36,163		100.00	%	$	17,669		100.00	%	$	18,932		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.

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

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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 Company maintains an investment securities portfolio that is primarily structured to provide a source of liquidity for operating needs, to generate interest income and to provide a means to balance interest-rate sensitivity. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies. The following table sets forth certain financial information regarding the amortized cost and fair value of the Company’s investment portfolio at the dates indicated.

Table 12:   Investment Securities

	December 31, 2006				December 31, 2005				December 31, 2004
	Amortized		Fair		Amortized			Fair	Amortized		Fair
(In thousands)	cost		value		cost			value	cost		value
Available for sale
U.S. Treasury obligations	$	8,801	$	8,657	$	8,877	$	8,745	$	13,560	$	13,489
U.S. Government sponsored enterprise obligations		229,244		228,750		159,008		157,386		179,739		178,416
Corporate obligations		38,779		38,040		54,831		53,617		93,716		93,461
Other bonds and obligations		84,728		84,137		120,663		119,848		153,559		153,033
Marketable and trust preferred equity securities		183,432		183,831		161,122		160,806		173,559		173,067
Mortgage-backed securities		1,658,305		1,629,449		1,899,374		1,863,069		1,674,416		1,671,235
Total available for sale		2,203,289		2,172,864		2,403,875		2,363,471		2,288,549		2,282,701
Held to maturity
Mortgage-backed securities		301,642		302,614		87,104		86,151		-		-
Other bonds		5,805		5,708		4,630		4,556		1,000		1,000
Total held to maturity		307,447		308,322		91,734		90,707		1,000		1,000
Total securities	$	2,510,736	$	2,481,186	$	2,495,609	$	2,454,178	$	2,289,549	$	2,283,701

At December 31, 2006 the Company had total investments of $2.48 billion, or 34.2%, of total assets. This is an increase of $25.1 million from $2.46 billion at December 31, 2005. The increase was primarily the result of purchases of held to maturity mortgage-backed securities that were duration match-funded against FHLB borrowings, partially offset by a decrease in the available for sale portfolio. Principal payments were used to purchase residential real estate loans as well as to offset any deposit outflow.

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 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 a planned amortization class, mandatory redemption or tightly structured sequential pay format.

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, 2006, $2.17 billion, or 87.6% of the portfolio, was classified as available for sale and $307.4 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, 2006 was $30.4 million compared to an unrealized loss of $40.4 million as of December 31, 2005. The increase in the fair 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, 2006. 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 13:   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. Treasury obligations	$	5,071		4.54	%	$	3,730		3.24	%	$	-		-	%	$	-		-	%	$	8,801		3.99	%
U.S. Government sponsored enterprise obligations		124,657		4.86			94,522		4.93			3,188		5.83			6,877		5.86			229,244		4.93
Corporate obligations		15,040		3.70			16,547		3.95			7,192		5.20			-		-			38,779		4.08
Other bonds and obligations		36,675		5.21			15,879		3.61			5,674		3.25			26,500		4.17			84,728		4.45
Marketable and trust preferred equity securities		25,000		4.05			1,062		4.35			-		-			157,370		5.90			183,432		5.64
Mortgage-backed securities		6,136		3.12			269,475		4.04			342,275		4.16			1,040,419		4.43			1,658,305		4.31
Total available for sale		212,579		4.69			401,215		4.22			358,329		4.18			1,231,166		4.62			2,203,289		4.48
Held to maturity
Mortgage-backed securities		-		-			-		-			134,230		5.71			167,412		5.38			301,642		5.53
Other bonds		220		3.57			4,730		4.58			355		5.00			500		5.13			5,805		4.61
Total held to maturity		220		3.57			4,730		4.58			134,585		5.71			167,912		5.38			307,447		5.51
Total securities	$	212,799		4.68	%	$	405,945		4.23	%	$	492,914		4.60	%	$	1,399,078		4.71	%	$	2,510,736		4.61	%

Cash Surrender Value of Bank Owned Life Insurance
As of December 31, 2006, the Company had cash surrender value of bank owned life insurance assets of $116.2 million, an increase of $58.9 million from $57.3 million at December 31, 2005. The increase is predominately due to the purchase of $50.0 million in life insurance coverage during the year and the acquisition of Cornerstone. Increases in the cash surrender value of the policies, as well as insurance proceeds received, are recorded in non-interest income and are not subject to income tax.

Intangible Assets
At December 31, 2006, the Company had intangible assets of $503.7 million, an increase of $26.6 million, or 5.6%, from $477.0 million at December 31, 2005. The increase was predominately due to the acquisition of Cornerstone on January 2, 2006 which resulted in the Company recording additional goodwill of $25.0 million and a core deposit intangible of $6.8 million, partially offset by year-to-date amortization expense of $7.5 million. Also, in accordance with the definitive agreement the Company previously entered into with Trust Company, additional merger consideration in the form of Company stock and cash was remitted to Trust Company shareholders in the first quarter of 2006, which resulted in the Company recording an additional $4.3 million of goodwill. In accordance with SFAS No. 141, the assets acquired and liabilities assumed are recorded based on their fair values on the acquisition date.

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

Other Assets
The Company’s other assets increased $46.7 million, or 44.4%, to $152.0 million at December 31, 2006 from $105.3 million at December 31, 2005. This net increase was primarily due to an increase in prepaid expenses for a $58.7 million cash prepayment for the Westbank acquisition which closed on January 2, 2007, partially offset by a decrease of $7.2 million in the prepaid pension asset in order to reflect the funded status of the Company’s defined benefit plan in accordance SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Postretirement Plans – an amendment of FASB statements No. 87, 88, 106 and 132(R) which was adopted on December 31, 2006.

Sources of Funds
Cash flows from deposits, loan and mortgage-backed securities repayments, securities sales proceeds and maturities, borrowings and earnings are the primary sources of the Company’s funds available for use in its lending and investment activities and in meeting its operational needs. While scheduled loan and securities repayments are a relatively stable source of funds, deposit flows and loan and investment security prepayments are influenced by prevailing interest rates and local and economic conditions and are inherently uncertain. The borrowings primarily include FHLB advances and repurchase agreement borrowings. See Note 11 of Notes to Consolidated Financial Statements contained elsewhere within this Report for further borrowing information.

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The Company attempts to control the flow of funds in its deposit accounts according to its need for funds and the cost of alternative sources of funding. A Loan and Deposit Pricing Committee meets weekly to determine pricing and marketing initiatives. It influences the flow of funds primarily by the pricing of deposits, which is affected to a large extent by competitive factors in its market area and asset/liability management strategies.

Deposits
As displayed in Table 14, deposits increased $102.6 million compared to December 31, 2005, primarily attributable to the acquisition of Cornerstone which added approximately $178.3 million in deposits.

Table 14:   Deposits

	December 31,
(In thousands)	2006		2005		Change
Savings	$	774,457	$	781,346	$	(6,889	)
Money market		509,940		554,079		(44,139	)
NOW		384,249		342,268		41,981
Demand		464,554		486,528		(21,974	)
Time		1,767,467		1,633,891		133,576
Total deposits	$	3,900,667	$	3,798,112	$	102,555

The Company received retail and commercial deposits through its main office and 71 other banking offices throughout Connecticut. Beginning in January 2007, the number of banking offices increased to 88 as a result of the acquisition of Westbank, including twelve in Massachusetts and four in Connecticut. Deposit customers can access their accounts in a variety of ways including branch banking, ATM’s, internet banking or telephone banking. Effective advertising, direct mail, good service and competitive pricing policies are strategies that attract and retain deposits. The Company’s key customer acquisition strategy is its focus on offering premium time deposit rates to customers who either have or establish a checking relationship with the Company and its offering of free checking and free “interest” checking products. NewAlliance also established a promotional free savings account available to customers who either have or establish a checking account with the Company. As a result of these promotions, the Company was able to attract new retail and business customers as well as offering attractive products to existing customers. NOW accounts increased by $42.0 million due in part to the free interest checking product. This increase was partially offset by a decrease in organic deposit balances mostly in money market and demand deposits, much of which is due to the competitive market environment and shifting to higher yielding products.

The Company had $568.3 million in time deposits of $100,000 or more outstanding as of December 31, 2006, maturing as follows:

Table 15:   Time Deposit Maturities of $100,000 or more

			Weighted
			average
(Dollars in thousands)	Amount		rate
Three months or less	$	276,121		4.84	%
Over three months through six months		237,289		4.98
Over six months through twelve months		11,875		3.88
Over twelve months		43,034		4.18
Total time deposits $100,000 or more	$	568,319		4.83	%

Borrowings
The Company is a member of the Federal Home Loan Bank of Boston which is part of the Federal Home Loan Bank System. Members are required to own capital stock in the FHLB and borrowings are collateralized by certain home mortgages or securities of the U.S. Government and its agencies. The maximum amount of credit which the FHLB will extend varies from time to time depending on their policies. The Company maintains a borrowing capacity at the FHLB Boston that is a percentage of its total regulatory assets, subject to capital stock and collateralization requirements. Long-term and short-term borrowings are utilized as a source of funding to meet liquidity and planning needs when the cost of these funds are favorable compared to alternative funding sources.

The following table summarizes the Company’s recorded borrowings of $1.90 billion at December 31, 2006. Borrowings increased $523.1 million, or 37.9%, from the balance recorded at December 31, 2005, mainly in FHLB advances. This increase in FHLB advances was due to funding held to maturity investment purchases, loan growth and the purchase of bank owned life insurance, while

42

managing interest rate risk and liquidity. FHLB advances represent 90.4% and 86.3% of the Company’s total borrowings at December 31, 2006 and 2005, respectively. At December 31, 2006, the majority of the Company’s outstanding FHLB advances were at fixed rates, while only $60.0 million had floating rates.

Table 16:   Borrowings

	December 31,
(In thousands)	2006		2005		Change
FHLB advances (1)	$	1,721,886	$	1,191,280	$	530,606
Repurchase agreements		172,777		179,970		(7,193	)
Mortgage loans payable		1,592		1,716		(124	)
Junior subordinated debentures issued to affiliated trusts (2)		7,609		7,809		(200	)
Total borrowings	$	1,903,864	$	1,380,775	$	523,089

(1)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, “Business Combinations,” of $13.5 million and $18.2 million at December 31, 2006 and 2005, respectively.

(2)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, “Business Combinations,” of $500,000 and $700,000 at December 31, 2006 and 2005, respectively. The trusts were organized by Alliance to facilitate the issuance of“trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. The affiliated trusts are wholly-owned subsidiaries of the Company and the payments of these securities are irrevocably and unconditionally guaranteed by the Company.

Stockholders’ Equity
Total stockholders’ equity equaled $1.36 billion at December 31, 2006, $51.4 million higher than the balance at December 31, 2005. The increase consisted primarily of common stock issued for the Cornerstone acquisition and contingent shares issued for Trust Company of $35.8 million, net income of $48.8 million, stock option and restricted stock expense of $13.0 million, $3.7 million of released ESOP shares, and an increase of $900,000 in other comprehensive income resulting from an after tax appreciation in the fair market value of investments available for sale of $6.6 million, offset by a $5.8 million after tax adjustment in accordance with SFAS No. 158 to recognize the funded status of the Company’s pension and post-retirement plans. These increases were partially offset by decreases due to shares repurchased of $26.7 million and dividends of $24.1 million. For information regarding our compliance with applicable capital requirements, see “Liquidity and Capital Position” below. Book value per share amounted to $12.43 and $12.05 at December 31, 2006 and 2005, 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, 2006, total borrowings from the Federal Home Loan Bank amounted to $1.71 billion, exclusive of $13.5 million in purchase accounting adjustments, and the Company had the capacity to increase that total to $1.79 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, 2006 the Company’s repurchase agreement lines of credit totaled $125.0 million, all 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, 2006, cash and due from banks, short-term investments and debt securities maturing within one year amounted to $372.8 million, or 5.1% of total assets.

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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, 2006, the Company had commitments to originate loans, unused outstanding lines of credit and standby letters of credit totaling $829.4 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, 2006 amount to $1.55 billion.

The following tables present information indicating various obligations and commitments made by the Company as of December 31, 2006 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 17:   Contractual Obligations

					Over one year		Over three
			One year or		through three		years through		Over Five
(In thousands)	Total		less		years		five years		Years
FHLB advances (1)	$	1,708,383	$	204,475	$	602,402	$	605,054	$	296,452
Repurchase agreements		172,777		172,777		-		-		-
Junior subordinated debentures issued to affiliated trusts		7,109		-		-		-		7,109
Operating leases (2)		16,980		3,236		5,535		3,409		4,800
Total contractual obligations	$	1,905,249	$	380,488	$	607,937	$	608,463	$	308,361

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

Table 18:   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)	$	42,460	$	42,460	$	-	$	-	$	-
Unadvanced portion of construct ion loans (2)		234,993		57,047		177,946		-		-
Standby letters of credit		24,625		22,100		1,017		745		763
Unadvanced portion of lines of credit (3)		527,310		117,220		54,712		16,401		338,977
Total commitments	$	829,388	$	238,827	$	233,675	$	17,146	$	339,740

(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 9.5 years.

At December 31, 2006, the Company’s Tier 1 leverage ratio, a primary measure of regulatory capital was 13.2%, which is above the threshold level of 5% to be considered “well-capitalized.” The Tier 1 risk-based capital ratio stood at 22.7% and the Total risk-based capital ratio stood at 23.7%. The Bank also exceeded all of its regulatory capital requirements with a Tier 1 leverage ratio of 10.1%, which is above the required level of 4%, Tier 1 risk-based capital ratio of 17.7% and Total risk-based capital ratio of 18.7%. 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

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Directors. Through such management, the Company seeks to reduce the vulnerability of its net earnings to changes in interest rates. The Asset/Liability Committee, comprised of several senior executives, is responsible for managing interest rate risk. On a quarterly basis, the Board of Directors reviews the Company’s gap position and interest rate sensitivity exposure described below and Asset/Liability Committee minutes detailing the Company’s activities and strategies, the effect of those strategies on the Company’s operating results, interest rate risk position and the effect changes in interest rates would have on the Company’s net interest income. The extent of movement of interest rates is an uncertainty that could have a negative impact on earnings.

The principal strategies used to manage interest rate risk include (i) emphasizing the origination, purchase and retention of adjustable rate loans, and the origination and purchase of loans with maturities matched with those of the deposits and borrowings funding the loans, (ii) investing in debt securities with relatively short maturities and/or average lives and (iii) classifying a significant portion of its investment portfolio as available for sale so as to provide sufficient flexibility in liquidity management.

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, 2006, the Company’s cumulative one-year interest rate gap (which is the difference between the amount of interest-earning assets maturing or repricing within one year and interest-bearing liabilities maturing or repricing within one year), was negative $315.1 million, or negative 4.35% of total assets. The Bank’s approved policy limit is plus or minus 20%. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.

The following table sets forth the Company’s cumulative maturity distribution of interest-earning assets and interest-bearing liabilities at December 31, 2006, 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.

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Interest Rate Sensitivity Gap

	December 31, 2006
	1 - 3			4 - 6			7 - 12			1 - 5
(Dollars in thousands)	Months			Months			Months			Years			5+ Years			Total
Interest-earning assets
Investment securities	$	379,287		$	231,129		$	330,261		$	1,347,625		$	224,847		$	2,513,149
Loans		778,222			211,928			397,843			1,820,278			589,082			3,797,353
Short-term investments		28,077			-			-			-			-			28,077
Total interest-earning assets		1,185,586			443,057			728,104			3,167,903			813,929			6,338,579
Interest-bearing liabilities
Savings deposits		30,951			-			91,680			280,248			371,578			774,457
NOW deposits		-			-			41,824			235,169			107,257			384,250
Money market deposits		108,022			95,136			243,468			63,313			-			509,939
Time deposits		737,138			602,323			215,488			210,503			75			1,765,527
FHLB advances and other borrowings		295,337			70,036			140,471			1,297,304			86,713			1,889,861
Total interest-bearing liabilities		1,171,448			767,495			732,931			2,086,537			565,623			5,324,034
Interest rate sensitivity gap	$	14,138		$	(324,438	)	$	(4,827	)	$	1,081,366		$	248,306		$	1,014,545
Cumulative interest rate sensitivity gap	$	14,138		$	(310,300	)	$	(315,127	)	$	766,239		$	1,014,545
Cumulative interest rate sensitivity gap ratio		0.2	%		(4.3	)%		(4.3	)%		10.6	%		14.0	%
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities		101.2	%		84.0	%		88.2	%		116.1	%		119.1	%

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 flat yield curve as of December 31, 2006 was utilized. This interest rate scenario most closely approximates management’s expectations for interest rate movements over the next twelve months. As of December 31, 2006, the Company’s estimated exposure as a percentage of estimated net interest margin for the next twelve-month period as compared to the forecasted net interest margin in the base case scenario are as follows:

	Percentage change in
	estimated net interest margin
	over twelve months
100 basis point instantaneous and sustained increase in rates	(1.69	)%
100 basis point instantaneous and sustained decrease in rates	0.10	%

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 increase slightly in the 12-month period after an immediate decrease in rates, and would decrease 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

46

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 49.

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

None.

Item 9A.    Controls and Procedures

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of December 31, 2006. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that the information required to be disclosed by us in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure for the year ending December 31, 2006.

In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the fourth quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s independent registered public accounting firm has issued a report on (1) management’s assessment of the effectiveness of the Company’s internal control over financial reporting and (2) the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. The report, which expresses unqualified opinions on management’s assessment of and the effective operation of the Company’s internal control over financial reporting as of December 31, 2006, is included on pages 51-52 of this Form 10-K.

Item 9B.   Other Information

None

47

PART III

Item 10.    Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s Definitive Proxy Statement for its 2007 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2006.

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 for its 2007 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2006.

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 for its 2007 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2006.

Item 13.    Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated into this Form 10-K by reference to the Company’s Definitive Proxy Statement for its 2007 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2006.

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 for its 2007 Annual Meeting of Shareholders, to be filed within 120 days following December 31, 2006.

PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)(1)         Financial Statements

The following consolidated financial statements of NewAlliance Bancshares 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, 2006 and 2005

- Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004

- Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004

- Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004

- 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.

48

Index to Consolidated Financial Statements	Page
Management’s Report on Internal Control Over Financial Reporting		50
Report of Independent Registered Public Accounting Firm		51
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2006 and 2005		53
Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004		54
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004		55
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004		56
Notes to Consolidated Financial Statements		57

49

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, 2006, 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, 2006, 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, 2006, has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report appearing on page 51, 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, 2006.

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

50

Report of Independent Registered Public Accounting Firm

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

We have completed integrated audits of NewAlliance Bancshares, Inc.’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, and an audit of its 2004 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, the 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, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 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.

As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for their Defined Benefit and Other Postretirement Plans and as discussed in Note 13 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.

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, 2006 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, 2006, 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.

51

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 27, 2007

52

NewAlliance Bancshares, Inc.
Consolidated Balance Sheets

	December 31,			December 31,
(In thousands, except per share data)	2006			2005
Assets
Cash and due from banks, noninterest bearing	$	127,948		$	127,290
Short-term investments		28,077			46,497
Cash and cash equivalents		156,025			173,787
Investment securities available for sale (note 5)		2,172,864			2,363,471
Investment securities held to maturity (note 5)		307,447			91,734
Loans held for sale		1,528			1,222
Loans, net (note 6)		3,785,468			3,241,154
Premises and equipment, net (note 7)		52,479			50,399
Cash surrender value of bank owned life insurance		116,194			57,325
Goodwill (note 8)		454,258			425,001
Identifiable intangible assets (note 8)		49,403			52,016
Other assets (note 9)		152,030			105,293
Total assets	$	7,247,696		$	6,561,402
Liabilities
Deposits (note 10)
Non-interest bearing	$	464,554		$	486,528
Savings, interest-bearing checking and money market		1,668,646			1,677,693
Time		1,767,467			1,633,891
Total deposits		3,900,667			3,798,112
Borrowings (note 11)		1,903,864			1,380,775
Other liabilities		80,860			71,647
Total liabilities		5,885,391			5,250,534
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; 109,554 and 114,897 shares issued at December 31, 2006		1,175			1,149
and 2005, respectively
Additional paid-in capital		1,178,314			1,137,806
Unallocated common stock held by ESOP		(99,697	)		(103,356	)
Unearned restricted stock compensation		(32,987	)		(41,302	)
Treasury stock, at cost (7,919 and 6,073 shares, at December 31, 2006 and 2005, respectively		(114,605	)		(87,998	)
Retained earnings		455,649			430,971
Accumulated other comprehensive loss (note 17)		(25,544	)		(26,402	)
Total stockholders’ equity		1,362,305			1,310,868
Total liabilities and stockholders’ equity	$	7,247,696		$	6,561,402

See accompanying notes to consolidated financial statements.

53

NewAlliance Bancshares, Inc.
Consolidated Statements of Income

	Year Ended December 31,
(In thousands, except per share data)		2006		2005			2004
Interest and dividend income
Residential real estate loans	$	98,116	$	82,667		$	71,328
Commercial real estate loans		58,584		45,276			37,178
Commercial business loans		24,927		20,463			14,935
Consumer loans		36,752		29,001			20,163
Investment securities		109,302		97,400			63,345
Short-term investments		3,351		1,763			1,083
Total interest and dividend income		331,032		276,570			208,032
Interest expense
Deposits		90,669		55,491			33,827
Borrowings		70,782		44,970			27,985
Total interest expense		161,451		100,461			61,812
Net interest income before provision for loan losses		169,581		176,109			146,220
Provision for loan losses (note 6)		500		400			600
Net interest income after provision for loan losses		169,081		175,709			145,620
Non-interest income
Depositor service charges		25,674		22,627			18,628
Loan and servicing income		2,067		3,038			2,646
Trust fees		6,434		4,753			2,415
Investment and insurance fees		5,375		6,117			5,692
Bank owned life insurance		4,014		2,416			1,828
Rent		3,422		3,210			3,078
Net gain (loss) on securities and limited partnerships		2,082		(40	)		621
Net gain on sale of loans		1,164		297			305
Other		1,399		3,106			533
Total non-interest income		51,631		45,524			35,746
Non-interest expense
Salaries and employee benefits (notes 12 and 13)		79,060		72,837			60,272
Occupancy		13,947		12,540			10,456
Furniture and fixtures		6,453		6,363			6,326
Outside services		17,164		18,243			15,671
Advertising, public relations, and sponsorships		5,656		4,584			2,976
Contribution to NewAlliance Foundation		-		-			40,040
Amortization of identifiable intangible assets		9,391		10,699			11,327
Conversion and merger related charges		3,389		2,156			17,591
Other		13,046		13,818			12,114
Total non-interest expense		148,106		141,240			176,773
Income before income taxes		72,606		79,993			4,593
Income tax provision (note 14)		23,769		27,394			524
Net income	$	48,837	$	52,599		$	4,069
						For the period
						April 1 through
						December 31, 2004 (1)
Basic earnings per share (note 18)	$	0.49	$	0.50		$	0.02
Diluted earnings per share (note 18)		0.49		0.50			0.02
Weighted-average shares outstanding (note 18)
Basic		99,981		105,110			106,520
Diluted		100,484		105,517			106,520
Dividends per share	$	0.235	$	0.21		$	0.08

(1) Earnings per share for 2004 was calculated using net income and weighted-average shares outstanding from the date of conversion, April 1, 2004, through December 31, 2004. Net income for this nine-month period was $2.1 million.

See accompanying notes to consolidated financial statements.

54

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

									Unallocated												Accumulated
	Common			Par Value		Additional			Common												Other			Total
For the years Ended December 31, 2004, 2005 and 2006	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 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 16)		(9,498	)													(138,473	)								(138,473	)
Treasury stock issued for restricted stock awards under the LTCP		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
Common stock issued for acquisition		2,577			26		35,826																		35,852
Dividends declared ($0.235 per share)																			(24,159	)					(24,159	)
Allocation of ESOP shares, net of tax							25			3,659															3,684
Treasury shares acquired (note 16)		(1,851	)													(26,662	)								(26,662	)
Exercise of stock options		4														55									55
Restricted stock expense													8,315												8,315
Stock option expense							4,657																		4,657
Adjustment to initially apply SFAS No. 158, net of tax of $(3,106)																						(5,767	)		(5,767	)
Comprehensive income:
Net income																			48,837						48,837
Other comprehensive income, net of tax (note 17)																						6,625			6,625
Total comprehensive income																									55,462
Balance December 31, 2006		109,554		$	1,175	$	1,178,314		$	(99,697	)	$	(32,987	)	$	(114,605	)	$	455,649		$	(25,544	)	$	1,362,305

See accompanying notes to consolidated financial statements.

55

NewAlliance Bancshares, Inc.
Consolidated Statements of Cash Flows

	Year Ended December 31,
(In thousands)		2006			2005			2004
Cash flows from operating activities
Net income	$	48,837		$	52,599		$	4,069
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		500			400			600
Loss on sale of OREO		21			-			16
Contribution of common stock to the NewAlliance Foundation		-			-			40,000
Restricted stock compensation expense		8,315			7,977			-
Stock option compensation expense		4,657			-			-
ESOP expense		3,684			3,524			2,373
Amortization of identifiable intangible assets		9,390			10,699			11,327
Net amortization/accretion of fair market adjustments from net assets acquired		(7,241	)		(8,781	)		(7,383	)
Net amortization/accretion of investment securities		1,503			6,776			8,690
Change in deferred income taxes		1,033			5,213			(5,851	)
Depreciation and amortization		6,232			5,939			6,433
Net securities gains		(82	)		(40	)		(616	)
Net gain on sales of performing loans		(1,164	)		(297	)		(305	)
Proceeds from sales of loans held for sale		47,695			54,131			18,465
Loans originated for sale		(46,809	)		(56,467	)		-
Loss (gain) on sale of fixed assets		107			(642	)		(14	)
(Gain) loss on limited partnerships		(2,000	)		80			-
Increase in cash surrender value of bank owned life insurance		(4,014	)		(2,416	)		(1,828	)
Increase in other assets		(46,451	)		(6,108	)		(22,698	)
Decrease in other liabilities		(6,055	)		(13,016	)		(15,381	)
Net cash provided by operating activities		18,158			59,571			37,897
Cash flows from investing activities
Purchase of securities available for sale		(328,860	)		(910,662	)		(8,583,174	)
Purchase of securities held to maturity		(249,660	)		(95,955	)		(550	)
Proceeds from maturity, sales, calls and principal reductions of securities available for sale		578,292			788,594			8,259,752
Proceeds from maturity, calls and principal reductions of securities held to maturity		34,738			5,226			50
Proceeds from sales of fixed assests		490			3,839			1,683
Net (increase) decrease in loans held for investment		(408,017	)		(133,667	)		103,577
Net cash paid for acquisitions		(5,581	)		(995	)		(529,260	)
Proceeds from sales of other realestate owned		347			-			146
Purchase of bank owned life insurance		(50,000	)		-			-
Proceeds from bank owned life insurance		14			26			11
Purchase of premises and equipment		(6,131	)		(5,796	)		(6,686	)
Net cash used in investing activities		(434,368	)		(349,390	)		(754,451	)
Cash flows from financing activities
Net (decrease) increase in customer deposit balances		(72,007	)		101,953			(74,668	)
Net increase (decrease) in short-term borrowings		21,028			(55,002	)		59,412
Proceeds from long-term borrowings		892,082			626,198			1,081,644
Repayments of long-term borrowings		(391,889	)		(249,837	)		(1,101,317	)
Net proceeds from common stock offering		-			-			1,010,936
Acquisition of common stock by ESOP		-			-			(109,451	)
Shares issued for stock option exercise		55
Acquisition of treasury shares		(26,662	)		(138,473	)		-
Dividends paid		(24,159	)		(22,332	)		(8,537	)
Net cash provided by financing activities		398,448			262,507			858,019
Net decrease (increase) in cash and cash equivalents		(17,762	)		(27,312	)		141,465
Cash and cash equivalents, beginning of period		173,787			201,099			59,634
Cash and cash equivalents, end of period	$	156,025		$	173,787		$	201,099
Supplemental information
Cash paid for
Interest on deposits and borrowings	$	157,150		$	98,908		$	59,548
Income taxes paid (refunded), net		17,025			3,201			(2,195	)
Noncash transactions Loans transferred to other real estate owned		368			-			51

In 2006, the fair values of noncash assets acquired and liabilities assumed in the acquisition of Cornerstone were $212.3 million and $199.9 million, respectively.

In 2006, approximately 2.6 million shares of common stock, valued at approximately $35.9 million were issued in connection with the acquistion of Cornerstone and the contingent payment due to former shareholders of Trust Company.

See accompanying notes to consolidated financial statements.

56

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, and estimates used to evaluate asset impairment including 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, 2006, included in the balance of cash and due from banks were cash on hand of $23.1 million and required reserves in the form of deposits with the Federal Reserve Bank of $24.1 million. Short-term investments included money market funds and commercial paper of $28.1 million and $46.5 million at December 31, 2006 and 2005, respectively.

Investment Securities
Marketable equity and debt securities 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, 2006 and 2005, the Company had no debt or equity securities classified as trading.

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

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

Investments in Limited Partnerships
The Company invests in limited partnerships. As of December 31, 2006 and 2005, the carrying value of the Company’s investment in limited partnerships was approximately $6.4 million and $4.0 million, respectively, and are included in other assets. The investments in limited partnerships, for which the Company has a 5.0% or greater ownership interest which is deemed to constitute the ability to exercise significant influence, are reviewed and adjusted quarterly based on the equity method. If the Company does not have the ability to exercise significant influence, the Company’s investment is accounted for under the cost method and the carrying value is periodically evaluated for other than temporary impairment.

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

57

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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

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

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

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

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

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

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

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

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

58

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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

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

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

Bank Owned Life Insurance

Bank owned life insurance (“BOLI”) represents life insurance on certain employees who have consented to allow the Bank to be the beneficiary of those policies. BOLI is recorded as an asset at cash surrender value. Increases in the cash 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.

59

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

Trust Assets
The Bank had approximately $1.06 billion and $1.15 billion of assets under management at December 31, 2006 and 2005, respectively, in a fiduciary or agency capacity for customers. These assets are not included in the accompanying consolidated financial statements since they are not owned by the Bank.

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. The discount rate is set for the retirement plans by reference to investment grade bond yields. The expected long-term rate of return on the assets held in our defined pension plan is based on market and economic conditions, the Plan’s asset allocation and other factors.

Based on our review of rates at September 30, the discount rate for all of our employee benefit plans increased from 5.50% to 5.75% and the expected long-term rate of return on the pension plan assets remained the same at 8.25% for 2005 and 2006. 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
On January 1, 2006, the Company began accounting for stock option and restricted stock awards in accordance with revised SFAS No. 123 (“SFAS No. 123R”), “Shared Based Payment,” and chose the modified prospective application transition method provided for under this statement. Under SFAS No. 123R, the fair value of stock option and restricted stock awards, measured at grant date, is amortized to compensation expense on a straight-line basis over the vesting period. The financial impact of the implementation of SFAS No. 123R in 2006 was $3.0 million, net of tax. Additional information is discussed in Note 13 of the Notes to Consolidated Financial Statements. Prior to the adoption of SFAS No. 123R, the Company accounted for stock options and restricted stock in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense was not recognized for fixed stock options as the exercise price of the option was equal to the fair value of the underlying stock at the grant date. The fair value of restricted stock awards, measured at grant date, was amortized to compensation expense on a straight-line basis over the vesting period. SFAS No. 123, “Accounting for Stock-Based Compensation,” encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period. However, as permitted by SFAS No. 123, the Company continued to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 through December 31, 2005 and disclosed certain proforma amounts as if the fair value approach of SFAS No. 123 had been applied.

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

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

60

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, 2006, 2005 and 2004 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 2006, 2005 and 2004 this segment represented all the revenues and income of the consolidated group and therefore, is the only reported segment as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

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

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 years ended December 31, 2006 and 2005 and for the period April 1, through December 31, 2004, can be found in Note 18 of the Notes to Consolidated Financial Statements.

2.     Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, to permit all entities to choose to elect to measure eligible financial instruments at fair value. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings. Eligible items include any recognized financial assets and liabilities with certain exceptions including but not limited to, deposit liabilities, investments in subsidiaries, and certain deferred compensation arrangements. The decision about whether to elect the fair value option is generally applied on an instrument-by-instrument basis, is generally irrevocable, and is applied only to an entire instrument and not to only specified risks, specific cash flows, or portions of that instrument. This Statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. Management is currently analyzing the impact of making this election for any of the Company’s eligible financial assets or liabilities.

On September 29, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” – an amendment of SFAS Nos. 87, 88, 106, and 132(R), that requires employers to recognize the overfunded or underfunded positions of defined benefit postretirement plans, including pension plans, in their balance sheets for fiscal years ending after December 15, 2006. The Standard also requires that employers measure plan assets and obligations as of the date of their financial statements. This Statement requires a public entity that currently measures plan assets and benefit obligations as of a date other than the date of its statement of financial position to implement the change in measurement date for fiscal years ending after December 15, 2008. Amounts recognized pursuant to SFAS No. 158 will not affect the Bank’s regulatory capital. The impact of adopting SFAS No. 158 on December 31, 2006, was a reduction to shareholders equity of $5.8 million, net of tax, with no impact to the consolidated statements of income and cash flows. This decrease is based on the September 30, 2006 valuation measurement date for pension costs.

61

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

On September 13, 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 states that in evaluating the materiality of financial statement misstatements a corporation must quantify the impact of correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 is effective for fiscal years ending after November 15, 2006. Management has adopted the provisions of SAB 108 as of December 31, 2006. The adoption did not have a material impact on the Company’s financial statements.

In September 2006, the FASB issued SFAS No 157, “Fair Value Measurements”, which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles (“GAAP”). As a result of SFAS No. 157, there is now a common definition of fair value to be used throughout GAAP, it establishes a fair value hierarchy and will require companies to make expanded disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, but early adoption is permitted. Management has elected not to early adopt SFAS No. 157 and believes that the adoption of SFAS No. 157 will not have a material impact on the Company’s consolidated financial statements.

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

On July, 13, 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109, “Accounting for Income Taxes”. This includes tax positions considered to be "routine" as well as those with a high degree of uncertainty. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position is more-likely-than-not to be sustained). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

FIN 48 is effective for fiscal years beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an enterprise’s fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. As a result of the timing and issuance date of FIN 48, Management is not permitted to early adopt FIN 48. Although Management is still analyzing the impact of adopting FIN 48, Management expects the adoption of FIN 48 will result in a decrease of tax reserves by approximately $427,000. The decrease will impact goodwill and shareholders’ equity.

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

SFAS No. 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, but early adoption is permitted. Management has elected not to early adopt SFAS No. 156, has determined that the Company will use the amortization method to subsequently measure servicing assets and liabilities and believes that the adoption of SFAS No. 156 will not have a material impact on the Company’s consolidated financial statements.

In February of 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments”, which amends SFAS Nos. 133 and 140. SFAS No. 155, including clarifying guidance, allows financial instruments that have embedded derivatives to be accounted

62

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. The standard also:

• Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133.

• Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation.

• Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives.

• Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

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

63

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

4.     Business Combinations

The following table summarizes acquisitions completed between April 1, 2004 and December 31, 2006.

			Balance at
			Acquisition Date				Transaction Related Items
															Total
	Acquisition								Identifiable		Cash		Shares		Purchase
(In thousands)	Date		Assets		Equity		Goodwill		Intangibles		Paid		Issued		Price
Cornerstone Bancorp, Inc.		1/2/2006	$	211,358	$	18,290	$	25,041	$	6,777	$	14,261		2,393	$	47,519
Trust Company of Connecticut		7/1/2005		5,611		4,937		10,487		7,277		6,528		922		19,499
Connecticut Bancshares, Inc.		4/1/2004		2,541,575		239,139		368,702		56,609		610,600		-		610,600
Alliance Bancorp of New England, Inc.		4/1/2004		427,631		26,664		49,464		10,010		191		7,665		76,841

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

Westbank Corporation Acquisition

On January 2, 2007 the Company completed the acquisition of Westbank Corporation (“Westbank”), the parent company of Westbank. Under the terms of the purchase agreement, each outstanding share of common stock of Westbank was converted into the right to elect to receive $23.00 in cash, the right to receive 1.5646 shares of the Company stock, or a combination thereof. All outstanding options to acquire shares of Westbank common stock were cancelled in consideration of a lump sum cash payout in the amount equal to the excess, if any of $23.00 over the per share exercise price of such stock options. As a result of the elective option, the merger consideration each Westbank shareholder elects to receive was adjusted, so that 50% of the total merger consideration was paid in company stock. The aggregate merger consideration is valued at approximately $117.4 million. Westbank had assets of approximately $721 million and stockholders’ equity of approximately $43 million on January 2, 2007.

64

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

5.     Investment Securities

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of investment securities at December 31, 2006 and 2005 are as follows:

	December 31, 2006									December 31, 2005
			Gross		Gross							Gross		Gross
	Amortized		unrealized		unrealized			Fair		Amortized		unrealized		unrealized			Fair
(In thousands)	cost		gains		losses			value		cost		gains		losses			value
Available for sale
U.S. Treasury obligations	$	8,801	$	1	$	(145	)	$	8,657	$	8,877	$	1	$	(133	)	$	8,745
U.S. Government sponsored enterprise obligations		229,244		184		(678	)		228,750		159,008		19		(1,641	)		157,386
Corporate obligations		38,779		-		(739	)		38,040		54,831		48		(1,262	)		53,617
Other bonds and obligations		84,728		98		(689	)		84,137		120,663		191		(1,006	)		119,848
Marketable and trust preferred equity securities		183,432		1,221		(822	)		183,831		161,122		783		(1,099	)		160,806
Mortgage-backed securities		1,658,305		1,163		(30,019	)		1,629,449		1,899,374		537		(36,842	)		1,863,069
Total available for sale		2,203,289		2,667		(33,092	)		2,172,864		2,403,875		1,579		(41,983	)		2,363,471
Held to maturity
Mortgage-backed securities		301,642		2,220		(1,248	)		302,614		87,104		81		(1,034	)		86,151
Other bonds		5,805		2		(99	)		5,708		4,630		-		(74	)		4,556
Total held to maturity		307,447		2,222		(1,347	)		308,322		91,734		81		(1,108	)		90,707
Total securities	$	2,510,736	$	4,889	$	(34,439	)	$	2,481,186	$	2,495,609	$	1,660	$	(43,091	)	$	2,454,178

At December 31, 2006, the net unrealized loss on securities available for sale of $30.4 million, net of income taxes of $10.6 million, is included in the Company’s Consolidated Balance Sheets as accumulated other comprehensive loss of $19.8 million. At December 31, 2005, the net unrealized loss on securities available for sale of $40.4 million, net of income taxes of $14.0 million, is included in accumulated other comprehensive loss of $26.4 million.

The following tables present the fair value of investments with continuous unrealized losses for less than one year and those that have been in a continuous loss position for more than one year as of December 31, 2006 and 2005, respectively.

	December 31, 2006
	Less Than One Year				More Than One Year				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	value		losses		value		losses		value		losses
U. S. Treasury obligations	$	-	$	-	$	7,575	$	145	$	7,575	$	145
U. S. Government sponsored enterprise obligations		85,030		133		48,008		545		133,038		678
Corporate obligations		7,105		88		30,935		651		38,040		739
Other bonds and obligations		3,790		14		42,693		774		46,483		788
Marketable and trust preferred equity obligations		973		6		26,143		816		27,116		822
Mortgage-backed securities		100,727		540		1,378,044		30,727		1,478,771		31,267
Total securities with unrealized losses	$	197,625	$	781	$	1,533,398	$	33,658	$	1,731,023	$	34,439
	December 31, 2006
	Less Than One Year				More Than One Year				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	value		losses		value		losses		value		losses
U. S. Treasury obligations	$	3,973	$	3	$	3,688	$	130	$	7,661	$	133
U. S. Government sponsored enterprise obligations		69,571		179		84,142		1,462		153,713		1,641
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

Of the issues summarized above, 45 had unrealized losses for less than twelve months, and 365 had unrealized losses for twelve months or more as of December 31, 2006. Management believes that no individual unrealized loss as of December 31, 2006 represents

65

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, 2006, 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, 2006
Due in one year or less	$	181,444	$	180,857	$	220	$	218
Due after one year through five years		131,739		130,648		4,730		4,642
Due after five years through ten years		16,055		15,931		355		347
Due after ten years		88,644		88,527		500		500
Mortgage-backed and asset-backed securities		1,658,305		1,629,449		301,642		302,615
Total debt securities	$	2,076,187	$	2,045,412	$	307,447	$	308,322

Securities with an amortized cost of $6.1 million and a fair value of $6.0 million at December 31, 2006 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 December 31,								Year Ended December 31,
(In thousands)		2006			2005		2004			2006		2005		2004
Realized gains	$	131		$	40	$	987		$	-	$	-	$	44
Realized losses		(50	)		-		(411	)		-		-		(4	)

6.     Loans

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

	December 31,
(In thousands)	2006			2005
Residential real estate	$	1,924,648		$	1,650,527
Commercial real estate		960,624			768,582
Commercial business		350,507			314,562
Consumer
Home equity and equity lines of credit		570,493			520,290
Other		16,604			22,745
Total consumer		587,097			543,035
Total loans		3,822,876			3,276,706
Allowance for loan losses		(37,408	)		(35,552	)
Total loans, net	$	3,785,468		$	3,241,154

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

66

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

Allowance for Loan Losses

The following table provides a summary of activity in the allowance for loan losses for the periods presented:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Balance at beginning of period	$	35,552	$	36,163	$	17,669
Net allowances gained through acquisition		2,224		-		21,498
Provision for loan losses		500		400		600
Charge-offs
Residential and commercial real estate loans		409		12		161
Commercial business loans		2,552		3,347		4,705
Consumer loans		481		286		346
Total charge-offs		3,442		3,645		5,212
Recoveries
Residential and commercial real estate loans		475		490		650
Commercial business loans		1,975		1,987		784
Consumer loans		124		157		174
Total recoveries		2,574		2,634		1,608
Net charge-offs		868		1,011		3,604
Balance at end of period	$	37,408	$	35,552	$	36,163

Loan Servicing Rights

The components of loan servicing rights are as follows:

	Year Ended December 31,
(In thousands)	2006			2005			2004
Loan servicing rights
Balance at beginning of year	$	2,702		$	2,058		$	1,933
Additions		902			549			730
Amortization		(654	)		(540	)		(588	)
Change in valuation allowance		113			635			(17	)
Balance, end of period	$	3,063		$	2,702		$	2,058
Valuation reserve
Balance at beginning of year	$	(113	)	$	(748	)	$	(731	)
Net reductions (additions)		113			635			(17	)
Balance, end of period	$	-		$	(113	)	$	(748	)

At December 31, 2006 the fair value of the capitalized loan servicing rights was approximately $600,000 greater than its carrying value while the fair value approximated the carrying value at December 31, 2005. The Company services residential real estate mortgage loans that it has sold without recourse to third parties and by acquiring Cornerstone, the Company also became involved in the SBA loan secondary market. The Company currently sells the guaranteed portion of SBA loans that meet certain criteria while retaining the servicing rights. The aggregate of loans serviced for others approximates $306.4 million and $282.8 million as of December 31, 2006 and 2005, respectively.

Related Party Loans
As of December 31, 2006 and 2005, loans to related parties totaled approximately $127,000 and $154,000, 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, 2006 and 2005, all related party loans were performing.

67

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, 2006 and 2005. As of December 31, 2006 and 2005, nonperforming assets were:

	December 31,
(In thousands)	2006		2005
Non-accrual loans	$	12,468	$	7,391
Renegotiated loans		-		-
Other realestate owned		-		-
Total nonperforming assets	$	12,468	$	7,391

For the years ended December 31, 2006, 2005 and 2004, had interest been accrued at contractual rates on nonaccrual and renegotiated loans, such income would have approximated $612,000, $558,000 and $562,000, respectively. As of December 31, 2006, 2005 and 2004, no significant additional funds were committed to customers whose loans have been renegotiated or were nonperforming.

Impaired Loans
As of December 31, 2006 and 2005, the recorded investment in loans considered to be impaired was approximately $9.8 million and $4.3 million, respectively. As of December 31, 2006 and 2005, all loans considered impaired by the Company had an allowance for loan losses totaling approximately $848,000 and $524,000, respectively. The average recorded investment in impaired loans for the years ended December 31, 2006, 2005 and 2004 was approximately $8.1 million, $8.0 million and $7.1 million, respectively. For the years ended December 31, 2006, 2005 and 2004 interest income recognized on impaired loans was approximately $499,000, $824,000 and $648,000, respectively. As of December 31, 2006, there were no commitments to lend additional funds for loans considered impaired.

7.     Premises and Equipment

As of December 31, 2006 and 2005, premises and equipment consisted of:

	December 31,
(In thousands)	2006			2005
Land and land improvements	$	4,238		$	3,246
Buildings		63,130			60,814
Furniture and equipment		48,832			44,252
Leasehold improvements		7,181			5,004
		123,381			113,316
Less accumulated depreciation and amortization		(70,902	)		(62,917	)
Premises and equipment, net	$	52,479		$	50,399

Total depreciation and amortization expenses amounted to $6.2 million, $5.9 million and $6.4 million, for the years ended December 31, 2006, 2005 and 2004, respectively.

68

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

8.     Goodwill and Identifiable Intangible Assets

The changes in the carrying amount of goodwill and identifiable intangible assets for the year ended December 31, 2006 are summarized as follows:

							Other			Total
				Core Deposits			Identifiable			Identifiable
				and Customer			Intangible			Intangible
(In thousands)	Goodwill			Relationship			Assets			Assets
Balance, December 31, 2005	$	425,001		$	49,149		$	2,867		$	52,016
Cornerstone acquisition		25,041			6,777			-			6,777
Additional Trust Company of Connecticut merger consideration		4,289			-			-			-
Other		(73	)		-			-			-
Amortization expense		-			(7,480	)		(1,910	)		(9,390	)
Balance, December 31, 2006	$	454,258		$	48,446		$	957		$	49,403
Estimated amortization expense for the year ending:
2007				$	6,956		$	957		$	7,913
2008					6,628			-			6,628
2009					6,371			-			6,371
2010					6,185			-			6,185
2011					6,185			-			6,185
Thereafter					16,121			-			16,121

The components of identifiable intangible assets are as follows:

	Original				Balance
	Recorded		Cumulative		December 31,
(In thousands)	Amount		Amortization		2006
Identifiable intangible assets
Core deposits and customer relationship	$	71,313	$	22,867	$	48,446
Other		9,758		8,801		957
Total	$	81,071	$	31,668	$	49,403

9.     Other Assets

Components of other assets are as follows:

	December 31,
(In thousands)	2006		2005
Deferred tax asset	$	27,425	$	27,971
Accrued interest receivable		29,440		25,684
Prepaid pension asset		4,696		11,921
Prepaid cash for acquisitions		58,705		14,254
Receivable arising from securities transactions		3,498		3,262
Investments in limited partnerships and other investments		8,018		7,997
Loan servicing rights		3,064		2,702
All other		17,184		11,502
Total other assets		152,030		105,293

69

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

10.     Deposits

A summary of deposits by account type is as follows:

	December 31,
(In thousands)	2006		2005
Savings	$	774,457	$	781,346
Money market		509,940		554,079
NOW		384,249		342,268
Demand		464,554		486,528
Time		1,767,467		1,633,891
Total deposits	$	3,900,667	$	3,798,112

A summary of time deposits by remaining period to maturity is as follows:

	December 31,
(In thousands)	2006		2005
Within three months	$	717,085	$	353,563
After three months, but within one year		829,394		903,201
After one year, but within three years		178,506		299,368
After three years		42,482		77,759
Total time deposits	$	1,767,467	$	1,633,891

As of December 31, 2006 and 2005 time deposits in denominations of $100,000 or more were approximately $568.3 million and $483.8 million respectively. Interest expense paid on these deposits was approximately $24.0 million, $13.4 million and $5.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.

11.     Borrowings

The following is a summary of the Company’s borrowed funds:

	December 31,		Weighted			December 31,		Weighted
(Dollars in thousands)	2006		Average Rate			2005		Average Rate
FHLB advances (1)	$	1,721,886		4.44	%	$	1,191,280		3.87	%
Repurchase agreements		172,777		3.70			179,970		2.80
Mortgage loans payable		1,592		5.29			1,716		5.41
Junior subordinated debentures issued to affiliated trusts (2)		7,609		7.34			7,809		7.34
Total borrowings	$	1,903,864		4.38	%	$	1,380,775		3.75	%

(1)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, “Business Combinations,” of $13.5 million and $18.2 million at December 31, 2006 and 2005, respectively.

(2)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, “Business Combinations,” of $500,000 and $700,000 at December 31, 2006 and 2005, respectively. The trusts were organized by Alliance to facilitate the issuance of “trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. The affiliated trusts are wholly-owned subsidiaries of the Company and the payments of these securities are irrevocably and unconditionally guaranteed by the Company.

The acquisition fair value adjustments (premiums) are being amortized as an adjustment to interest expense on borrowings over their remaining term using the level yield method.

70

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The following schedule presents the contractual maturities of the Company’s borrowings as of December 31, 2006:

(In thousands)	2007		2008		2009		2010		2011		2012†		Total
FHLB advances (1)	$	204,475	$	314,955	$	287,447	$	135,900	$	469,154	$	296,452	$	1,708,383
Repurchase agreements		172,777		-		-		-		-		-		172,777
Mortgage loans payable		-		-		-		-		-		1,592		1,592
Junior subordinated debentures issued to affiliated trusts (2)		-		-		-		-		-		7,109		7,109
Total borrowings	$	377,252	$	314,955	$	287,447	$	135,900	$	469,154	$	305,153	$	1,889,861

(1) Balances are contractual maturities and exclude $13.5 million in fair value adjustments on acquired balances.
(2) Balances are contractual maturities and exclude $500,000 in fair value adjustments on acquired balances.

FHLB advances are secured by the Company’s investment in FHLB stock, a blanket security agreement and other eligible securities. This agreement requires the Bank to maintain as collateral certain qualifying assets, principally mortgage loans. At December 31, 2006 and 2005, the Bank was in compliance with the FHLB collateral requirements. At December 31, 2006, the Company could borrow an additional $61.3 million from the FHLB, inclusive of a line of credit of approximately $20.0 million. Additional borrowing capacity would be available by pledging additional eligible securities as collateral. The Company also has borrowing capacity at the Federal Reserve Bank of Boston’s discount window, which was approximately $158.6 million as of December 31, 2006, all of which was available on that date. At December 31, 2006, the majority of the Company’s $1.71 billion outstanding FHLB advances were at fixed rates, while only $60.0 million had floating 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. Typically employees of acquired institutions that are retained as employees of the Company after the acquisition date become eligible for the Company’s defined benefit pension plans and postretirement benefit plans as of the merger date, but receive no credit for past service except for eligibility and vesting purposes.

The Company also has supplemental retirement plans (the “Supplemental Plans”) that provide benefits for certain key executive officers. Benefits under the Supplemental Plans are based on a predetermined formula and are reduced by other benefits. The liability arising from these plans is being accrued over the participants’ remaining periods of service so that at the expected retirement dates, the present value of the annual payments will have been expensed. 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.

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, 2006 and 2005. The table also provides a reconciliation of the Plan’s funded status and the amounts recognized in the Company’s consolidated balance sheets. On December 31, 2006, the Company adopted SFAS No. 158, which requires employers to recognize the overfunded or underfunded positions of defined benefit postretirement plans, including pension plans on their balance sheets.

71

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

							Supplemental
							Executive						Other Postretirement
	Qualified Pensions						Retirement Plans						Benefits
(In thousands)	2006			2005			2006			2005			2006			2005
Change in benefit obligation
Projected benefit obligation at beginning of year	$	84,782		$	83,641		$	11,168		$	10,132		$	6,343		$	6,910
Service cost		2,878			2,841			557			413			159			172
Interest cost		4,550			4,692			599			567			333			377
Plan participant contributions		-			-			-			-			226			224
Plan amendments		-			-			-			-			105			-
Actuarial loss (gain)		3,304			(2,183	)		(448	)		612			(111	)		(775	)
Benefits paid		(4,171	)		(4,209	)		(556	)		(556	)		(517	)		(565	)
Curtailments, settlements, special termination benefits		-			-			-			-			-			-
Projected benefit obligation at end of year		91,343			84,782			11,320			11,168			6,538			6,343
Change in plan assets
Fair value of plan assets at beginning of year		91,927			61,118			-			-			-			-
Actual return on plan assets		6,456			6,578			-			-			-			-
Employer contributions		1,827			28,440			556			556			291			341
Plan participant contributions		-			-			-			-			226			224
Benefits paid		(4,171	)		(4,209	)		(556	)		(556	)		(517	)		(565	)
Fair value of plan assets at end of year		96,039			91,927			-			-			-			-
Funded status at end of year		4,696			7,145			(11,320	)		(11,168	)		(6,538	)		(6,343	)
Employer contributions after measurement date		-			-			-			139			-			80
Unrecognized transition obligation		-			-			-			-			-			271
Unrecognized prior service cost		-			696			-			85			-			-
Unrecognized net actuarial loss (gain)		-			4,080			-			56			-			(98	)
Additional minimum liability		-			-			-			(79	)		-			-
Net amount recognized in Company’s consolidated balance sheets	$	4,696		$	11,921		$	(11,320	)	$	(10,967	)	$	(6,538	)	$	(6,090	)
Accumulated benefit obligation	$	83,539		$	78,680		$	9,333		$	9,316		$	(6,538	)	$	6,343

The following table presents the incremental effect of applying SFAS Statement No. 158 on individual line items in the Company’s consolidated balance sheet as of December 31, 2006:

	Before application						After application of
(In thousands)	of Statement 158			Adjustment			Statement 158
Prepaid pension asset	$	13,138		$	(8,442	)	$	4,696
Deferred tax asset		24,319			3,106			27,425
Total assets		7,253,032			(5,336	)		7,247,696
Liability for pension benefits		17,427			431			17,858
Total liabilities		5,884,960			431			5,885,391
Accumulated other comprehensive loss		(19,777	)		(5,767	)		(25,544	)
Total stock holders’ equity		1,368,072			(5,767	)		1,362,305

72

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The following table presents the amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost as of December 31, 2006. There were no amounts in other comprehensive income as of December 31, 2005.

			Supplemental
			Executive		Other
	Qualified		Retirement		Postretirement
(In thousands)	Pension			Plans	Benefits
Transition obligation	$	-	$	90	$	187
Prior service cost		419		48		66
Actuarial loss (gain)		5,068		14		(125	)
Unrecognized components of net periodic benefit cost in accumulated other comprehensive income, net of tax	$	5,487	$	152	$	128

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

	Year Ended December 31,
Qualified pension	2006			2005			2004
Service cost - benefits earned during the period	$	2,878		$	2,841		$	2,283
Interest cost on projected benefit obligation		4,550			4,693			3,746
Expected return on plan assets		(6,945	)		(5,036	)		(4,205	)
Amortization and deferral		51			51			(133	)
Recognized net loss		76			105			93
Net periodic pension cost	$	610		$	2,654		$	1,784
Supplemental retirement plans
Service cost - benefits earned during the period	$	557		$	413		$	337
Interest cost on projected benefit obligation		599			567			532
Expected return on plan assets		-			-			-
Amortization and deferral		11			27			28
Recognized net (gain) loss		(413	)		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	$	754		$	1,592		$	953
Other post retirement benefits
Service cost - benefits earned during the period	$	159		$	172		$	119
Interest cost on projected benefit obligation		333			377			268
Expected return on plan assets		-			-			-
Amortization and deferral		55			52			52
Recognized net gain		(17	)		(2	)		(5	)
Net periodic benefit cost	$	530		$	599		$	434

73

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are as follows:

			Supplemental
			Executive		Other
	Qualified		Retirement		Postretirement
(In thousands)	Pension		Plans		Benefits
Transition obligation	$	-	$	-	$	52
Prior service cost		51		7		12
Actuarial loss (gain)		437		-		(23	)

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
2007	$	4,300	$	559	$	682
2008		4,410		567		629
2009		4,518		588		495
2010		4,647		613		481
2011		4,757		637		421
2012 - 2016		26,680		4,167		2,209

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

Assumptions used to determine benefit obligations as of December 31,
		2006			2005
Discount Rate		5.75	%		5.50	%
Rate of compensation increase		4.00			4.00
Assumptions used to determine net periodic cost for years ended December 31,
		2006			2005
Discount rate		5.50	%		5.75	%
Expected return on plan assets		8.25			8.25
Rate of compensation increase		4.00			4.00
Assumed health care cost trend rates at December 31,
		2006			2005
Health care cost trend rate assumed for next year		10.00	%		11.00	%
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		2016			2011
Effect of one-percentage change in assumed health care cost trend rates in 2006
(In thousands)	1% Increase			1% Decrease
Effect on total service and interest components	$	30,073		$	(26,127	)
Efect on postretirement benefit obligation		314,275			(277,746	)

74

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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.

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	2006			2005			Range
Equity securities		59.4	%		62.1	%		50 - 70	%
Debt securities		35.4			35.3			25 - 45
Other		5.2			2.6			-

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 $5.0 million to the pension plan, $559,000 to the SERP and $400,000 to its other postretirement plan in 2007.

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. No cash contributions were made for the years ended December 31, 2006 and 2005, respectively.

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 remaining period of 27 years. The unallocated ESOP shares are pledged as collateral on the loan.

75

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

At December 31, 2006, the loan had an outstanding balance of $104.3 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 years ended December 31, 2006, 2005, and 2004 was approximately $3.7 million, $3.6, 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.

The ESOP shares as of December 31, 2006 were as follows:

Shares released for allocation		664,293
Unreleased shares		6,790,269
Total ESOP shares		7,454,562
Market value of unreleased shares at
December 31, 2006 (in thousands)	$	111,360

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 $11,000, $529,000 and $277,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

13.     Stock-Based Compensation

As provided for under the Company’s 2005 Long-Term Compensation Plan (the “LTCP”), which was approved by shareholders, the Company’s Compensation Committee awarded 8.6 million stock options with an exercise price of $14.39 per share and approximately 3.4 million restricted stock awards with a value of $14.39 per share to directors and certain employees on June 17, 2005. Additional stock option awards of 215,000 were made in the second half of 2005 and 66,396 were made in 2006 and have weighted average exercise prices ranging from $14.15 to $16.15. Furthermore, additional restricted stock awards of 5,041 with values ranging from $13.89 to $16.15 were made in 2006. The LTCP allows the issuance of up to 11.4 million Options or Stock Appreciation Rights, and up to 4.6 million Stock Awards or Performance Awards. On January 1, 2006, the Company began accounting for stock option and restricted stock awards in accordance with SFAS No. 123R, and chose the modified prospective application transition method provided for under this statement. Under SFAS No. 123R, the fair value of stock option and restricted stock awards, measured at grant date, is amortized to compensation expense on a straight-line basis over the vesting period.

Options awarded to date are for a term of ten years. Substantially all of these options have the following vesting schedule; 40% vested at year-end 2005, 20% vested at year-end 2006 and 20% will vest at year-end of each of the years 2007 and 2008. Of the options granted in 2006, 21,396 will vest in three years and 45,000 will vest in four years. Option and share awards provide for accelerated vesting if there is a change in control, as defined in the LTCP. Compensation cost on options recognized for the year ending December 31, 2006 was approximately $4.7 million or $3.0 million after tax. There was no compensation cost on options recognized in the same period the prior year because the Company continued to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25 through December 31, 2005. It is anticipated that the Company will recognize expense on options of approximately $4.5 million and $4.2 million in 2007 and 2008, respectively and approximately $57,000 over 2009 and 2010, unless additional awards are granted. The Company has assumed a 0.4% forfeiture rate on options as the majority of the options have been awarded to senior level management and the Company has only experienced one significant forfeiture. Management considers this forfeiture to be an aberration that is unlikely to occur again.

76

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The following table presents the weighted-average fair value and related assumptions using the Black-Scholes Option Pricing Model for all stock options granted during the years ended December 31, 2006 and December 31, 2005.

	2006			2005
Weighted-average fair value	$	2.49		$	2.61
Risk-free interest rate		4.77	%		3.89	%
Expected dividend yield		1.65	%		1.53	%
Expected volatility		16.14	%		19.85	%
Expected life (years)		3.84			3.84

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

A summary of option activity under the plan as of December 31, 2006 and changes during the period ended is presented below:

						Weighted-
				Weighted-		Average		Aggregate
				Average			Remaining	Intrinsic
				Exercise			Contractual	Value
	Shares			Price		Term		($000)
Options outstanding at beginning of year		8,757,100		$	14.40
Granted		66,396			14.58
Exercised		(3,800	)		14.39
Forfeited/cancelled		(237,960	)		14.39
Expired		(154,240	)		14.39
Options outstanding at December 31, 2006		8,427,496		$	14.40		8.47	$	16,858
Options exercisable at December 31, 2006		5,012,050		$	14.40		8.46	$	10,035

The weighted-average grant-date fair value of options granted in 2006 and 2005 was $2.49 and $2.61, respectively. The total intrinsic value of options exercised during 2006 was $5,700. There were no options exercised in 2005.

A summary of the status of the Company’s nonvested shares as of December 31, 2006 and changes during the period is presented below:

	Restricted Stock					Options
				Weighted-average					Weighted-average
				Grant-Date					Grant-Date
	Shares			Fair Value		Shares			Fair Value
Nonvested at January 1, 2006		3,424,500		$	14.39		5,259,960		$	2.61
Granted		5,041			14.38		66,396			2.49
Vested		(513,675	)		14.39		(1,672,950	)		2.61
Forfeited/Cancelled		(146,200	)		14.39		(237,960	)		2.61
Nonvested at December 31, 2006		2,769,666		$	14.39		3,415,446		$	2.61

Fifteen percent, or 513,675 shares of restricted stock awarded on June 15, 2005 with a total fair value of approximately $7.5 million, vested on January 1, 2006. Fifteen percent of the restricted stock awarded in 2005 will vest in January 1^st on each of the years 2007 through 2011 and 10% on January 1, 2012, while the associated expense on the awarded stock will be recorded from the award date through 2011. The 2006 awards vest over three years. For the years ended December 31, 2006 and 2005, the Company recorded expense for awards on restricted stock of approximately $8.3 million and $8.2 million, or after tax expense of approximately $5.9 million and $5.7 million, respectively. The Company anticipates that it will record expense of approximately $7.7 million, $6.8 million, $6.3 million, $6.2 million and $4.1 million in calendar years 2007 through 2011, respectively in connection with the restricted stock awards.

77

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The following table provides proforma net income and earnings per share for the years ended December 31, 2005 and 2004, during which time the fair value-based method was not used to account for stock-based compensation.

	Year Ended December 31,
(In thousands, except per share data)	2005		2004
Net income, as reported	$	52,599	$	4,069
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
Basic EPS
As reported	$	0.50	$	n/a
Proforma		0.44		n/a
Diluted EPS
As reported	$	0.50	$	n/a
Proforma		0.44		n/a

14.     Income Taxes

The components of income tax expense are summarized as follows:

	Year Ended December 31,
(In thousands)	2006		2005		2004
Current tax expense
Federal	$	22,693	$	22,128	$	6,297
State		43		53		78
Total current		22,736		22,181		6,375
Deferred tax expense (benefit) net of valuation reserve
Federal		1,033		5,213		(5,851	)
State		-		-		-
Total deferred		1,033		5,213		(5,851	)
Total income tax expense	$	23,769	$	27,394	$	524

For the years ended December 31, 2006, 2005 and 2004, 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:

	Year Ended December 31,
(In thousands)	2006			2005			2004
Provision for income taxes at statutory rate	$	25,412		$	27,998		$	1,608
Increase (decrease) in taxes resulting from:
State income tax expense (benefit)		28			34			50
Dividends received deduction		(359	)		(382	)		(275	)
Bank-owned life insurance		(1,405	)		(846	)		(640	)
Low income housing and other tax credits		(207	)		(78	)		(261	)
Excess compensation - 162(m)		741			544			-
Valuation allowance adjustment, charitable contribution		36			373			-
Valuation allowance adjustment, capital loss		(78	)		(64	)		-
Tax exempt obligations		(200	)		(211	)		-
Other, net		(199	)		26			42
Provision for income taxes	$	23,769		$	27,394		$	524

78

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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)	2006			2005
Deferred tax assets
Bad debts	$	15,076		$	14,343
Pension and postretirement benefits		10,367			4,169
Certificate of deposits		774			2,260
Borrowings		10,008			11,967
Noncompete agreements		3,516			3,087
Charitable contribution carryover		17,467			20,586
Federal net operating loss carryover		493			1,127
State net operating loss carryover		8,745			11,223
Unrealized loss on available for sale securities		10,649			14,142
Restricted stock		4,605			2,712
Other, net		1,522			2,145
Total gross deferred tax assets		83,222			87,761
Less valuation allowance		(16,808	)		(19,110	)
Total deferred tax assets, net of valuation allowance		66,414			68,651
Deferred tax liabilities
Core deposit intangible		19,291			19,669
Loans		2,171			2,836
Premises and equipment, principally due to difference in depreciation		2,055			2,657
Limited partnerships		5,074			4,432
Net deferral of loan origination costs		3,697			2,906
Bond accretion		161			920
Investments		5,347			6,043
Other		1,193			1,217
Total gross deferred tax liabilities		38,989			40,680
Net deferred tax asset	$	27,425		$	27,971

79

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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,
	2006					2005					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	$	3,405		$	-	$	(12,060	)	$	-	$	(2,410	)	$	-
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		(3,078	)		-		1,887			-		(1,914	)		-
Goodwill		(814	)		-		3,477			-		(11,184	)		-
Income (loss)		1,033			-		5,213			-		(5,851	)		-
Total deferred tax (benefit) expense	$	546		$	-	$	(1,483	)	$	-	$	(23,928	)	$	-

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 $1.4 million at December 31, 2006, which expire in 2025. This carryforward is from the acquisition of Cornerstone and is subject to limitation under Internal Revenue Code Section 382. The yearly limitation on usage of the net operating loss is $2.1 million and management expects to utilize this carryforward in 2007. The Company has state net operating loss carryforwards at December 31, 2006 of $179.4 million which expire between 2020 and 2027. As of December 31, 2006 and 2005, the Company had a valuation allowance of $11.5 million and $13.5 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.

At December 31, 2006, the Company has charitable contribution carryforwards of $46.4 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, 2006 and 2005, the Company has a valuation allowance of $5.3 million and $5.2 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, 2006, there is no valuation allowance for the tax effect of capital loss carryforwards associated with realized and unrealized capital losses on capital assets. As of December 31, 2005, there was a valuation allowance of $331,000 related to capital assets. The valuation allowance decreased by $331,000 of which $78,000 was credited to continuing operations, $88,000 was charged to equity and $165,000 was charged to goodwill relating to acquisitions.

A deferred tax liability has not been recorded for the tax reserve for bad debts of approximately $49.8 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 December 31, 1951. No deferred tax liability has been established as these two events are not expected to occur in the foreseeable future.

80

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, 2006 and 2005, the Company was required to have deposits at the Federal Reserve Bank of approximately $24.1 million and $26.8 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 October 31, 2021. The Company has the option to renew certain of the leases at fair rental values. Rental expense was approximately $3.7 million, $2.9 million and $2.2 million for the years ended December 31, 2006, 2005 and 2004, respectively.

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
2007	$	3,236
2008		3,041
2009		2,494
2010		2,141
2011		1,268
thereafter		4,800
Total	$	16,980

Commitments to Extend Credit
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These commitments consist principally of unused commercial and consumer lines of credit. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as those involved with extending loans to customers and are subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

The table below summarizes the Company’s commitments and contingencies discussed above.

	December 31,
(In thousands)	2006		2005
Loan commitments	$	42,460	$	68,160
Unadvanced portion of construction loans		234,993		98,360
Standby letters of credit		24,625		11,701
Unadvanced portion of lines of credit		527,310		491,977
Total commitments	$	829,388	$	670,198

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 $1.6 million and $2.0 million at December 31, 2006 and 2005, respectively. 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.

81

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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.

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, 2006 and 2005, the Company was contractually committed under limited partnership agreements to make additional partnership investments of approximately $3.1 million and $3.4 million, respectively, which constitutes our maximum potential obligation to these partnerships. The Company is obligated to make additional investments in response to formal written requests, rather than a funding schedule. Funding requests are submitted when the partnerships plan to make additional investments.

Litigation
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 claimed 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. The Company disputed the plaintiffs’ allegations and defended the case vigorously. On November 3, 2005, the Court granted Summary Judgment in favor of the Company and denied the Summary Judgment motion of the plaintiffs. The plaintiffs appealed the decision of the District Court to the United States Court of Appeals for the Second Circuit, which upheld the Summary Judgment in favor of the Company during the fourth quarter of 2006.

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

16.     Stockholders’ Equity

At December 31, 2006, stockholders’ equity amounted to $1.36 billion, or 18.8% of total assets, compared to $1.31 billion, or 20.0%, at December 31, 2005. The Company paid cash dividends of $0.235 and $0.21 per share on common stock during the years ended December 31, 2006 and 2005, 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, 2006 and December 31, 2005 the Company and the Bank met all capital adequacy requirements to which it was subject.

82

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

As of December 31, 2006, 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 capital category. The following is a summary of the Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2006 and 2005, 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, 2006
Tier 1 Capital (to Average Assets)	$	675,714		10.1	%	$	267,189		4.0	%	$	333,986		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		675,714		17.7			152,555		4.0			228,832		6.0
Total Capital (to Risk Weighted Assets)		713,141		18.7			305,110		8.0			381,387		10.0
December 31, 2005
Tier 1 Capital (to Average Assets)	$	601,971		10.0	%	$	241,043		4.0	%	$	301,303		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		601,971		17.6			136,899		4.0			205,349		6.0
Total Capital (to Risk Weighted Assets)		637,523		18.6			273,798		8.0			342,248		10.0
NewAlliance Bancshares, Inc.
December 31, 2006
Tier 1 Capital (to Average Assets)	$	885,114		13.2	%	$	268,168		4.0	%	$	335,210		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		885,114		22.7			155,871		4.0			233,807		6.0
Total Capital (to Risk Weighted Assets)		922,541		23.7			311,743		8.0			389,678		10.0
December 31, 2005
Tier 1 Capital (to Average Assets)	$	866,567		14.3	%	$	242,239		4.0	%	$	302,799		5.0	%
Tier 1 Capital (to Risk Weighted Assets)		866,567		25.0			138,686		4.0			208,029		6.0
Total Capital (to Risk Weighted Assets)		902,119		26.0			277,372		8.0			346,715		10.0

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

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

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

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

83

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

following the conversion. The liquidation account, which totaled $106.2 million at December 31, 2006 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.

17.     Other Comprehensive Income (Loss)

The following table summarizes the components of comprehensive income (loss) and other comprehensive income (loss) and the related tax effects for the years ended December 31, 2006, 2005 and 2004.

	Year Ended December 31,
(In thousands)	2006			2005			2004
Net income	$	48,837		$	52,599		$	4,069
Other comprehensive income (loss), before tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		10,060			(34,516	)		(6,477	)
Reclassification adjustment for gains included in net income		(81	)		(40	)		(616	)
Minimum pension liability adjustment		79			5,390			(5,469	)
Other comprehensive income (loss), before tax		10,058			(29,166	)		(12,562	)
Income tax (expense) benefit net of valuation allowance (1)		(3,433	)		10,173			4,324
Other comprehensive income (loss), net of tax		6,625			(18,993	)		(8,238	)
Comprehensive income (loss)	$	55,462		$	33,606		$	(4,169	)

(1) Income tax expense related to security gains was $3.4 million for the year ended December 31, 2006. Income tax benefit related to securities losses was $12.1 million and $2.4 million, respectively, for the years ended December 31, 2005, and 2004. Included in income taxes related to securities gains and losses was a change in the valuation allowance of $88,000, $35,000 and $53,000 for the years ended December 31, 2006, 2005 and 2004, respectively, for the tax effects of unrealized capital losses on equity securities. Income tax expense related to the minimum pension liability was $28,000 and $1.9 million for the years ended December 31, 2006 and 2005, respectively, compared to an income tax benefit of $1.9 million for the year ended December 31, 2004.

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,				For the period
					April 1 through
(In thousands, except per share data)	2006		2005		December 31, 2004
Net income	$	48,837	$	52,599	$	2,092
Average common shares outstanding for basic EPS		99,981		105,110		106,520
Dilutive effect of stock options and unvested stock awards (1)		503		407		-
Average common and common-equivalent shares for dilutive EPS		100,484		105,517		106,520
Net income per common share:
Basic	$	0.49	$	0.50	$	0.02
Diluted		0.49		0.50		0.02

(1) 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 were options to purchase 236,105 and 215,000 shares of common stock that were outstanding at December 31, 2006 and 2005, respectively.

84

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

The Company had no shares outstanding until the second quarter of 2004 upon its conversion to a stock bank on April 1, 2004. Earnings per share for the period April 1 through December 31, 2004 was calculated using net income and weighted-average shares outstanding from the date of conversion through December 31, 2004.

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 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.

85

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

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, 2006				December 31, 2005
	Carrying		Estimated		Carrying		Estimated
(In thousands)	Amounts		Fair Value		Amounts		Fair Value
Financial Assets
Cash and due from banks	$	127,948	$	127,948	$	127,290	$	127,290
Short-term investments		28,077		28,077		46,497		46,497
Investment securities		2,480,311		2,481,186		2,455,205		2,454,178
Loans held for sale		1,528		1,528		1,222		1,222
Loans, net		3,785,468		3,804,392		3,241,154		3,243,241
Accrued income receivable		17,488		17,488		25,684		25,684
Financial Liabilities
Interest and non-interest bearing checking, savings
and money market accounts	$	2,133,200	$	2,133,200	$	2,164,221	$	2,164,221
Time deposits		1,767,467		1,758,279		1,633,891		1,618,983
Borrowed funds		1,903,864		1,862,208		1,380,775		1,337,989

20.     Selected Quarterly Consolidated Information (unaudited)

The following tables present quarterly financial information of the Company for 2006 and 2005, respectively:

	Three Months Ended
	December 31,		September 30,		June 30,		March 31,
(In thousands, except per share data)	2006		2006		2006		2006
Interest and dividend income	$	87,062	$	86,348	$	79,844	$	77,778
Interest expense		47,241		43,811		37,240		33,159
Net interest income before provision for loan losses		39,821		42,537		42,604		44,619
Provision for loan losses		500		-		-		-
Net interest income after provision for loan losses		39,321		42,537		42,604		44,619
Non-interest income		12,567		14,798		12,033		12,233
Non-interest expense		35,852		34,867		36,978		40,409
Income before taxes		16,036		22,468		17,659		16,443
Income tax provision		5,127		7,369		5,850		5,423
Net income	$	10,909	$	15,099	$	11,809	$	11,020
Basic and diluted earnings per share	$	0.11	$	0.15	$	0.12	$	0.11

86

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

	Three Months Ended
	December 31,		September 30,		June 30,		March 31,
(In thousands, except per share data)	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 (loss) before taxes		17,647		20,149		21,618		20,579
Income tax provision (benefit)		5,996		7,405		7,108		6,885
Net income (loss)	$	11,651	$	12,744	$	14,510	$	13,694
Basic and diluted earnings per share	$	0.12	$	0.12	$	0.14	$	0.13

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 sheets as of December 31, 2006 and 2005, and statements of income and cash flows for the years ended December 31, 2006, 2005 and for the period April 1, 2004 through December 31, 2004.

Balance Sheet
	December 31,
(In thousands)	2006		2005
Assets
Interest earning and other bank deposits	$	125,493	$	222,571
Investment securities		228		197
Investment in subsidiaries		1,159,949		1,053,322
Other assets		84,338		44,613
Total assets	$	1,370,008	$	1,320,703
Liabilities and shareholders’ equity
Accrued interest and other liabilities	$	476	$	2,726
Borrowings		7,227		7,109
Shareholders’ equity		1,362,305		1,310,868
Total liabilities and shareholders’ equity	$	1,370,008	$	1,320,703

87

NewAlliance Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004

Income Statement
							For the period
	Year Ended December 31,						April 1 through
							December 31,
(In thousands)	2006			2005			2004
Revenues
Interest on investments	$	2,942		$	4,751		$	3,626
Other income		139			9			28
Total revenue		3,081			4,760			3,654
Expenses
Contribution to NewAlliance Foundation		-			-			40,000
Interest on long term notes and debentures		710			701			528
Other expenses		15,852			12,024			922
Total expenses		16,562			12,725			41,450
Loss before tax benefit and equity in undistributed net income of subsidiaries		(13,481	)		(7,965	)		(37,796	)
Income tax benefit		(4,732	)		(2,839	)		(13,370	)
Loss before equity in undistributed net income of subsidiaries		(8,749	)		(5,126	)		(24,426	)
Equity in undistributed net income of subsidiaries		57,586			57,725			28,495
Net income	$	48,837		$	52,599		$	4,069

Statement of Cash Flows							For the period
	Year Ended December 31,						April 1 through
							December 31,
(In thousands)	2006			2005			2004
Cash flows from operating activities
Net income	$	48,837		$	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		(57,586	)		(57,725	)		(28,495	)
ESOP expense		3,684			3,524			2,433
Restricted stock compensation expense		8,315			7,977			-
Stock option compensation expense		4,657			-			-
Deferred tax benefit		(246	)		(2,052	)		(11,830	)
Amortization of investment securities, net		2			27			84
Net change in other assets and other liabilities		(41,738	)		(863	)		8,899
Net cash provided by operating activities		(34,075	)		3,487			15,160
Cash flows from investing activities
Purchase of securities available for sale		-			-			(30	)
Proceeds from maturity, sales, calls and principal reductions of
securities available for sale		19			11,030			17,295
Net investment in bank subsidiary		(12,256	)		42,707			(675,911	)
Net cash used in investing activities		(12,237	)		53,737			(658,646	)
Cash flows from financing activities
Net proceeds from common stock offering		-			-			1,087,626
Acquisition of common stock by ESOP		-			-			(109,451	)
Shares issued for stock option exercises		55			-			-
Acquisition of treasury shares		(26,662	)		(138,473	)		-
Dividends paid		(24,159	)		(22,332	)		(8,537	)
Net cash provided by financing activities		(50,766	)		(160,805	)		969,638
Net increase (decrease) in cash and cash equivalents		(97,078	)		(103,581	)		326,152
Cash and cash equivalents, beginning of period		222,571			326,152			-
Cash and cash equivalents, end of period	$	125,493		$	222,571		$	326,152

88

(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 10.5 filed with the Company’s Quarterly Report on Form 10-Q, filed May 8, 2006.
10.6	Employee Severance Plan. Incorporated herein by reference is Exhibit 10.8 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
10.7.1	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Peyton R. Patterson, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.1 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.2	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Merrill B. Blanksteen, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.2 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.3	Amended and Restated Employment Agreement between NewAlliance Bancshares and NewAlliance Bank and Gail E.D. Brathwaite, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.3 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.4	Intentionally omitted.
10.7.5	Amended and Restated Employment Agreement between NewAlliance Bank and Diane L. Wishnafski, effective September 18, 2006. Incorporated herein by reference is Exhibit 10.7.5 filed with the Company’s Quarterly Report on Form 10-Q, filed November 6, 2006.
10.7.6	Amended and Restated Employment Agreement between NewAlliance Bank and Brian S. Arsenault, effective June 27, 2006. Incorporated herein by reference is Exhibit 10.7.6 filed with the Company’s Quarterly Report on Form 10-Q, filed July 8, 2006.
10.7.7	Amended and Restated Employment Agreement between NewAlliance Bank and J. Edward Diamond, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.7 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.8	Amended and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee, effective January 3, 2006. Incorporated herein by reference is Exhibit 10.7.8 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.9	Form of Change In Control Agreement dated as of January 3, 2006 between NewAlliance Bank and Paul A. McCraven. Incorporated herein by reference is Exhibit 10.7.9 filed with the Company’s Current Report on Form 8-K, filed January 6, 2006.
10.7.10	Employment Agreement between NewAlliance Bank and Koon-Ping Chan, effective June 27, 2006. Incorporated herein by reference is Exhibit 10.7.10 filed with the Company’s Quarterly Report on Form 10-Q, filed July 8, 2006.
10.8.1	Form of Stock Option Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.8.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
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.

89

10.9.1	Form of Restricted Stock Award Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.9.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.9.2	Form of Restricted Stock Award Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.9.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.10	NewAlliance Bancshares, Inc. 2005 Long-Term Compensation Plan. Incorporated herein by reference is Exhibit 4.3 filed with the Company’s Registration Statement on Form S-8, filed November 4, 2005.
10.11	Amendment Number one to the New Haven Savings Bank / NewAlliance Bank 2004 Supplemental Executive Retirement Plan (filed herewith).
10.12	Form of Indemnification Agreement for Directors and Certain Executive Officers (filed herewith).
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 (filed herewith).
31.1	Certification of Peyton R. Patterson pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith).
31.2	Certification of Merrill B. Blanksteen pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith).
32.1	Certification of Peyton R. Patterson pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Merrill B. Blanksteen pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

90

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 27, 2007
	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 27, 2007
Peyton R. Patterson	Chief Executive Officer
	(principal executive officer)
/s/ Merrill B. Blanksteen	Executive Vice President, Chief Financial	February 27, 2007
Merrill B. Blanksteen	Officer and Treasurer
	(principal financial officer)
/s/ Mark F. Doyle	Senior Vice President and Chief Accounting	February 27, 2007
Mark F. Doyle	Officer
	(principal accounting officer)
/s/ Douglas K. Anderson	Director	February 27, 2007
Douglas K. Anderson
/s/ Roxanne J. Coady	Director	February 27, 2007
Roxanne J. Coady
/s/ John F. Croweak	Director	February 27, 2007
John F. Croweak
/s/ Sheila B. Flanagan	Director	February 27, 2007
Sheila B. Flanagan
/s/ Richard J. Grossi	Director	February 27, 2007
Richard J. Grossi
/s/ Carlton L. Highsmith	Director	February 27, 2007
Carlton L. Highsmith
/s/ Robert J. Lyons, Jr.	Director	February 27, 2007
Robert J. Lyons, Jr.
/s/ Eric A. Marziali	Director	February 27, 2007
Eric A. Marziali
/s/ Julia M. McNamara	Director	February 27, 2007
Julia M. McNamara
/s/ Gerald B. Rosenberg	Director	February 27, 2007
Gerald B. Rosenberg
/s/ Joseph H. Rossi	Director	February 27, 2007
Joseph H. Rossi
/s/ Cornell Scott	Director	February 27, 2007
Cornell Scott
/s/ Nathaniel D. Woodson	Director	February 27, 2007
Nathaniel D. Woodson
/s/ Joseph A. Zaccagnino	Director	February 27, 2007
Joseph A. Zaccagnino

91

EX-10

Exhibit 10.11

AMENDMENT NUMBER ONE
THE NEW HAVEN SAVINGS BANK
2004 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective January 1, 2004)

     BY THIS AMENDMENT NUMBER ONE, The New Haven Savings Bank 2004 Supplemental Executive Retirement Plan (the “2004 SERP”) is hereby amended as follows:

1.	In cover page of the 2004 SERP the reference to “The New Haven Savings Bank” is changed to “The NewAlliance Bank”.
2.	Section 1.2 of the 2004 SERP is amended and restated in its entirety as follows:
	“Bank” means NewAlliance Bank
3.	Section 3.4 of the 2004 SERP is deleted in its entirety and replaced by the following:

                     3.4     Change in Control:      (a) In the event that the employment of a Participant listed in Appendix B is terminated subsequent to a Change in Control of the Company and/or the Bank (as such term shall be defined in the employment agreement by and among the Company, the Bank and each such Participant), for purposes of calculating the benefit due hereunder, the Participant will be treated as follows: 1) having attained an age equal to the greater of (x) his or her actual age as of the date of such termination plus three additional years of age or (y) age 55; and 2) having three additional years of Service credit. Furthermore, in such event, the benefits payable hereunder shall be paid in a single lump sum and shall be discounted to present value in the manner specified in Section 3.5 hereof. The schedule to be used to determine the benefit due (prior to calculating the present value) will be based on the number of years of deemed Service after giving effect to additional three years of Service.

                     (b)  In the event that the employment of a Participant listed in Appendix C is terminated subsequent to a Change in Control of the Company and/or the Bank (as such term shall be defined in the employment agreement by and among the Company, the Bank and each such Participant), for purposes of calculating the benefit due hereunder, the Participant will be treated as having attained an age equal to the greater of (x) his or her actual age as of the date of such termination or (y) age 55. Furthermore, in such event, the benefits payable hereunder shall be paid in a single lump sum and shall be discounted to present value in the manner specified in Section 3.5 hereof.

4. A new Appendix C is added to the 2004 SERP as set forth below:

Appendix C
To the 2004 NewAlliance Bank
Supplemental Employee Retirement Plan
Dated January 1, 2004

Officer
1.	Diane Wishnafski

                  IN WITNESS WHEREOF, this Amendment has been executed this 31^st day of March 2004.

THE NEWALLIANCE BANK          

  By: /s/ Merrill B. Blanksteen

EX-10

Exhibit 10.12

INDEMNIFICATION AGREEMENT

This Agreement, dated as of March, 2007, is entered into by and between NewAlliance Bancshares, Inc., a Delaware corporation (the “Company”), and __________________ (the “Indemnitee”).

WHEREAS, the Company desires to attract and retain highly qualified individuals, such as the Indemnitee, to serve the Company;

WHEREAS, the Company and the Indemnitee recognize the significant risk of personal liability for Agents (as defined herein) which arises from corporate litigation practices;

WHEREAS, there are questions concerning the adequacy and reliability of the protection that might be afforded to the Company’s Agents from directors’ and officers’ liability insurance policies that the Company may acquire;

WHEREAS, the Company and Indemnitee recognize that plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors and officers;

WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify Indemnitee so that he will serve or continue to serve the Company free from undue concern that he will not be adequately protected;

WHEREAS, the Indemnitee is willing to continue to serve the Company, subject to certain conditions, including execution and delivery of this Agreement by the Company in order that the Indemnitee be furnished the indemnity provided for herein;

WHEREAS, contracts between the Company and its Agents with respect to indemnification of such Agents by the Company are not inconsistent with the Company’s Certificate of Incorporation (“Charter”) and By-Laws (the “By-Laws”);

WHEREAS, Section 145 of the General Corporation Law of the State of Delaware (“Section 145”), under which the Company is organized, empowers the Company to indemnify its Agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive;

WHEREAS, Section 102(b)(7) of the General Corporation Law of the State of Delaware allows a corporation to include in its certificate of incorporation a provision limiting or eliminating the personal liability of a director for monetary damages in respect of claims by shareholders and corporations for breach of certain fiduciary duties, and the Company has provided in its Certificate of Incorporation that each Director shall be exculpated from such liability to the maximum extent permitted by law;

WHEREAS, the Board of Directors has determined that contractual indemnification as set forth herein is not only reasonable and prudent but also promotes the best interests of the Company and its shareholders; and

WHEREAS, in view of such considerations, the Company desires to provide, independent from the indemnification to which the Indemnitee is otherwise entitled by law and under the Company’s Charter and By-Laws, indemnification to the Indemnitee and the Expense Advances (as defined herein), all as set forth in this Agreement to the maximum extent permitted by law.

NOW, THEREFORE, to induce the Indemnitee to continue to serve the Company and in consideration of these premises and the mutual agreements set forth in this Agreement, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Indemnitee hereby agree as follows:

1.        Definitions. For the purposes of this Agreement,

(a)        Agent. “Agent” means any person who (i) is, becomes or was a director, officer, employee, agent or fiduciary of the Company, or (ii) is, becomes or was serving at the request of the Company as a director, officer, partner, venturer, proprietor, trustee, employee, agent, fiduciary or other similar functionary of another domestic or foreign corporation, limited liability company, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, or (iii) unless the context requires otherwise, the estate or personal representative of an Agent. The Company agrees that Indemnitee’s service on behalf of or with respect to any Subsidiary of the Company shall be deemed to be at the request of the Company. The use of the term “Agent” shall not be construed to alter the legal relationship between an Agent, as defined herein, and the Company.

(b)        Change in Control. “Change in Control” means the occurrence of any of the following events:

(i)        The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50% or more of either (x) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however; that for purposes of this Subparagraph (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of paragraph (iii) below; or

(ii)        Members of the Incumbent Board cease for any reason to constitute at least a majority of the Board of Directors; or

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(iii)        Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another corporation (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(iv)        Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

(c)        Claim. “Claim” shall mean any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether conducted by the Company or any other party, that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.

(d)        Expenses. “Expenses” means all costs and liabilities of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements and other out-of-pocket costs, judgments, fines, penalties and amounts paid in settlements) paid or incurred by or imposed upon the Indemnitee in the investigation, defense, settlement or appeal of, or otherwise in connection with, a Proceeding (including, without limitation, being a witness) or in establishing or enforcing a right to indemnification under this Agreement, the Company’s Charter of By-Laws, the General Corporation Law of the State of Delaware or otherwise.

(e)        Expense Advance. “Expense Advance” means a payment to the Indemnitee of Expenses in advance of the settlement of or final judgment on any Proceeding.

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(f)        Incumbent Board. “Incumbent Board” means the individuals who, as of the date of this Agreement, constitute the Board of Directors and any other individual who becomes a director of the Company after that date and whose election or appointment by the Board of Directors or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board.

(g)        Indemnifiable Event. “Indemnifiable Event” means any event or occurrence related to the fact that the Indemnitee is, or was, an Agent or by reason of anything done or not done, or allegedly done or not done, by the Indemnitee in the capacity of any Agent.

(h)        Independent Legal Counsel. “Independent Legal Counsel” means an attorney or firm of attorneys, selected in accordance with the provisions of Section 8, whether or not in the event of a Change in Control.

(i)        Potential Change in Control. “Potential Change in Control” shall mean that any of the following have occurred: (i) any person publicly announces an intention to take or to consider taking actions which if consummated might result in a Change in Control, (ii) any “person” (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) acquires beneficial ownership, directly or indirectly, of securities of the Company representing 25% or more of the Outstanding Company Voting Securities, or (iii) the Company’s Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(j)        Proceeding. “Proceeding” means any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation, whether conducted by the Company or any other party, which the Indemnitee believes in good faith might lead to the institution of any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation, whether civil, criminal, administrative, investigative or any other type whatsoever, with respect to an Indemnifiable Event.

(k)        Reviewing Party. “Reviewing Party” means the person or body appointed by the Company’s Board of Directors pursuant to Section 12(c) and in accordance with applicable law, which person or body shall be either members of the Company’s Board of Directors who are not interested in the particular Proceeding or Independent Legal Counsel. If there has been a Change in Control, the Reviewing Party shall be Independent Legal Counsel.

(l)        Subsidiary. “Subsidiary” means any corporation, limited liability company, partnership, joint venture, trust or other entity of which more than 50% of the outstanding voting securities are owned directly or indirectly by the Company, by the Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

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(m)        Voting Securities. “Voting Securities” means any securities that vote generally in the election of directors, in the admission of general partners, or in the selection of any other similar governing body.

2.        Agreement to Serve. The Indemnitee agrees to serve the Company as an Agent, at its will (or under separate agreement, if such agreement exists), in the capacity in which the Indemnitee has been requested to serve by the Company, so long as the Indemnitee is duly appointed or elected and qualified in accordance with the Charter and By-Laws of the Company, or until such time as the Indemnitee tenders the Indemnitee’s resignation in writing, provided, however, that nothing contained in this Agreement is intended to create any right to continued service by the Indemnitee.

3.        Basic Indemnification. Subject to the terms of this Agreement:

(a)        Proceedings Successfully Defended. The Company shall indemnify the Indemnitee against all Expenses incurred in a Proceeding to the extent that he has been successful on the merits or otherwise in the defense of the Proceeding.

(b)        Proceedings Not Covered by Section 3(a). The Company shall indemnify the Indemnitee against all Expenses incurred in a Proceeding not covered by Section 3(a) above, unless the liability was incurred because the Indemnitee breached, or failed to perform, a duty owed to the Company or its shareholders and such breach or failure to perform constitutes any one of the following:

(i)        a failure to act in good faith and in a manner Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Company;

(ii)        a willful failure to deal with the Company or its shareholders in connection with a matter where the Indemnitee had a material conflict of interest;

(iii)        with respect to any criminal action, suit or proceeding, a violation of law, unless the Indemnitee had reasonable cause to believe that such conduct was lawful or no reasonable cause to believe that such conduct was unlawful;

(iv)        a transaction from which the Indemnitee derived an improper personal benefit; or

(v)        knowingly fraudulent or deliberate dishonesty or intentional misconduct.

(c)        Indemnification for Expenses as a Witness. To the extent Indemnitee is, by reason of Indemnitee’s status as an Agent of the Company, a witness in any proceeding, the Company shall indemnify Indemnitee against all expenses in connection therewith.

(d)        Success on the Merits or Otherwise. The term “success on the merits or otherwise” shall be deemed to include, without limitation, a dismissal of a Proceeding,

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a withdrawal of a Proceeding and a settlement not involving any payment or assumption of liability.

(e)        Payment. Indemnification payable under this Agreement shall be paid to the Indemnitee as soon as practicable after receipt of written demand but in any event no later than 60 days after resolution of any Proceeding pursuant to a final, non-appealable order from a court of competent jurisdiction.

4.        Additional Indemnification. The Company further agrees to indemnify the Indemnitee in connection with any Proceeding and, upon the written request of the Indemnitee, to make Expense Advances to the Indemnitee, in each case to the fullest extent as may be provided for under the Company’s Charter, By-Laws, vote of the shareholders or disinterested directors and/or applicable law notwithstanding that any such indemnification or Expense Advance is not specifically authorized by the other provisions of this Agreement. It is the intent of the parties hereto that in the event of any change, after the date of this Agreement, in any applicable law which expands the right of a Delaware corporation to indemnify or make Expense Advances to an Agent to a greater degree than would be afforded currently under the Company’s Charter, By-Laws, vote of the shareholders or disinterested directors and this Agreement, the Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change.

5.        Exclusions and Acknowledgments. Any other provision of this Agreement to the contrary notwithstanding, the Company shall not be obligated to indemnify or provide Expenses Advances to the Indemnitee:

(a)        to the extent any such indemnification or Expense Advance would be unlawful;

(b)        to the extent that the Indemnitee actually received from any other source (including an insurer) amounts otherwise payable hereunder;

(c)        with respect to an action, suit or proceeding (or part thereof) initiated by Indemnitee, except with respect to an action, suit or proceeding brought to establish or enforce a right to indemnification (which shall be governed by the provisions of Section 16 of this Agreement), unless such action, suit or proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company;

(d)        on account of any proceeding with respect to which final judgment is rendered against Indemnitee for payment or an accounting of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute; or

(e)        in connection with proceedings or claims involving the enforcement of non-competition and/or non-disclosure agreements or the non-competition and/or non-disclosure provisions of employment, consulting or similar agreements that the Indemnitee may be a party to with the Company, or any subsidiary of the Company or any other applicable foreign or domestic corporation, partnership, joint venture, trust or other enterprise, if any.

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           Indemnitee acknowledges that in certain instances, applicable law (including applicable federal law that may preempt or override applicable state law) or public policy may prohibit the Company from indemnifying the directors, officers, employees, agents or fiduciaries of the Company under this Agreement or otherwise. For example, Indemnitee acknowledges that the U.S. Securities and Exchange Commission has taken the position that indemnification of directors, officers and controlling persons of the Company for liabilities arising under federal securities laws is against public policy and, therefore, unenforceable. Indemnitee understands and acknowledges that the Company may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee. Further, the regulations of the Federal Deposit Insurance Corporation (12 CFR Section 359) prohibit indemnification of institution affiliated parties in certain circumstances, including final orders or settlements pursuant to an administrative or civil enforcement action brought by a federal banking agency. Further in addition, Indemnitees acknowledge that federal law prohibits indemnifications for certain violations of the Employee Retirement Income Security Act of 1974, as amended. Nothing herein shall be construed to provide indemnification where such indemnification is prohibited as described above.

6.        Expense Advances. If Indemnitee requests an Expense Advance, the Company shall pay such amounts within two business days after receipt of such request. The Indemnitee shall affirm to the Company his good faith belief that he is entitled to indemnification by the Company and agree to reimburse the Company for all Expense Advances paid by the Company to Indemnitee in the event and only to the extent that it shall ultimately be determined that the Indemnitee is not entitled to indemnification under this Agreement.

7.        Non-Exclusivity; Continuation. The indemnification and Expense Advances pursuant to this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Charter or By-Laws, any vote of the Company’s shareholders or disinterested directors, any other agreement, any law or otherwise, both as to actions in the Indemnitee’s official capacity and as to actions in another capacity while an Agent. All agreement sand obligations of the Company contained in this Agreement shall continue as to the Indemnitee while the Indemnitee is an Agent and after the Indemnitee has ceased to be an Agent.

8.        Change in Control. The Company agrees that if there is a Change in Control, then with respect to all matters concerning the rights of the Indemnitee to indemnification and Expense Advances under this Agreement, the Company’s Charter or By-Laws, any vote of the Company’s shareholders or disinterested directors, any other agreement, any law or otherwise, the Company shall seek legal advice only from Independent Legal Counsel. For all purposes of this Agreement, such Independent Legal Counsel shall be such person or firm selected by the Indemnitee and approved by the Company (which approval shall not be reasonably withheld) which has not otherwise performed services for the Company or the Indemnitee within the prior three years (other than in connection with such matters). The Independent Legal Counsel shall, among other things, render its written opinion to the Company and the Indemnitee as to whether and to what extent the Indemnitee is permitted to be indemnified and receive Expense Advances.

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The Company agrees to pay the fees and expenses of the Independent Legal Counsel relating to its engagement pursuant to this Agreement.

9.        Establishment of Trust. In the event of a Potential Change in Control, the Company may create a trust for the benefit of the Indemnitee (either alone or together with one or more other indemnitees; a “Trust”) and from time to time fund such Trust in such amounts as the Company’s Board of Directors may determine to satisfy Expenses reasonably anticipated to be incurred in connection with investigating, preparing for and defending any Claim relating to an Indemnifiable Event, and all judgments, fines, penalties and settlement amounts of all Claims relating to an Indemnifiable Event from time to time paid or claimed, reasonably anticipated or proposed to be paid. The terms of any Trust established pursuant hereto shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trustee shall advance, within two business days of a request by the Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 6 of this Agreement), (iii) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a person or entity satisfactory to the Indemnitee. Nothing in this Section 9 shall relieve the Company of any of its obligations under this Agreement.

10.        Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement or otherwise to indemnification or Expense Advances by the Company for a portion, but not all, of any Expenses incurred by the Indemnitee, the Company shall indemnify or provide Expense Advances to the Indemnitee (as the case may be) for the portion thereof to which the Indemnitee is entitled.

11.        Contribution. If indemnification is unavailable by reason of a court decision described in Section 12(d) based on grounds other than those set forth in Section 5(a), then in respect of any Proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of the Indemnitee’s Expenses in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and by the Indemnitee on the other hand from the transaction from which such Proceedings arose, and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such Expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations.

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12.        Procedures.

(a)        Notice and Demand. Promptly after receipt by the Indemnitee of notice of the commencement, or the threat of commencement, of any Proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification or Expense Advances with respect thereto may be sought from the Company by the Indemnitee pursuant to this Agreement, notify the Company of the commencement or threat of commencement thereof; the Indemnitee’s notice to the Company may, but need not, be substantially in the form attached hereto as Exhibit 1. Any failure of the Indemnitee to provide such notice to the Company shall not, however, relieve the Company of any liability which it may have to the Indemnitee unless and to the extent such failure causes a material adverse effect upon the ability of the Company to meet such obligations. If, at the time it receives such notice from the Indemnitee, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement, or the threat of commencement, of such Proceeding to the Company’s insurers in accordance with the procedures set forth in the respective applicable insurance policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies; provided that no such payments by such insurers shall relieve the Company of any liability or obligation which it may have to the Indemnitee except as and to the extent expressly provided under this Agreement.

(b)        Assumption of Defense. If the Company shall be obligated to pay Expenses arising in connection with any Proceeding against the Indemnitee, the Company shall be entitled to assume the defense of such Proceeding upon the delivery to the Indemnitee of notice of its election to do so. After delivery of such notice, the Company will not be liable to the Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by the Indemnitee with respect to the same Proceeding, provided that (i) the Indemnitee shall have the right to employ the Indemnitee’s own counsel in connection with any Proceeding at the Indemnitee’s expense; (ii) if (A) the employment of counsel by the Indemnitee shall have been previously authorized by the Company, (B) the Indemnitee shall have concluded, based on the written opinion of Indemnitee’s counsel (such counsel to be approved by the Company, whose approval shall not be unreasonably withheld) that there may be a conflict of interest between the Company and the Indemnitee in the conduct of such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then in each such case the fees and expenses of the Indemnitee’s counsel shall be paid by the Company in accordance with this Agreement; and (iii) the Company shall not settle any Proceeding in any manner which would impose any penalty, limitation or unindemnified Expense on the Indemnitee without the Indemnitee’s consent. The Company shall not be entitled to assume Indemnitee’s defense of any claim brought by the Company or as to whether Indemnitee shall have made the conclusion provided for in clause (B) above.

(c)        Determination of Entitlement to Indemnification. In the event of any notice under Section 12(a) by the Indemnitee for indemnification under this Agreement or otherwise, the Board of Directors of the Company shall promptly designate a Reviewing Party. The Reviewing Party shall determine that indemnification is proper if it finds that the Indemnitee has not engaged in conduct of the type set forth in Section 3(b)(i)-(iv) above and that

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indemnification is not prohibited pursuant to Section 5. If the Reviewing Party consists of members of the Company’s Board of Directors, it shall act by a majority vote. If the Reviewing Party is Independent Legal Counsel, the determination of such Reviewing Party shall be rendered in the form of a written legal opinion. Subject to Sections 12(d) and 13, any indemnification under Sections 3, 4 or 10 (unless ordered by a court) shall be made by the Company only as authorized in the specific case and upon the determination of the Reviewing Party that the Indemnitee is entitled to indemnification in the circumstances because the Indemnitee has not engaged in conduct of the type set forth in Sections 3(b)(i)-(iv) above and that indemnification is not prohibited pursuant to Section 5. The Indemnitee’s demand for indemnification shall create a presumption that the Indemnitee is entitled to indemnification and the Reviewing Party shall have 30 days from the date of receipt of the Indemnitee’s demand in which to render in writing and deliver to the Indemnitee its determination. If the Reviewing Party makes no timely determination, the Reviewing Party shall be deemed to have determined that the Indemnitee is entitled to the indemnification demanded. If the Reviewing Party determines, which determination shall be based upon clear and convincing evidence sufficient to rebut the aforesaid presumption of entitlement, that the Indemnitee is not entitled to indemnification, in whole or in part, in the circumstances because the Indemnitee has engaged in conduct of the type set forth in Section 3(b)(i)-(iv) above or because the indemnification is prohibited pursuant to Section 5, the Indemnitee shall be entitled to obtain a favorable determination or to appeal such negative determination in the manner provided in Sections 12(d) and 13.

(d)        Indemnitee’s Rights on Unfavorable Determination. Notwithstanding a determination by a Reviewing Party or any forum listed in Section 13 that the Indemnitee is not entitled to indemnification with respect to a specific Proceeding, or any claim, issue or matter therein, the Indemnitee shall have the right to apply to the Court of Chancery of Delaware or any other court of competent jurisdiction for the purpose of determining and enforcing the Indemnitee’s right to indemnification pursuant to this Agreement or otherwise and the Company hereby consents to service of process and agrees to appear in any such proceeding.

13.        Appeal of a Reviewing Party’s Determination of No Right to Indemnification.

(a)        The Indemnitee shall be entitled to select from the following alternatives a forum in which the validity of a Reviewing Party’s determination that the Indemnitee is not entitled to indemnification will be heard:

(i)        those members of the Company’s Board of Directors who are disinterested parties with respect to the Proceeding, acting by a majority vote;

(ii)        Independent Legal Counsel, in a written opinion; or

(iii)        those shareholders of the Company who are disinterested parties with respect to the Proceeding, acting by a majority vote.

(b)        As soon as practicable, and in no event later than 30 days after notice of the Indemnitee’s choice of forum pursuant to Section 13(a), the Company shall, at its own expense, submit to the selected forum in such manner as the Indemnitee or the Indemnitee’s

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counsel may reasonably request, the basis for the determination that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against and appeal such determination.

14.        Liability Insurance; Settlement.

(a)        To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or for individuals serving at the request of the Company as directors, officers, partners, venturers, proprietors, trustees, employees, agents, fiduciaries or similar functionaries of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee, agent or fiduciary under such policy or policies.

(b)        The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under the Company’s Charter or By-Laws or any insurance policy, contract, agreement or otherwise.

(c)        The parties hereto recognize that the Company may, but is not required to, procure or maintain insurance or other similar arrangements, at its expense, to protect itself and any person, including Indemnitee, who is or was a director, officer, employee, agent or fiduciary of the Company or who is or was serving at the request of the Company as a director, officer, partner, venturer, proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by such person, in such a capacity or arising out of the person’s status as such a person, whether or not the Company would have the power to indemnify such person against such expense or liability or loss. In considering the cost and availability of such insurance, the Company (through the exercise of the business judgment of its directors and officers) may, from time to time, purchase insurance which provides for certain (i) deductibles, (ii) limits on payments required to be made by the insurer, or (iii) coverage which may not be as comprehensive as that previously included in insurance purchased by the Company or its predecessors.

(d)        The Company shall have no obligation to indemnify Indemnitee under this Agreement for amounts paid in settlement of a Proceeding or claim without the Company’s prior written consent. The Company shall not settle any Proceeding or Claim in any manner that would impose any fine or other obligation on Indemnitee without Indemnitee’s prior written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement.

15.        Binding Effect; Successors and Assigns. This Agreement shall bind and inure to the benefit of the successors, heirs, personal and legal representatives and assigns of the parties hereto, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all, substantially all or a substantial part of the business or assets of the Company. The

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Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

16.        Expenses and Expense Advances to Enforce the Agreement. It is the intent of the Company that the Indemnitee shall not be required to incur any Expenses arising from any effort to enforce the Indemnitee’s rights under this Agreement, because incurring such Expenses would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. Notwithstanding the foregoing, the Company shall not be obligated pursuant to this Agreement to indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, unless Indemnitee is successful in establishing Indemnitee’s right to indemnification in such action, suit or proceeding, in whole or in part, or unless and to the extent that the court in such action, suit or proceeding shall determine that, despite Indemnitee’s failure to establish their right to indemnification, Indemnitee is entitled to indemnity for such expenses; provided, however, that nothing in this Section 16 is intended to limit the Company’s obligation with respect to the advancement of expenses to Indemnitee in connection with any such action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, as provided in Section 6 hereof.

17.        Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) when delivered by hand or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party shall be as show in Section 26 of this Agreement or as subsequently modified by the addressee by such written notice.

18.        Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and (iii) to the fullest extent possible, any such provision held to be invalid, illegal or unenforceable shall be reformed so as to be valid, legal and enforceable and to give effect to the intent manifested by such provision.

19.        Modifications, Amendments, and Waivers. No modification or amendment of this Agreement, or waiver of any of the provisions hereof, shall be binding unless executed in writing by both of the parties hereto, in the case of a modification or amendment, or by the waiving party, in the case of a waiver. No waiver of any such provision shall be deemed to constitute a waiver of such provision on any other occasion or a waiver of any other provision.

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20.        Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the nonexclusive jurisdiction of Delaware for any purpose in connection with any action or proceeding that arises out of or relates to this Agreement.

21.        Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.

22.        Subrogation. In the event of payment by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who agrees, at the sole expense of the Company, to execute all papers reasonably required and to do all other acts and things that may be reasonably necessary on the part of the Indemnitee to secure such rights, including the execution of documents necessary to enable the Company to bring suit to enforce such rights.

23.        Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof.

24.        Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

25.        Amendments to Indemnification Rights. The Company shall not adopt any amendment to its Charter or By-Laws the effect of which would be to deny, diminish or encumber Indemnitee’s rights to indemnify pursuant to the Charter, By-Laws, the laws of Delaware or any other applicable law as applied to any act or failure to act occurring in whole or in part prior to the date (the “Effective Date”) upon which the amendment was approved by the Company’s Board of Directors or shareholders, as the case may be. In the event that the Company shall adopt any amendment to the Charter or By-Laws the effect of which is to change Indemnitee’s rights to indemnity under such instruments, such amendment shall apply only to acts or failures to act occurring entirely after the Effective Date thereof. The Company shall give written notice to Indemnitee of any proposal with respect to any such amendment no later than the date such amendment is first presented to the Board of Directors (or any committee thereof) for consideration, and shall provide a copy of any such amendment to Indemnitee promptly after its adoption.

26.        Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made to the respective parties at their addresses set forth below:

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If to the Company, at:

NewAlliance Bancshares, Inc.

195 Church Street

New Haven, Connecticut 06510

Attn: Lead Director

If to Indemnitee, at:

The address last appearing

on the personnel records of

the Company.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

NEWALLIANCE BANCSHARES, INC.
By:    _________________________________
	Peyton R. Patterson
	Chairman, President and
	Chief Executive Officer
_____________________________________ [Name of Indemnitee]

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Exhibit 1

NOTICE AND DEMAND FOR INDEMNIFICATION

1.     This Notice and Demand for Indemnification is submitted pursuant to the Indemnification Agreement, dated as of _________________, between NewAlliance Bancshares, Inc., a Delaware corporation (the “Company”), and the undersigned (the “Agreement”). Capitalized terms used but not defined herein shall have the respective meanings set forth in the Agreement.

2.     I am notifying the Company as to the following Proceeding:_______________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________.

.

3.     I am requesting indemnification and Expense Advances with respect to such Proceeding to the full extent provided for in the Agreement or to which I may otherwise be entitled.

Signed:    _________________________________

Dated:    _________________________________

EX-21

		EXHIBIT 21
Subsidiaries of NewAlliance Bancshares, Inc.
	NewAlliance Bank, a Connecticut chartered savings bank
	Alliance Capital Trust I, a Delaware Statutory Business Trust
	Alliance Capital Trust II, a Delaware Statutory Business Trust
	Westbank Capital Trust II, a Delaware Statutory Business Trust
	Westbank Capital Trust III, a Delaware Statutory Business Trust
Subsidiaries of NewAlliance Bank
	NewAlliance Bank Community Development Corporation, a Connecticut corporation
	The Loan Source, Inc., a Connecticut corporation
	NewAlliance Servicing Company, a Connecticut corporation
	NewAlliance Investments, Inc., a Connecticut corporation

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 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 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 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 of the end of the period covered by this 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 of internal control over financial reporting, 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 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 27, 2007

/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 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 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 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 of the end of the period covered by this 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 of internal control over financial reporting, 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 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 27, 2007

/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 and Chief Executive Officer hereby certify that NewAlliance Bancshares, Inc.’s annual report on Form 10-K for the year ended December 31, 2006 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 27, 2007

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, 2006 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 27, 2007

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.