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

FORM 10-Q

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

OR

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

Commission File Number: 001-32007

NEWALLIANCE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

(203) 789-2767

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

TABLE OF CONTENTS
Part I – FINANCIAL INFORMATION
	Page No.

	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets at September 30, 2008 and December 31, 2007	3
		Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007	4
		Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2008	5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007	6
		Notes to Unaudited Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
	Item 4.	Controls and Procedures	43
	Item 4T.	Controls and Procedures	43
Part II – OTHER INFORMATION
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	44
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 3.	Defaults Upon Senior Securities	47
	Item 4.	Submission of Matters to a Vote of Security Holders	47
	Item 5.	Other Information	48
	Item 6.	Exhibits	48
SIGNATURES

2

NewAlliance Bancshares, Inc.

Consolidated Balance Sheets

	September 30,			December 31,
(In thousands, except per share data) (Unaudited)	2008			2007
Assets
Cash and due from banks, noninterest bearing	$	112,121		$	108,917
Federal funds sold		50,000			-
Short term investments		25,000			51,962
Cash and cash equivalents		187,121			160,879
Investment securities available for sale (note 5)		2,006,822			2,201,021
Investment securities held to maturity (note 5)		299,622			290,472
Loans held for sale		4,687			2,669
Loans, net (note 6)		4,904,301			4,684,156
Premises and equipment, net		59,832			61,939
Cash surrender value of bank owned life insurance		135,975			132,059
Goodwill (note 7)		527,167			531,191
Identifiable intangible assets (note 7)		46,224			53,316
Other assets (note 8)		93,510			93,282
Total assets	$	8,265,261		$	8,210,984
Liabilities
Deposits (note 9)
Non-interest bearing	$	497,749		$	477,408
Savings, interest-bearing checking and money market		2,103,717			1,834,190
Time		1,805,488			2,062,067
Total deposits		4,406,954			4,373,665
Borrowings (note 10)		2,386,788			2,355,504
Other liabilities		71,113			74,708
Total liabilities		6,864,855			6,803,877
Commitments and contingencies (note 14)
Stockholders’ Equity
Preferred stock, $0.01 par value; authorized 38,000 shares; none issued		–			–
Common stock, $0.01 par value; authorized 190,000 shares; issued 121,486 shares at September 30, 2008 and December 31, 2007		1,215			1,215
Additional paid-in capital		1,244,691			1,242,100
Unallocated common stock held by ESOP		(93,295	)		(96,039	)
Unearned restricted stock compensation		(20,130	)		(25,466	)
Treasury stock, at cost (14,427 shares at September 30, 2008 and 12,634 shares at December 31, 2007)		(200,428	)		(178,401	)
Retained earnings		465,496			451,729
Accumulated other comprehensive income (note 16)		2,857			11,969
Total stockholders’ equity		1,400,406			1,407,107
Total liabilities and stockholders’ equity	$	8,265,261		$	8,210,984

See accompanying notes to consolidated financial statements.

3

NewAlliance Bancshares, Inc.

Consolidated Statements of Income

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands, except share data) (Unaudited)	2008			2007			2008		2007
Interest and dividend income
Residential real estate loans	$	35,202		$	32,861		$	102,992	$	94,410
Commercial real estate loans		18,273			18,630			55,450		55,638
Commercial business loans		7,021			8,473			21,205		25,453
Consumer loans		9,718			11,128			29,551		32,769
Investment securities		28,334			30,057			90,269		86,186
Federal funds sold and other short-term investments		494			704			969		2,314
Total interest and dividend income		99,042			101,853			300,436		296,770
Interest expense
Deposits		24,610			32,775			79,413		97,451
Borrowings		26,373			25,386			78,710		69,613
Total interest expense		50,983			58,161			158,123		167,064
Net interest income before provision for loan losses		48,059			43,692			142,313		129,706
Provision for loan losses		4,200			1,000			9,600		2,600
Net interest income after provision for loan losses		43,859			42,692			132,713		127,106
Non-interest income
Depositor service charges		7,052			7,419			20,393		20,911
Loan and servicing income		325			522			971		1,580
Trust fees		1,635			1,724			4,984		5,067
Investment management, brokerage & insurance fees		1,872			1,976			6,248		5,511
Bank owned life insurance		1,164			1,639			3,984		4,809
Net (loss) gain on securities		(215	)		(5,641	)		1,010		(27,828	)
Net gain on sale of loans		428			328			1,341		992
Other		1,144			2,490			4,660		5,877
Total non-interest income		13,405			10,457			43,591		16,919
Non-interest expense
Salaries and employee benefits (notes 11 & 12)		22,354			19,714			68,978		63,207
Occupancy		4,415			4,456			13,629		13,185
Furniture and fixtures		1,624			1,647			4,964		5,090
Outside services		5,047			4,195			13,791		12,955
Advertising, public relations, and sponsorships		1,667			1,862			5,412		5,800
Amortization of identifiable intangible assets		2,364			2,957			7,092		8,995
Merger related charges		99			70			177		2,409
Other		3,801			3,680			10,883		10,644
Total non-interest expense		41,371			38,581			124,926		122,285
Income before income taxes		15,893			14,568			51,378		21,740
Income tax provision (note 13)		4,957			7,147			15,726		8,882
Net income	$	10,936		$	7,421		$	35,652	$	12,858
Basic earnings per share (note 17)	$	0.11		$	0.07		$	0.36	$	0.12
Diluted earnings per share (note 17)		0.11			0.07			0.36		0.12
Weighted-average shares outstanding (note 17)
Basic		98,988,777			103,173,249			99,802,810		103,792,415
Diluted		99,145,940			103,610,578			99,855,692		104,363,092
Dividends per share	$	0.07		$	0.065		$	0.205	$	0.19

See accompanying notes to consolidated financial statements.

4

NewAlliance Bancshares, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

									Unallocated			Unearned									Accumulated
	Common			Par Value		Additional			Common			Restricted									Other			Total
For the Nine Months Ended September 30, 2008	Shares			Common		Paid-in			Stock Held			Stock			Treasury			Retained			Comprehensive			Stockholders’
(In thousands, except per share data) (Unaudited)	Outstanding			Stock		Capital			by ESOP			Compensation			Stock			Earnings			Income			Equity
Balance December 31, 2007		108,852		$	1,215	$	1,242,100		$	(96,039	)	$	(25,466	)	$	(178,401	)	$	451,729		$	11,969		$	1,407,107
Dividends declared ($0.205 per share)																			(20,823	)					(20,823	)
Allocation of ESOP shares, net of tax							(209	)		2,744															2,535
Treasury shares acquired (note 15)		(1,793	)													(22,027	)								(22,027	)
Restricted stock expense													5,336												5,336
Book (over)/under tax benefit of stock-based compensation							(408	)																	(408	)
Stock option expense							3,208																		3,208
Adoption of EITF 06-4 and EITF 06-10, net of tax (Note 2)																			(1,062	)					(1,062	)
Comprehensive income:
Net income																			35,652						35,652
Other comprehensive loss, net of tax (note 16)																						(9,112	)		(9,112	)
Total comprehensive income																									26,540
Balance September 30, 2008		107,059		$	1,215	$	1,244,691		$	(93,295	)	$	(20,130	)	$	(200,428	)	$	465,496		$	2,857		$	1,400,406

See accompanying notes to consolidated financial statements.

5

NewAlliance Bancshares, Inc.

Consolidated Statements of Cash Flows

	Nine Months Ended
	September 30,
(In thousands) (Unaudited)	2008			2007
Cash flows from operating activities
Net income	$	35,652		$	12,858
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		9,600			2,600
Gain on sale of OREO		(68	)		-
Restricted stock compensation expense		5,336			5,614
Stock option compensation expense		3,208			3,338
ESOP expense		2,535			2,854
Amortization of identifiable intangible assets		7,092			8,996
Net amortization/accretion of fair market adjustments from net assets acquired		(3,369	)		(5,267	)
Net amortization/accretion of investment securities		(1,583	)		(643	)
Change in deferred income taxes		166			3,897
Depreciation and amortization		5,264			5,340
Net (gain) loss on securities		(3,620	)		5,254
Impairment of investment portfolio		2,610			22,574
Net gain on sales of performing loans		(1,341	)		(992	)
Proceeds from sales of loans held for sale		77,049			42,968
Loans originated for sale		(80,409	)		(45,500	)
Net loss (gain) on sale of fixed assets		7			(138	)
Gain on limited partnerships		(668	)		(1,774	)
Increase in cash surrender value of bank owned life insurance		(3,984	)		(4,809	)
Decrease in other assets		5,607			67,476
Decrease in other liabilities		(1,208	)		(17,206	)
Net cash provided by operating activities		57,876			107,440
Cash flows from investing activities
Purchase of securities available for sale		(557,600	)		(1,149,502	)
Purchase of securities held to maturity		(58,995	)		(19,378	)
Proceeds from maturity, sales, calls and principal reductions of securities available for sale		740,384			1,192,676
Proceeds from maturity, calls and principal reductions of securities held to maturity		50,498			43,049
Proceeds from sales of fixed assets		659			10
Net increase in loans held for investment		(227,992	)		(405,850	)
Net cash acquired in acquisitions		-			124,163
Proceeds from sales of other real estate owned		806			-
Proceeds from bank owned life insurance		67			-
Purchase of premises and equipment		(3,765	)		(3,757	)
Net cash used by investing activities		(55,938	)		(218,589	)
Cash flows from financing activities
Net increase (decrease) in customer deposit balances		33,214			(237,563	)
Net decrease in short-term borrowings		(6,680	)		(13,667	)
Proceeds from long-term borrowings		410,000			1,044,800
Repayments of long-term borrowings		(368,972	)		(567,476	)
Shares issued for stock option exercise		-			42
Book (over)/under tax benefit of stock-based compensation		(408	)		470
Acquisition of treasury shares		(22,027	)		(28,302	)
Dividends paid		(20,823	)		(20,191	)
Net cash provided by financing activities		24,304			178,113
Net increase in cash and cash equivalents		26,242			66,964
Cash and equivalents, beginning of period		160,879			156,025
Cash and equivalents, end of period	$	187,121		$	222,989
Supplemental information
Cash paid for
Interest on deposits and borrowings	$	160,505		$	164,755
Income taxes paid, net		15,596			8,115
Noncash transactions
Net non-cash liabilities acquired		-			145,521
Value of shares issued for acquisitions		-			58,939

See accompanying notes to consolidated financial statements.

6

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

7

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

beginning after November 15, 2008, with early application encouraged. Management believes that the adoption of SFAS No. 161 will not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” which replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) requires among other things, that acquisition-related transaction and restructuring costs be expensed rather than capitalized as part of the cost of the acquisition; that the acquiring entity in a business combination recognizes all the assets acquired and liabilities assumed in the transaction; that the acquisition-date fair value be used as the measurement objective for all assets acquired and liabilities assumed; and that the acquirer provide certain disclosures that will allow users of the financial statements to understand the nature and financial effect of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and would apply prospectively to any future business combinations. The adoption of SFAS No. 141(R) on January 1, 2009 is expected to have a significant impact on the Company’s accounting for business combinations closed on or after this date.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, to permit all entities to choose to elect to measure eligible financial instruments at fair value. A business entity shall report in earnings, unrealized gains and losses on items for which the fair value option has been elected. Eligible items include any recognized financial assets and liabilities with certain exceptions including but not limited to, deposit liabilities, investments in subsidiaries, and certain deferred compensation arrangements. The decision about whether to elect the fair value option is generally applied on an instrument-by-instrument basis, is generally irrevocable, and is applied only to an entire instrument and not to only specified risks, specific cash flows, or portions of that instrument. The adoption of this Statement as of January 1, 2008 did not have a material impact on the Company’s consolidated financial statements. Management did not elect the fair value option for any of the Company’s eligible financial assets or liabilities on January 1, 2008.

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

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles (“GAAP”). As a result of SFAS No. 157, there is now a common definition of fair value to be used throughout GAAP as it establishes a fair value hierarchy. SFAS No. 157 requires companies to make expanded disclosures about fair value measurements. The Company adopted SFAS No. 157 effective January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial statements. See Note 3 in Notes to Unaudited Consolidated Financial Statements for additional information.

In February 2008, the FASB issued FASB Staff Position FAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”), which delays the January 1, 2008 effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Management has not yet determined the impact of the adoption of FSP No. 157-2 upon the Company’s consolidated financial statements.

In September 2006, the FASB reached a consensus on Emerging Issues Task Force (“EITF”) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-4”). In March 2007, the FASB reached a consensus on EITF Issue 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-10”). Both of these standards require a company to recognize an obligation over an employee’s service period based upon the substantive agreement with an employee such as the promise to maintain a life insurance policy or provide a death benefit. The Company adopted the provisions of these standards effective January 1, 2008 which resulted in the recording of a liability of $1.6 million with a corresponding reduction to retained earnings, (net of tax).

8

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

3.

Fair Value Measurements

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

• Level 1 – Quoted prices in active markets for identical assets or liabilities.

• Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. This category generally includes U.S. Government and agency mortgage-backed securities and corporate debt securities.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted prices are not available, then fair values are estimated by using pricing models (i.e. matrix pricing) or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments would include mortgage-backed securities and municipal obligations.

The Company utilizes a third party, nationally recognized pricing service (“pricing service”) to estimate fair value measurements for 98.6% of its investment securities portfolio. The pricing service evaluates each asset class based on relevant market information considering observable data that may include dealer quotes, reported trades, market spreads, cash flows, the U.S. Treasury yield curve, the LIBOR swap yield curve, trade execution data, market prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value prices on all investment securities are reviewed for reasonableness by management through an extensive process. This review process includes an analysis of changes in the LIBOR / swap curve, the treasury curve, mortgage rates and credit spreads as well as a review of the securities inventory list which details issuer name, coupon and maturity date for unusual market price fluctuations. Also, management assessed the valuation techniques used by the pricing service based on a review of their pricing methodology to ensure proper hierarchy classifications.

The Company does not use the nationally recognized pricing service for its auction rate certificates. The Company owns auction rate certificates which are pools of government guaranteed student loans that are issued by state student loan departments. At September 30, 2008, these securities comprised 1.4%, or $25.7 million, of the Company’s total investment portfolio. Due to the lack of liquidity in the auction rate market, the Company obtained a market price from the market maker that factored in credit risk and liquidity premiums that determined a current fair value market price of 92.0%.

Loan Servicing Rights: A Loan Servicing Right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. As such, measurement at fair value is on a nonrecurring basis. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

Impaired Loans: Impaired loans for which the Bank expects to receive less than the contracted balance are written down to fair value. Consequently, measurement at fair value is on a nonrecurring basis. These loans are written down through a specific reserve within the Bank’s total loan loss reserve allowance. The fair value of these assets are classified within Level 3 of the valuation hierarchy and are estimated based on either collateral values supported by appraisals, or observed market prices.

9

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

	September 30, 2008
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)
Securities Available for Sale, excluding Federal Home Loan Bank stock	$	210,885	$	1,649,439	$	25,677

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

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

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

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

	September 30, 2008
	Quoted Prices in		Significant		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(In thousands)	(Level 1)		(Level 2)		(Level 3)
Loan Servicing Rights	$	-	$	-	$	3,432
Impaired Loans		-		-		10,666

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

10

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

	September 30, 2008									December 31, 2007
				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	$	592	$	2	$	-		$	594	$	1,092	$	3	$	-		$	1,095
U.S. Government sponsored enterprise obligations		195,679		204		(960	)		194,923		201,408		672		(21	)		202,059
Corporate obligations		7,153		-		(541	)		6,612		22,531		130		(146	)		22,515
Other bonds and obligations		47,518		82		(3,916	)		43,684		52,853		56		(275	)		52,634
Marketable and trust preferred equity securities		69,855		132		(9,058	)		60,929		86,543		154		(3,231	)		83,466
Federal Home Loan Bank stock		120,821		-		-			120,821		113,760		-		-			113,760
Mortgage-backed securities		1,562,691		20,247		(3,679	)		1,579,259		1,706,966		21,098		(2,572	)		1,725,492
Total available for sale		2,004,309		20,667		(18,154	)		2,006,822		2,185,153		22,113		(6,245	)		2,201,021
Held to maturity
Mortgage-backed securities		292,512		4,384		(322	)		296,574		282,887		4,362		(281	)		286,968
Other bonds		7,110		54		-			7,164		7,585		25		(33	)		7,577
Total held to maturity		299,622		4,438		(322	)		303,738		290,472		4,387		(314	)		294,545
Total securities	$	2,303,931	$	25,105	$	(18,476	)	$	2,310,560	$	2,475,625	$	26,500	$	(6,559	)	$	2,495,566

During the third quarter, management determined that the following three investments had other-than-temporary impairment for which charges were recorded:
•	A security in a regional bank - $1.6 million. This trust preferred equity security was deemed to be other-than-temporarily impaired as a result of the combined factors of severity and duration that the security had been below book value and because the security has depreciated more than other similar securities which indicates market participants view some enhanced risk in the timely realization of all cash flows. The Company’s remaining cost position in this security at September 30, 2008 was $3.1 million.
•	Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”) - $790,000. As of result of actions taken on September 7, 2008 by the United States Treasury Department and the Federal Housing Finance Agency with respect to placing Freddie Mac into conservatorship, the Company’s 25,000 shares of Freddie Mac Series F perpetual preferred stock were deemed to be other-than-temporarily impaired and was written down to $60,500.
•	Lehman Brothers - $193,000. Upon Lehman Brothers September 15, 2008 announcement declaring Chapter 11 bankruptcy, the Company recognized an other-than-temporary impairment charge on its holding of 5,000 shares of Series C perpetual preferred stock and was written down to $2,150.

11

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

	Less Than One Year				More Than One Year				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)		value		losses		value		losses		value		losses
U. S. Treasury obligations	$	-	$	-	$	-	$	-	$	-	$	-
U. S. Government sponsored enterprise obligations		155,364		960		-		-		155,364		960
Corporate obligations		6,612		541		-		-		6,612		541
Other bonds and obligations		34,325		3,916		-		-		34,325		3,916
Marketable and trust preferred equity obligations		36,347		8,433		1,365		625		37,712		9,058
Mortgage-backed securities		331,009		4,001		-		-		331,009		4,001
Total securities with unrealized losses	$	563,657	$	17,851	$	1,365	$	625	$	565,022	$	18,476

Of the securities summarized above, 108 issues have unrealized losses for less than twelve months and one has an unrealized loss for twelve months or more. Management believes that no individual unrealized loss as of September 30, 2008 represents an other-than-temporary impairment, based on its detailed monthly review of the securities portfolio. Among other things, the other-than-temporary impairment review of the investment securities portfolio focuses on the combined factors of percentage and length of time by which an issue is below book value as well as consideration of company specific (cash flow interruptions), broad market details and the Company’s intent and ability to retain its investment for a period of time sufficient to allow for the anticipated recovery in market value. The Company also considers whether the depreciation is due to interest rates or credit risk. The following paragraphs outline the Company’s position related to unrealized losses in its investment securities portfolio at September 30, 2008.

The unrealized losses reported for U.S. Government sponsored obligations and corporate obligations are related to changes in market interest rates.

The unrealized losses reported on mortgage-backed securities relate to securities issued by Federal National Mortgage Association (“FNMA”), FHLMC and AAA rated securities issued by private institutions. The unrealized losses on the securities issued by FNMA and FHLMC are due to changes in market interest rates while widening in non-agency mortgage spreads is the primary factor for the unrealized losses reported on AAA rated securities issued by private institutions. The Company’s privately issued AAA rated mortgage-backed securities are substantially paid down, well seasoned and of an earlier vintage that are not affected by high delinquency levels or vulnerable to lower collateral coverage as seen in later issued pools. None of the securities are backed by sub-prime mortgage loans. All securities are performing in accordance with contractual terms.

The unrealized losses reported for other bonds and obligations are primarily related to federally guaranteed student loan auction rate certificates that are currently experiencing failing auctions. Unrealized losses in this category also relate to a position in a short-term adjustable rate mortgage mutual fund that holds positions in non-agency mortgage-backed securities that are facing negative mark to market pressures due to widening spreads in non-agency mortgage products. All securities are performing in accordance with contractual terms.

The Bank owns trust preferred securities with amortized cost of $48.6 million. $6.8 million are pooled trust preferred, with $4.8 million rated AAA and $2.0 million rated AA. The remaining $41.8 million are “individual names” with ratings of A- to AA-. The unrealized losses reported for trust preferred equity securities relate to changes in market interest rates and to the current market stress partially resulting from efforts by banks to raise capital. This has in turn inflated coupon rates on new issues of trust preferred equity securities versus lower rates on the Company’s portfolio of A- to AAA rated, non-perpetual seasoned issues of trust preferred equity securities. In accordance with the Company’s internal policies for review of other-than-temporary impairment, a detailed review of certain trust preferred equity securities was completed. This analysis determined that there was no other-than-temporary impairment at quarter end. All trust preferred equity securities carried below market value are current and no impairment of cash flows is anticipated.

The Company has the ability and intent to hold the securities contained in the table for a period of time necessary to recover the unrealized losses, which may be until maturity.

12

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

6.	Loans
	The composition of the Company’s loan portfolio is as follows:
			September 30,			December 31,
	(In thousands)		2008			2007
	Residential real estate	$	2,540,062		$	2,360,921
	Commercial real estate		1,023,711			947,185
	Construction
	Residential		16,900			29,023
	Commercial		182,955			247,428
	Commercial business		459,998			457,745
	Consumer
	Home equity and equity lines of credit		705,148			652,107
	Other		24,702			33,560
	Total consumer		729,850			685,667
	Total loans		4,953,476			4,727,969
	Allowance for loan losses		(49,175	)		(43,813	)
	Total loans, net	$	4,904,301		$	4,684,156

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

The following table provides a summary of activity in the allowance for loan losses.
	At or For the Three Months				At or For the Nine Months
	Ended September 30,				Ended September 30,
(In thousands)		2008		2007		2008		2007
Balance at beginning of period	$	47,798	$	42,423	$	43,813	$	37,408
Net allowances gained through acquisition		-		-		-		3,894
Provision for loan losses		4,200		1,000		9,600		2,600
Charge-offs
Residential and commercial real estate loans		910		3		1,061		4
Commercial construction		1,431		-		2,431		285
Commercial business loans		468		528		1,143		1,186
Consumer loans		496		162		847		450
Total charge-offs		3,305		693		5,482		1,925
Recoveries
Residential and commercial real estate loans		255		16		285		11
Commercial construction		-		-		-		281
Commercial business loans		186		218		849		534
Consumer loans		41		36		110		197
Total recoveries		482		270		1,244		1,023
Net charge-offs		2,823		423		4,238		902
Balance at end of period	$	49,175	$	43,000	$	49,175	$	43,000

13

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

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

14

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

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

15

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

The following table presents the amount of net periodic pension cost for the three months ended September 30, 2008 and 2007.
							Supplemental
							Executive				Other Postretirement
	Qualified Pension						Retirement Plans				Benefits
(In thousands)	2008			2007			2008		2007		2008			2007
Service cost - benefits earned during the period	$	787		$	809		$	134	$	125	$	49		$	50
Interest cost on projected benefit obligation		1,363			1,258			177		159		93			88
Expected return on plan assets		(1,798	)		(1,786	)		-		-		-			-
Amortization:
Transition		-			-			-		-		13			13
Prior service cost		13			13			2		2		-			-
Loss (gain)		-			79			-		-		(20	)		(6	)
Net periodic benefit cost	$	365		$	373		$	313	$	286	$	135		$	145
The following table presents the amount of net periodic pension cost for the nine months ended September 30, 2008 and 2007:
							Supplemental
							Executive				Other Postretirement
	Qualified Pension						Retirement Plans				Benefits
(In thousands)	2008			2007			2008		2007		2008			2007
Service cost - benefits earned during the period	$	2,362		$	2,427		$	403	$	375	$	147		$	149
Interest cost on projected benefit obligation		4,089			3,773			530		477		279			263
Expected return on plan assets		(5,393	)		(5,357	)		-				-			-
Amortization:
Transition		-			-			-		-		39			39
Prior service cost		38			38			5		5		-			-
Gain (loss)		-			238			-		-		(60	)		(17	)
Net periodic benefit cost	$	1,096		$	1,119		$	938	$	857	$	405		$	434

In connection with its conversion to a state-chartered stock bank, the Company established an employee stock ownership plan (“ESOP”) to provide substantially all employees of the Company the opportunity to become stockholders. The ESOP borrowed $109.7 million of a $112.0 million line of credit from the Company and used the funds to purchase 7,454,562 shares of common stock in the open market subsequent to the subscription offering. The loan will be repaid principally from the Bank’s discretionary contributions to the ESOP over a remaining period of 26 years. The unallocated ESOP shares are pledged as collateral on the loan.

At September 30, 2008, the loan had an outstanding balance of $100.5 million and an interest rate of 4.0%. The Company accounts for its ESOP in accordance with Statement of Position (“SOP”) 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” Under SOP 93-6, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders’ equity as unearned compensation. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, this difference will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released to the extent of the principal paydown on the loan by the ESOP. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s financial statements. Dividends on unallocated shares are used to pay the ESOP debt. The ESOP compensation expense for the three and nine months ended September 30, 2008 was approximately $848,000 and $2.4 million, respectively. For the three and nine months ended September 30, 2007, the ESOP compensation expense was approximately $950,000 and $2.9 million, respectively. The amount of loan repayments made by the ESOP is used to reduce the unallocated common stock held by the ESOP.

The ESOP shares as of September 30, 2008 were as follows:
Shares released for allocation		1,100,365
Unreleased shares		6,354,197
Total ESOP shares		7,454,562
Market value of unreleased shares at September 30, 2008 (in thousands)	$	95,504

16

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

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

A summary of option activity as of September 30, 2008 and changes during the period ended is presented below.
					Weighted-
			Weighted-		Average		Aggregate
			Average		Remaining		Intrinsic
			Exercise		Contractual		Value
	Shares		Price		Term		($000)
Options outstanding at beginning of year	8,537,660		$	14.41
Granted	87,462			12.48
Exercised	-			-
Forfeited/cancelled	(48,904	)		14.35
Expired	(191,071	)		14.39
Options outstanding at September 30, 2008	8,385,147		$	14.39		6.78	$	5,415
Options exercisable at September 30, 2008	6,661,700		$	14.40		6.72	$	4,201

17

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

The following table summarizes the nonvested options during the nine months ended September 30, 2008.
				Weighted-average
				Grant-Date
	Shares			Fair Value
Nonvested at January 1, 2008		1,801,508		$	2.65
Granted		87,462			2.05
Vested		(116,619	)		2.64
Forfeited / Cancelled		(48,904	)		2.59
Nonvested at September 30, 2008		1,723,447		$	2.62

Restricted Stock Awards

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

The following table summarizes the nonvested restricted stock awards during the nine months ended September 30, 2008.
				Grant-Date
	Shares			Fair Value
Nonvested at January 1, 2008		2,262,216		$	14.42
Granted		59,463			12.10
Vested		(600,956	)		14.41
Forfeited / Cancelled		(64,508	)		14.40
Nonvested at September 30, 2008		1,656,215		$	14.33

13.

Income Taxes

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

The allocation of deferred tax expense involving items charged to income, items charged directly to shareholders’ equity and items charged to goodwill is as follows:
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2008			2007		2008			2007
Deferred tax (benefit) expense allocated to:
Stockholders’ equity, tax effect of net unrealized (loss) gain on
investment securities available for sale, net of valuation allowance	$	(1,136	)	$	4,293	$	(4,243	)	$	11,882
Stockholders’ equity, tax impact of adoption of EITF 06-04		(8	)		-		(580	)		-
Goodwill		(951	)		2,005		(1,207	)		(1,807	)
Income		(111	)		8,733		166			3,897
Total deferred tax (benefit) expense	$	(2,206	)	$	15,031	$	(5,864	)	$	13,972

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NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

The Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
	Nine Months Ended
(In thousands)	September 30, 2008
Balance at December 31, 2007	$	4,436
Additions for tax positions of current year		120
Additions for tax positions of prior year		44
Reductions for tax positions of prior year		(4,175	)
Balance at September 30, 2008	$	425

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

The table below summarizes the Company’s commitments and contingencies discussed above.
	September 30,		December 31,
(In thousands)		2008		2007
Loan commitments	$	105,163	$	71,191
Unadvanced portion of construction loans		105,768		163,302
Standby letters of credit		7,698		15,885
Unadvanced portion of lines of credit		618,937		560,298
Total commitments	$	837,566	$	810,676

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NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

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

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NewAlliance Bancshares, Inc.

Notes to Unaudited Consolidated Financial Statements

	Actual				Purposes				Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
NewAlliance Bank
September 30, 2008
Tier 1 Capital (to Average Assets)	$	721,469	9.4	%	$	306,292	4.0	%	$	382,865	5.0	%
Tier 1 Capital (to Risk Weighted Assets)		721,469	16.1			179,727	4.0			269,591	6.0
Total Capital (to Risk Weighted Assets)		770,644	17.2			359,454	8.0			449,318	10.0
December 31, 2007
Tier 1 Capital (to Average Assets)	$	692,735	9.1	%	$	304,876	4.0	%	$	381,095	5.0	%
Tier 1 Capital (to Risk Weighted Assets)		692,735	15.6			178,102	4.0			267,153	6.0
Total Capital (to Risk Weighted Assets)		736,548	16.5			356,204	8.0			445,254	10.0
NewAlliance Bancshares, Inc.
September 30, 2008
Tier 1 Capital (to Average Assets)	$	846,409	11.0	%	$	306,855	4.0	%	$	383,569	5.0	%
Tier 1 Capital (to Risk Weighted Assets)		846,409	18.8			180,276	4.0			270,414	6.0
Total Capital (to Risk Weighted Assets)		895,385	19.9			360,552	8.0			450,690	10.0
December 31, 2007
Tier 1 Capital (to Average Assets)	$	833,596	10.9	%	$	305,288	4.0	%	$	381,610	5.0	%
Tier 1 Capital (to Risk Weighted Assets)		833,596	18.6			179,225	4.0			268,837	6.0
Total Capital (to Risk Weighted Assets)		877,409	19.6			358,449	8.0			448,062	10.0

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

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

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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:

• General economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services;

• Adverse changes may occur in the securities markets impacting the value of NewAlliance’s investments;

• Changes in the interest rate environment may reduce net interest margin and/or the volumes and values of loans made or held as well as the value of other financial assets held;

• Competitive pressures among depository and other financial institutions may increase significantly and may decrease the profit margin associated with its business;

• The recently enacted Emergency Economic Stabilization Act of 2008 (“EESA”) is expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company;

• Other legislative or regulatory changes, including those related to residential mortgages and changes in accounting standards, may adversely affect the businesses in which NewAlliance is engaged;

• Local, state or federal taxing authorities may take tax positions that are adverse to NewAlliance;

• Costs or difficulties related to the integration of acquired businesses may be greater than expected;

• Expected cost savings associated with completed mergers may not fully be realized or realized within expected time frames;

• Deposit attrition, customer loss or revenue loss following completed mergers may be greater than expected; and

• Competitors of NewAlliance may have greater financial resources and develop products that enable them to compete more successfully than NewAlliance.

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

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

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

MD&A is provided as a supplement to—and should be read in conjunction with—our Consolidated Financial Statements (unaudited) and the accompanying notes thereto contained in Part I, Item 1, of this report as well as our Annual Report on Form 10-K for the year ended December 31, 2007. The following sections are included in MD&A:

• Our Business — a general description of our business, our objectives and regulatory considerations.

• Critical Accounting Estimates — a discussion of accounting estimates that require critical judgments and estimates.

• Recent Accounting Changes — a discussion of recently adopted accounting pronouncements or changes.

• Operating Results — an analysis of our Company’s consolidated results of operations for the periods presented in our Consolidated Financial Statements.

• Financial Condition and Management of Market and Interest Rate Risk — an overview of financial condition and market and interest rate risk.

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Our Business

General

NewAlliance is the third largest banking institution headquartered in Connecticut and the fourth largest based in New England with consolidated assets of $8.27 billion and stockholders’ equity of $1.40 billion at September 30, 2008. Its business philosophy is to operate as a community bank with local decision-making authority.

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

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

Our Objectives

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

• Build high quality, profitable loan portfolios using organic, purchase and acquisition strategies;

• Increase core deposit relationships with a focus on checking and savings accounts;

• Increase the non-interest income component of total revenues through development of banking-related fee income and growth in wealth management services;

• Maintain a rigorous risk identification and management process;

• Grow through a disciplined acquisition strategy, supplemented by de-novo branching;

• Improve operating efficiencies; and

• Utilize technology to enhance superior customer service and products.

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

Regulatory Considerations

NewAlliance and its subsidiaries are subject to numerous examinations by federal and state banking regulators, as well as the Securities and Exchange Commission. Please refer to NewAlliance’s Annual Report on Form 10-K for the year ended December 31, 2007 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.

Critical Accounting Estimates

Our Consolidated Financial Statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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We believe that our most critical accounting policies, and those which involve the most complex subjective decisions or assessments relate to income taxes, pension and other postretirement benefits, goodwill and intangible assets, the allowance for loan losses and stock-based compensation. None of the Company’s critical accounting estimates have changed during the quarter. A brief description of our current policies involving significant management valuation judgments follows:

Income Taxes

Management uses the asset and liability method of accounting for income taxes in which defined tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.

Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. Some judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. In determining the valuation allowance, we use historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods, tax planning opportunities and other relevant considerations. Management believes that the accounting estimate related to the valuation allowance is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance.

The reserve for tax contingencies contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. The effective income tax rate is also affected by changes in tax law, entry into new tax jurisdictions, the level of earnings and the results of tax audits.

Pension and Other Postretirement Benefits

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

Goodwill and Identifiable Intangible Assets

We evaluate goodwill and identifiable intangible assets for impairment annually or whenever events or changes in circumstances indicate the carrying value of the goodwill or identifiable intangible assets may not be recoverable. We complete our impairment evaluation by performing internal valuation analyses based on discounted cash flow modeling techniques, considering publicly available market information and using an independent valuation firm, as appropriate. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies.

Allowance for Loan Losses

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

Stock-Based Compensation

We have a stock-based compensation plan, which includes non-qualified stock options and non-vested share awards. Fair value at the grant date of non-qualified stock options is determined using the Black-Scholes option-pricing model and associated assumptions include future volatility of our stock price, expected dividend yield and future employee turnover rates. Changes in these assumptions can materially affect the fair value estimate.

A complete discussion of critical accounting estimates can be found in the Company’s most recent Annual Report on Form 10-K (fiscal year ended December 31, 2007).

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Recent Accounting Changes

We adopted the following new accounting pronouncements on January 1, 2008:

• Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements;”

• SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities;”

• Emerging Issues Task Force (“EITF”) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements ;” and

• EITF Issue 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements.”

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

SFAS No. 159 had no impact on retained earnings as management did not elect the fair value option for any of the Company’s eligible financial assets or liabilities as of January 1, 2008.

EITF Issue 06-4 and EITF Issue 06-10 had the effect of recording a liability in the amount of $1.6 million with a corresponding reduction to retained earnings. For further information, see Note 2 in the Notes to the Unaudited Consolidated Financial Statements.

Operating Results

Executive Overview

2008 has been plagued with a continuing decline in the housing market and extreme volatility in the financial markets. The third quarter of 2008 was no exception as uncertainty and the effect of the sub prime lending debacle on the credit markets escalated to a financial crisis with the collapse or takeover of seven major financial institutions in September alone. Increasing unemployment numbers, mortgage delinquencies and foreclosures and financial fears have pushed consumer confidence to an all time low as the economy has moved to a recessionary environment and tighter credit conditions. One of the many moves the U.S. Government has initiated to restore liquidity and stability to the financial system was EESA which includes the Troubled Asset Relief Program (“TARP”), also known as the $700 billion bail-out plan signed into law on October 3, 2008. One of the objectives of EESA is to infuse capital into select institutions thereby helping to restore confidence in the banking system.

In our market area, deposit competition has been intense as certain troubled institutions drove up deposit rates. Even with the collapse or takeover of some of these extreme pricing institutions, we believe deposit pricing competition will still remain strong as a key focus for the banking industry is to generate deposits for liquidity and asset growth in a credit market that remains tight. Therefore, we expect deposit competition to remain strong and hence, unfavorable to pricing in general. NewAlliance’s deposit pricing strategy is to retain maturing time deposits, within reason, and to grow core deposits. We believe that the increased deposit insurance limit of $250,000 by the FDIC, coupled with our financial stability and product offerings, will be positive factors in supporting this strategy.

On the lending side, we believe that residential real estate lending continues to be strong due to a reduced number of competitors who have the ability and liquidity to retain mortgage loans. This has in turn widened spreads on residential mortgage loans. The Company continues to be well positioned to take advantage of lending opportunities in our market area, however, our loan growth will be constrained by the relatively high cost of deposit growth as a funding source. Additionally, as select institutions are the beneficiaries of infusions of capital with the passage of EESA, we expect to see increased competition on the lending side. Through prudent risk management practices, sound credit policies, no direct exposure to sub prime mortgage lending and sufficient capital and liquidity, we are confident that we are positioned well in these turbulent times.

25

NewAlliance has completed six acquisitions since its conversion from a mutual bank to a stock bank in 2004, the most recent being in March of 2007. The volatility in the markets over the past twelve months has not been conducive to widespread acquisition activity, however, we continue to be interested in opportunities to expand the franchise if and when they arise. Opportunities may be in the form of whole institutions, individual or branch networks or de novo branches, all of which are in our acquisition growth strategy.

Net income for the third quarter of 2008 was $10.9 million or $0.11 per diluted share, compared to $7.4 million or $0.07 per diluted share for the third quarter of 2007. For the nine months ended September 30, 2008, net income was $35.7 million or $0.36 per diluted share, compared to $12.9 million or $0.12 per diluted share.

The increases in net income for the quarter-over-quarter period and especially the year-over-year period were significantly impacted by the investment securities portfolio restructuring in June 2007. The restructuring resulted in the Company recording an-other-than-temporary impairment charge of $22.6 million ($14.7 million after-tax) in June 2007 and an additional pre-tax loss of $5.7 million ($3.7 million after-tax) upon completion of the sale in July 2007. The restructuring primarily affected fixed rate mortgage-backed securities and CMO’s and was completed to reduce the Company’s exposure to fixed rate assets as well as to increase the yield on the portfolio, thereby providing a prospective improvement in the net interest margin. The market value of the securities sold was $759.0 million and the cash proceeds were reinvested in agency hybrid adjustable rate mortgage-backed securities.

Excluding the restructuring, net income for the quarter ended September 30, 2008 was basically flat with the prior year quarter resulting from multiple factors including: i) a $4.4 million increase in net interest income before provision primarily attributable to a reduction in deposit costs, and ii) a $2.6 million decline in income tax expense due to the September 2007 increase in the deferred tax asset valuation allowance related to the charitable contribution carryforward, offset by iii) an increase of $3.2 million in the provision for loan losses reflecting current economic and asset quality trends and iv) an increase in non-interest expense of $2.8 million largely due to increased accruals for incentive payouts.

Net income, excluding the effect of the restructuring, increased by $4.4 million for the nine months ended September 30, 2008 as compared to the same period in 2007. The same factors affecting the quarter also had a significant impact on the year-to-date comparison. A reduction in deposits costs coupled with strong growth in the residential loan portfolio and the elevated 2007 income tax expense to increase the charitable contribution valuation allowance more than offset increases in the provision for loan losses and non-interest expense.

For the three and nine months ended September 30, 2008 compared to 2007, return on average assets increased 16 basis points and 36 basis points, respectively, and our return on average equity increased 104 basis points and 215 basis points, respectively.

The net interest margin experienced improvements over 2007 for both the three and nine months ended September 30, 2008 due to the reduction in deposit costs and strong loan growth, partially offset by an increase in FHLB borrowings expense. The current year-to-date period was also positively effected by the restructuring of the investment securities portfolio during the second quarter of 2007. For the three months ended September 30, 2008 the net interest margin was 2.63% as compared to 2.49% for the same period in 2007, an increase of 14 basis points. For the nine months ended September 30, 2008 the net interest margin was 2.62%, an increase of 14 basis points from 2.48% for the nine months ended September 30, 2007.

At NewAlliance we consider asset quality and prudent lending practices to be major strengths of our institution, however consumers and businesses are under considerable economic pressure which has translated into increasing trends in delinquencies, net charge-offs and nonperforming loans. In response to risks in its loan portfolio, the Company recorded a loan loss provision of $4.2 million and $9.6 million for the three and nine months ended September 30, 2008, respectively.

The three loan portfolio segments that we consider to have the highest risk are construction loans to commercial developers for residential development, and a segment of our residential real estate and home equity loans. The Company has a balance of $52.7 million of commercial construction loans for residential development. This segment has total delinquencies of $11.8 million, most of which are in the over 90 day category. All of these loans are collateralized, and carry a specific reserve of $3.2 million. Within the residential and home equity portfolios, we have a watch list of approximately $80.0 million that is being closely monitored due to a drop in credit score of 20 points or more and a score that falls below 660. As of September 30, 2008, total delinquencies for residential real estate and home equity loans are $18.7 million, which includes $8.7 million in the over 90 day category. Of the $8.7 million over 90 days delinquent, approximately $4.3 million is from the watch list.

As a percentage of total loans, the allowance for loan losses increased six basis points to 0.99% at September 30, 2008 from 0.93% at December 31, 2007. The ratio of nonperforming loans to total loans was 0.71% at September 30, 2008 compared to 0.35% at December 31, 2007 and 0.42% at September 30, 2007. Net charge-offs were $2.8 million and $4.2 million for the three

26

and nine months ended September 30, 2008, respectively compared to $423,000 and $902,000 for the three and nine months ended September 30, 2007, respectively.

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

Selected financial data, ratios and per share data are provided in Table 1.
Table 1: Selected Data
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands, except per share data)	2008			2007			2008			2007
Condensed Income Statement
Interest and dividend income	$	99,042		$	101,853		$	300,436		$	296,770
Interest expense		50,983			58,161			158,123			167,064
Net interest income before provision for loan losses		48,059			43,692			142,313			129,706
Provision for loan losses		4,200			1,000			9,600			2,600
Net interest income after provision for loan losses		43,859			42,692			132,713			127,106
Non-interest income		13,405			10,457			43,591			16,919
Operating expenses		41,272			38,511			124,749			119,876
Merger related charges		99			70			177			2,409
Income before income taxes		15,893			14,568			51,378			21,740
Income tax provision		4,957			7,147			15,726			8,882
Net income	$	10,936		$	7,421		$	35,652		$	12,858
Weighted average shares outstanding
Basic		98,988,777			103,173,249			99,802,810			103,792,415
Diluted		99,145,940			103,610,578			99,855,692			104,363,092
Earnings per share
Basic	$	0.11		$	0.07			0.36		$	0.12
Diluted		0.11			0.07			0.36			0.12
Financial Ratios
Return on average assets (1)		0.53	%		0.37	%		0.58	%		0.22	%
Return on average equity (1)		3.13			2.09			3.37			1.22
Net interest margin (1)		2.63			2.49			2.62			2.48
Non-GAAP Ratios
Efficiency ratio (2)		66.90			65.48			67.58			70.67
Per share data
Book value per share	$	13.08		$	12.71			13.08		$	12.71
Tangible book value per share		7.72			7.45			7.72			7.45

(1)

Annualized.

(2)

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

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

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

Table 2: Average Balance Sheets for the Three Months Ended September 30, 2008 and 2007
	Three Months Ended
	September 30, 2008							September 30, 2007
					Average							Average
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Loans
Residential real estate	$	2,562,448	$	35,202		5.50	%	$	2,371,895	$	32,861	5.54	%
Commercial real estate		1,194,106		18,273		6.12			1,130,901		18,630	6.59
Commercial business		471,555		7,021		5.96			467,735		8,473	7.25
Consumer		719,016		9,718		5.41			668,758		11,128	6.66
Total Loans		4,947,125		70,214		5.68			4,639,289		71,092	6.13
Fed funds sold and other short-term investments		79,171		494		2.50			50,822		704	5.54
Investment Securities		2,296,893		28,334		4.93			2,338,028		30,057	5.14
Total Interest-earning assets		7,323,189	$	99,042		5.41	%		7,028,139	$	101,853	5.80	%
Non-interest earning assets		921,916							939,316
Total Assets	$	8,245,105						$	7,967,455
Interest-bearing liabilities
Deposits
Money Markets	$	383,234	$	1,913		2.00	%	$	504,822	$	4,440	3.52	%
NOW		359,033		288		0.32			401,973		1,223	1.22
Savings		1,348,578		7,742		2.30			903,858		4,790	2.12
Certificates		1,769,126		14,667		3.32			1,992,029		22,322	4.48
Total Interest-bearing deposits		3,859,971		24,610		2.55			3,802,682		32,775	3.45
Repurchase Agreements		179,350		1,045		2.33			199,297		1,907	3.83
FHLB advances and other borrowings		2,243,820		25,328		4.52			1,989,610		23,479	4.72
Total Interest-bearing liabilities		6,283,141		50,983		3.25	%		5,991,589		58,161	3.88	%
Non-interest-bearing demand deposits		494,104							487,222
Other non-interest-bearing liabilities		69,233							68,293
Total Liabilities		6,846,478							6,547,104
Equity		1,398,627							1,420,351
Total Liabilities and equity	$	8,245,105						$	7,967,455
Net interest-earning assets	$	1,040,048						$	1,036,550
Net interest income			$	48,059						$	43,692
Interest rate spread						2.16	%					1.92	%
Net interest margin (net interest income
as a percentage of total interest-earning assets						2.63	%					2.49	%
Ratio of total interest-earning assets
to total interest-bearing liabilitites						116.55	%					117.30	%

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Table 3: Average Balance Sheets for the Nine Months Ended September 30, 2008 and 2007
	Nine Months Ended
	September 30, 2008							September 30, 2007
					Average							Average
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Interest-earning assets
Loans
Residential real estate	$	2,485,609	$	102,992		5.52	%	$	2,272,670	$	94,410		5.54	%
Commercial real estate		1,198,238		55,450		6.17			1,127,316		55,638		6.58
Commercial business		462,889		21,205		6.11			463,496		25,453		7.32
Consumer		702,436		29,551		5.61			660,278		32,769		6.62
Total Loans		4,849,172		209,198		5.75			4,523,760		208,270		6.14
Fed funds sold and other short-term investments		45,740		969		2.82			56,942		2,314		5.42
Investment Securities		2,350,894		90,269		5.12			2,402,702		86,186		4.78
Total Interest-earning assets		7,245,806	$	300,436		5.53	%		6,983,404	$	296,770		5.67	%
Non-interest earning assets		936,922							899,913
Total Assets	$	8,182,728						$	7,883,317
Interest-bearing liabilities
Deposits
Money Markets	$	444,882	$	7,442		2.23	%	$	503,934	$	12,632		3.34	%
NOW		375,545		1,083		0.38			415,204		3,474		1.12
Savings		1,195,774		20,946		2.34			884,007		12,320		1.86
Certificates		1,792,976		49,942		3.71			2,060,992		69,025		4.47
Total Interest-bearing deposits		3,809,177		79,413		2.78			3,864,137		97,451		3.36
Repurchase Agreements		182,670		3,113		2.27			197,703		5,744		3.87
FHLB advances and other borrowings		2,229,373		75,597		4.52			1,851,698		63,869		4.60
Total Interest-bearing liabilities		6,221,220		158,123		3.39	%		5,913,538		167,064		3.77	%
Non-interest-bearing demand deposits		478,817							495,160
Other non-interest-bearing liabilities		73,398							72,403
Total Liabilities		6,773,435							6,481,101
Equity		1,409,293							1,402,216
Total Liabilities and equity	$	8,182,728						$	7,883,317
Net interest-earning assets	$	1,024,586						$	1,069,866
Net interest income			$	142,313						$	129,706
Interest rate spread						2.14	%						1.90	%
Net interest margin (net interest income
as a percentage of total interest-earning assets						2.62	%						2.48	%
Ratio of total interest-earning assets
to total interest-bearing liabilitites						116.47	%						118.09	%

29

Table 4: Rate/Volume Analysis
	Three Months Ended									Nine Months Ended
	September 30, 2008									September 30, 2008
	Compared to									Compared to
	Three Months Ended									Nine Months Ended
	September 30, 2007									September 30, 2007
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
(In thousands)	Rate			Volume			Net			Rate			Volume			Net
Interest-earning assets
Loans
Residential real estate	$	(279	)	$	2,620		$	2,341		$	(243	)	$	8,825		$	8,582
Commercial real estate		(1,365	)		1,008			(357	)		(3,580	)		3,392			(188	)
Commercial business		(1,520	)		68			(1,452	)		(4,215	)		(33	)		(4,248	)
Consumer		(2,201	)		791			(1,410	)		(5,216	)		1,998			(3,218	)
Total loans		(5,365	)		4,487			(878	)		(13,254	)		14,182			928
Fed funds sold and other short-term investments		(494	)		284			(210	)		(953	)		(392	)		(1,345	)
Investment securities		(1,200	)		(523	)		(1,723	)		5,972			(1,889	)		4,083
Total interest-earning assets	$	(7,059	)	$	4,248		$	(2,811	)	$	(8,235	)	$	11,901		$	3,666
Interest-bearing liabilities
Deposits
Money market	$	(1,623	)	$	(904	)	$	(2,527	)	$	(3,838	)	$	(1,352	)	$	(5,190	)
NOW		(816	)		(119	)		(935	)		(2,087	)		(304	)		(2,391	)
Savings		427			2,525			2,952			3,637			4,989			8,626
Time		(5,353	)		(2,302	)		(7,655	)		(10,767	)		(8,316	)		(19,083	)
Total interest bearing deposits		(7,365	)		(800	)		(8,165	)		(13,055	)		(4,983	)		(18,038	)
Repurchase agreements		(686	)		(176	)		(862	)		(2,222	)		(409	)		(2,631	)
FHLB advances and other borrowings		(1,054	)		2,903			1,849			(1,095	)		12,823			11,728
Total interest-bearing liabilities	$	(9,105	)	$	1,927		$	(7,178	)	$	(16,372	)	$	7,431		$	(8,941	)
Increase in net interest income	$	2,046		$	2,321		$	4,367		$	8,137		$	4,470		$	12,607

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

During the first half of 2008, the yield curve began to return to a more normal, upward-sloping shape. Since the beginning of the fourth quarter of 2007, the Federal Reserve Board (“FRB”) lowered the target federal funds rate seven times, for a total decrease of 275 basis points (from 4.75% to 2.00%). Decreases of 200 basis points and 25 basis points occurred during the first and second quarters of 2008, respectively. The FRB left the overnight federal funds target rate unchanged at 2.00% for the quarter ending September 30, 2008. In October 2008 the FRB reduced the target federal funds rate by 100 basis points. As a result, the Company reduced its prime based lending rate, which may have a negative impact on net interest income or the net interest margin in the fourth quarter.

Comparison of Quarter-to-Date September 2008 and September 2007
As shown in Table 2, net interest income for the quarter ended September 30, 2008 was $48.1 million, an increase of $4.4 million compared to the quarter ended September 30, 2007. The increase is due to a 14 basis point increase in the net interest margin to 2.63% at September 30, 2008 from 2.49% for the same period in the prior year, primarily due to the significant reduction in costs associated with higher priced certificate of deposit accounts and growth in the loan portfolio which mostly offset the effect of the decline in yields on prime based commercial and consumer loans.

Interest income declined $2.8 million to $99.0 million for the quarter ended September 30, 2008 compared to $101.9 million for the quarter ended September 30, 2007. Loan income declined for the quarter due to the decrease in the average yield earned in response to the FRB rate cuts, which occurred primarily in the first quarter, as new loans were originated and as adjustable rate loans reset, the yields were at lower rates. The decline in the average yield of 45 basis points accounted for $5.4 million of the decrease in interest income and was partially offset by an increase of $4.5 million which was due to an increase in the average loan portfolio balance of $307.9 million. All loan categories experienced a decline in the average yield due primarily to the interest rate cuts by the FRB. The decline in the loan yields have also been impacted by the increase in non-performing loans which increased to $35.0 million at September 30, 2008 compared to $19.4 million a year ago and $16.4 million at December 31, 2007. While all loan categories experienced increases in average balances, the residential real estate loan portfolio was the main driver of the growth. The increase in average balances was due to increased loan originations as the Company continued

30

to take advantage of the pricing opportunities in our lending area due to the sustained dislocations in the credit market, which has in the short term diminished competition. We expect this trend to continue in the near term, however, as banks regain strength after receiving infusions of capital from the EESA, competition will likely increase. The investment portfolio experienced a decrease in the average yield primarily due to the decline in short-term interest rates and resulting decline in dividend yields on equity securities, mainly Federal Home Loan Bank stock.

The cost of funds for the quarter ended September 30, 2008 decreased $7.2 million to $51.0 million, compared to $58.2 million for the same period a year ago. The Company’s continuing strategy has been to bring down deposit costs while being mindful of competitor pricing and focusing on growth of core deposits. This strategy has resulted in an $8.2 million decrease in deposit interest expense due mainly to a 90 basis point decrease in the average rate paid and was primarily in higher costing time deposits. Interest expense in the time deposit category decreased $7.7 million as the average balance and average rate paid decreased $222.9 million and 116 basis points, respectively. The average rate paid on money market deposit accounts also experienced a significant decline, coinciding with the FRB rate cuts, of 152 basis points. These decreases in interest expense were partially offset by an increase of $3.0 million resulting from growth in savings accounts as the average balance for the period rose $444.8 million and a modest increase of 18 basis points in the average yield paid. Savings accounts increased due to targeted marketing campaigns offering higher pricing for select products and migration from maturing time deposits as they repriced at reduced rates. Average interest-bearing core deposits rose $280.2 million from the same quarter a year ago while the average cost of interest-bearing core deposits declined 41 basis points. In addition to deposits, the Company also uses FHLB advances and other borrowings to fund loan growth. As a result, the average balance of these borrowings increased $254.2 million which equates to a $2.9 million increase in interest expense, but was partially offset by a decline in the average rate paid of 20 basis points, or $1.0 million. All of the FHLB borrowings are fixed rate, long-term advances with a weighted average cost of 4.60%.

Comparison of Year-to-Date September 2008 and September 2007
As shown in Table 3, net interest income for the nine months ended September 30, 2008 was $142.3 million compared to $129.7 million for the same period a year ago. The reasons for the year-to-date increase in net interest income are consistent with the quarterly discussion above, with the added factor of the June 2007 investment securities portfolio restructuring. The net interest margin was 2.62% and 2.48% for the nine months ended September 30, 2008 and 2007, respectively.

The increase in interest income of $3.7 million was comprised of $2.7 million from the investment securities portfolio and $1.0 million from the loan portfolio. The average yield earned on the investment securities portfolio increased 28 basis points in the current year-to-date period as a result of the 2007 restructuring, partially offset by declining yields due to the tremendous market volatility and the FRB rate cuts in 2008, particularly in short term investments and stock dividends. Similar to the quarter, strong loan growth made the difference in the loan portfolio as $325.4 million in average balances were added, mitigating the effect of the FRB rate cuts which propelled the average yield down by 39 basis points.

For the nine months ended September 30, 2008 as compared to 2007, the Company experienced a significant reduction in its cost of funds in the amount of $8.9 million as the shift in the mix of interest-bearing liabilities reduced the average rate paid by 38 basis points and helped to improve the net interest spread by 24 basis points. Resembling the quarter, the shift was away from higher costing time deposits as well as from money market and NOW deposits and into savings deposits. Although the average rate paid on savings deposits increased by 48 basis points, the average rate paid on all interest-bearing deposits declined 58 basis points. For the nine months ended September 30, 2008, total average interest-bearing deposits declined $55.0 million, however, average interest-bearing core deposits increased $213.1 million at a much lower rate. Partially offsetting the $18.0 million decline in deposit interest expense was an increase in expense on borrowings of $9.1 million, principally due to an increase of $377.7 million in the average balance of FHLB advances and other borrowings. FHLB advances were used to fund loan growth and to counter deposit outflows that occurred primarily in the first quarter of 2008.

Provision for Loan 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 $4.2 million for the three months ended September 30, 2008. The primary factors that influenced management’s decision to record this provision were increasing trends in delinquencies, net charge-offs of $2.8 million for the quarter and an increase in nonperforming loans. The third quarter increase in non-performing loans of $8.8 million was primarily related to a commercial construction loan for a residential condominium project and two commercial real estate loans for retail/office and warehouse

31

space. A provision for loan losses of $1.0 million was recorded for the three months ended September 30, 2007, based on growth in the portfolio, the level of net charge-offs, and nonperforming loans at that time.

For the nine months ended September 30, 2008, the provision for loan losses was $9.6 million compared to $2.6 million for the same period a year ago. The increase in the provision relates to a rise in nonperforming loans since September 30, 2007 of $15.6 million, primarily in the residential portfolio and construction loans to commercial developers of residential condominiums due to economic and housing market pressures. Future provisions for loan losses may be deemed necessary if economic conditions do not improve or continue to deteriorate.

At September 30, 2008, the allowance for loan losses was $49.2 million, which represented 0.99% of total loans and 140.52% of nonperforming loans. This compared to the allowance for loan losses of $43.8 million at December 31, 2007 which represented 0.93% of total loans and 267.38% of nonperforming loans. See the “Asset Quality” and “Allowance for Loan Losses” sections located on pages 38-39 for further information regarding the Company’s credit quality.

Table 5:   Non-Interest Income

	Three Months Ended												Nine Months Ended
	September 30,						Change						September 30,					Change
(Dollars in thousands)	2008			2007			Amount			Percent			2008		2007			Amount			Percent
Depositor service charges	$	7,052		$	7,419		$	(367	)		(4.95	)%	$	20,393	$	20,911		$	(518	)		(2.48	)%
Loan and servicing income		325			522			(197	)		(37.74	)		971		1,580			(609	)		(38.54	)
Trust fees		1,635			1,724			(89	)		(5.16	)		4,984		5,067			(83	)		(1.64	)
Investment management, brokerage
& insurance fees		1,872			1,976			(104	)		(5.26	)		6,248		5,511			737			13.37
Bank owned life insurance		1,164			1,639			(475	)		(28.98	)		3,984		4,809			(825	)		(17.16	)
Net (loss) gain on securities		(215	)		(5,641	)		5,426			96.19			1,010		(27,828	)		28,838			103.63
Net gain on sale of loans		428			328			100			30.49			1,341		992			349			35.18
Other		1,144			2,490			(1,346	)		(54.06	)		4,660		5,877			(1,217	)		(20.71	)
Total non-interest income	$	13,405		$	10,457		$	2,948			28.19	%	$	43,591	$	16,919		$	26,672			157.65	%

Non-Interest Income

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

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

32

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

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

• The decreases in depositor service charges, bank owned life insurance and other income were due primarily to the same reasons as discussed in the quarterly comparison.

• Loan and servicing income declined largely due to a decrease in commercial real estate prepayment fees and letter of credit fees, and to an increase in the valuation allowance of the Small Business Administration (“SBA”) loan servicing asset.

• Net gain on securities increased $28.8 million primarily due to the restructuring in 2007 which resulted in a total charge of $28.3 million. Excluding the restructuring, net gain on securities increased $586,000 due to gains recorded on the sale of mortgage-backed securities. These securities were sold at a premium and were sold in order to reduce prepayment risk and offset deposit outflows. Partially offsetting gains on the mortgage-backed securities were the other-than-temporary impairment losses on preferred equity securities as outlined in the quarterly discussion and the loss on the sale of bank stocks in the second quarter of 2008 due to a decline in market price.

• Investment management, brokerage and insurance fees increased mainly due to the sales of fixed annuity products resulting from a favorable rate environment for these products, primarily earlier in the year. An increase in the number of sales personnel and increased marketing efforts have contributed to the increased trading activity and the sales of investment products.

• Net gain on sale of loans increased due to an upsurge in mortgage loans originated for sale due to pricing opportunities in our lending area resulting from the continued dislocations in the credit market.

Table 6:  Non-Interest Expense

	Three Months Ended										Nine Months Ended
	September 30,				Change						September 30,				Change
(Dollars in thousands)	2008		2007		Amount			Percent			2008		2007		Amount			Percent
Salaries and employee benefits	$	22,354	$	19,714	$	2,640			13.39	%	$	68,978	$	63,207	$	5,771			9.13	%
Occupancy		4,415		4,456		(41	)		(0.92	)		13,629		13,185		444			3.37
Furniture and fixtures		1,624		1,647		(23	)		(1.40	)		4,964		5,090		(126	)		(2.48	)
Outside services		5,047		4,195		852			20.31			13,791		12,955		836			6.45
Advertising, public relations,
and sponsorships		1,667		1,862		(195	)		(10.47	)		5,412		5,800		(388	)		(6.69	)
Amortization of identifiable
intangible assets		2,364		2,957		(593	)		(20.05	)		7,092		8,995		(1,903	)		(21.16	)
Merger related charges		99		70		29			41.43			177		2,409		(2,232	)		(92.65	)
Other		3,801		3,680		121			3.29			10,883		10,644		239			2.25
Total non-interest expense	$	41,371	$	38,581	$	2,790			7.23	%	$	124,926	$	122,285	$	2,641			2.16	%

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Non-Interest Expense

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

• Salaries and employee benefits increased as a result of increased employee incentive accruals, general merit increases and a decrease in capitalized salaries primarily due to the decline in commercial loan originations, partially offset by a decrease in charges associated with the 2005 Long-Term Compensation Plan (“LTCP”) for executives that are no longer with the Company.

• Outside services increased due to consulting costs associated with the implementation of a performance optimization project in an effort to enhance the overall effectiveness and revenue performance of the Company. As of September 30, 2008, consulting costs for this project stand at approximately $500,000 and are expected to continue to be incurred totaling approximately $1.4 million by the end of the 2008. Outside services also increased due to charges incurred for outsourcing general internal audit work.

• Amortization of identifiable intangible assets decreased due to using an accelerated method of amortization for core deposit intangibles which results in a higher level of expense in earlier periods. Amortization of non-compete agreements decreased due to the expiration of all agreements in the third quarter of 2007.

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

• Salaries and employee benefits also increased as a result of: i) severance recorded in the first quarter of 2008 for an executive who is no longer with the Company and ii) incentive payouts due to the increased sales of investment products. These increases were partially offset by a decrease in ESOP expense due to the decline in the average year-to-date stock price.

• In addition to the performance optimization project and audit fees, o utside services increased due to legal and consulting costs related to human resources, partially offset by a decline in data processing expenses.

• Conversion and merger related charges decreased mainly due to charges for legal, consulting, advertising and data processing expense associated with the Westbank acquisition that occurred in 2007.

As part of the EESA signed into law on October 3, 2008, FDIC deposit insurance temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. Beginning in January 2009, premiums due to the FDIC for deposit insurance will be increasing by an average of seven basis points as a result of recent failed institutions which have resulted in losses to the FDIC deposit insurance fund and in anticipation of future failed institutions. We have not been notified of our increase, nor has the associated cost been determined yet. The Company will also have a significant increase in FDIC insurance premium expense in 2009 resulting from the exhaustion of its one-time credit established by the Federal Deposit Insurance Reform Act of 2005. This credit covered all of the Company’s 2007 FDIC assessment expense and 90% of its expense for the nine months ended September 30, 2008. It is anticipated that the assessment credit will be largely exhausted by year-end 2008.

Income Tax Provision

The income tax expense of $5.0 million for the three months ended September 30, 2008 resulted in an effective tax rate of 31.2%, compared to income tax of $7.1 million for the three months ended September 30, 2007, resulting in an effective tax rate of 49.1%. The income tax expense for the nine months ended September 30, 2008 and 2007 was $15.7 million and $8.9 million, respectively. The effective tax rate for these periods was 30.6% and 40.9%, respectively.

Two transactions specific to 2007 were the main drivers of the elevated effective tax rate for the three and nine month periods ending September 30, 2007. These transactions related to a $2.6 million increase in the deferred tax asset valuation allowance

34

related to the utilization of the charitable contribution deduction carry-forward, partially offset by the restructuring of a part of the investment securities portfolio which reduced pre-tax income by $5.7 million and $28.3 million for the three and nine months ended September 30, 2007, respectively. Absent the effect of these two transactions, the effective tax rate for the three and nine months ended September 30, 2007 would have been 33.5% and 32.8%, respectively.

The decrease in the effective tax rate for the three months ended September 30, 2008 (excluding the above transactions) was due to a change in the deferred inventory rate resulting from new Massachusetts legislation enacted in the third quarter of 2008. The decrease in the effective tax rate for the nine months ended September 30, 2008 was primarily due to the change in the deferred inventory rate resulting from new Massachusetts legislation enacted in the third quarter of 2008 and the reduction of $924,000 of unrecognized tax benefits for tax positions of prior years resulting from the settlement of the IRS audit in the first quarter of 2008.

The projected effective rate for the year ended December 31, 2008 is 31.2%.

Financial Condition

Financial Condition Summary
From December 31, 2007 to September 30, 2008, total assets increased $54.3 million and total liabilities increased $61.0 million, due mainly to increases in loans, deposits and borrowings, partially offset by a decrease in investments. Stockholders’ equity decreased $6.7 million, primarily due to treasury shares acquired and a decline in unrealized gain on available for sale securities, partially offset by an increase in retained earnings.

Investment Securities
The following table presents the amortized cost and fair value of investment securities at September 30, 2008 and December 31, 2007.

Table 7:  Investment Securities

	September 30, 2008				December 31, 2007
	Amortized		Fair		Amortized		Fair
(In thousands)	cost		value		cost		value
Available for sale
U.S. Treasury obligations	$	592	$	594	$	1,092	$	1,095
U.S. Government sponsored enterprise obligations		195,679		194,923		201,408		202,059
Corporate obligations		7,153		6,612		22,531		22,515
Other bonds and obligations		47,518		43,684		52,853		52,634
Marketable and trust preferred equity securities		69,855		60,929		86,543		83,466
Federal Home Loan Bank stock		120,821		120,821		113,760		113,760
Mortgage-backed securities		1,562,691		1,579,259		1,706,966		1,725,492
Total available for sale		2,004,309		2,006,822		2,185,153		2,201,021
Held to maturity
Mortgage-backed securities		292,512		296,574		282,887		286,968
Other bonds		7,110		7,164		7,585		7,577
Total held to maturity		299,622		303,738		290,472		294,545
Total securities	$	2,303,931	$	2,310,560	$	2,475,625	$	2,495,566

At September 30, 2008, the Company had total investments of $2.31 billion, or 27.9%, of total assets. The decrease of $185.0 million, from $2.49 billion at December 31, 2007 was mainly the result of using cash flows from available-for-sale and held-to-maturity mortgage-backed securities primarily to fund loan growth, partially offset by purchases of mortgage-backed securities using funds borrowed from the Federal Home Loan Bank.

The Company’s underlying investment strategy has been to purchase FNMA and FHLMC hybrid adjustable rate mortgage-backed securities, and seasoned 15 year Government sponsored enterprise (“GSE”) fixed rate mortgage-backed securities. The Company has focused on the purchases of these securities due to their attractive spreads versus funding costs and for their monthly cash flows that provide the Company with liquidity. This strategy is also supplemented with select purchases of bullet and callable agency securities. The average life for mortgage-backed securities, when purchased, would range between 2.0 and 4.0 years and the maturity dates for Agency obligations would range between one and five years.

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SFAS No. 115 requires the Company to designate its securities as held to maturity, available for sale or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of September 30, 2008, $2.01 billion, or 87%, of the portfolio, was classified as available for sale and $299.7 million, or 13% of the portfolio was classified as held to maturity. The net unrealized gain on securities classified as available for sale as of September 30, 2008 and December 31, 2007 was $2.5 million and $15.9 million, respectively. The decline in the market value of securities available for sale was primarily due to credit spreads, liquidity and fluctuations in market interest rates during the period.

In addition to market interest rates, the unrealized losses reported for trust preferred equity securities are also attributable to the current market stress partially resulting from efforts by banks to raise capital. This has in turn inflated coupon rates on new issues of trust preferred equity securities versus lower rates on the Company’s portfolio of A to AAA rated, non-perpetual seasoned issues of trust preferred equity securities. All trust preferred equity securities carried below market value are current and no impairment of cash flows is anticipated.

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

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

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

• A security in a regional bank - $1.6 million. This trust preferred equity security was deemed to be other-than-temporarily impaired as a result of the combined factors of percentage and length of time that the security had been below book value and because the Company does not expect the financial position of the bank or the current price of the security to improve meaningfully over the near term and the price of the issue implies market participants view enhanced risk in the timely receipt of all cash flows. The Company’s remaining cost position in this security at September 30, 2008 was $3.1 million.

• Freddie Mac - $790,000. As of result of actions taken on September 7, 2008 by the United States Treasury Department and the Federal Housing Finance Agency with respect to placing the Freddie Mac into conservatorship, the Company’s 25,000 shares of Freddie Mac Series F perpetual preferred stock were deemed to be other-than-temporarily impaired.

• Lehman Brothers - $193,000. Upon Lehman Brothers September 15, 2008 announcement declaring Chapter 11 bankruptcy, the Company took an impairment charge on its holding of 5,000 shares of Series C perpetual preferred stock.

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

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

Table 8:  Loan Portfolio

	September 30, 2008					December 31, 2007
			Percent					Percent
(Dollars in thousands)	Amount		of Total			Amount		of Total
Residential real estate	$	2,540,062		51.3	%	$	2,360,921		49.9	%
Residential real estate construction		16,900		0.3			29,023		0.6
Total residential real estate		2,556,962		51.6			2,389,944		50.5
Commercial real estate		1,023,711		20.7			947,185		20.1
Commercial real estate construction		182,955		3.7			247,428		5.2
Total commercial real estate		1,206,666		24.4			1,194,613		25.3
Commercial business		459,998		9.3			457,745		9.7
Home Equity and equity lines of credit		705,148		14.2			652,107		13.8
Other consumer		24,702		0.5			33,560		0.7
Total loans	$	4,953,476		100.0	%	$	4,727,969		100.0	%

As shown in Table 8, gross loans were $4.96 billion, up $225.5 million, or 4.8%, at September 30, 2008 from year-end 2007. The Company experienced an increase in most major loan categories due to organic loan growth.

Residential real estate loans continue to represent the largest segment of the Company’s loan portfolio as of September 30, 2008, comprising over fifty percent of gross loans. The increase of $167.0 million was due primarily to organic loan growth of ARM’s and jumbo loans. With competition somewhat diminished due to liquidity and credit problems for many other lenders, NewAlliance has been able to capture and grow this market segment. The residential real estate loan portfolio has a weighted average FICO score of 750 and a loan to value ratio of 48%.

Commercial real estate loans and commercial business loans increased $14.3 million. The increase was attributable to the commercial real estate loan portfolio which increased due to organic loan growth and a shift from the commercial construction category due to loans completing the construction phase and converting to fully amortizing commercial mortgage loans. The commercial real estate construction portfolio of $183.0 million includes approximately $52.7 million of loans to commercial borrowers for residential housing development, $21.2 million are condominium projects. Since year-end 2007, the segment related to residential development, has experienced an increase in charge-offs, delinquencies and adversely classified loans which has impacted the current quarter provision for the allowance for loan losses. See the “Provision for Loan Losses” section located on page 31, and “Asset Quality” and “Allowance for Loan Losses” sections located on pages 38-39 for further information concerning the allowance for loan losses. The Company’s continued strategy is to build its commercial loan portfolios including real estate and other business loans by promoting strong business development efforts to obtain new business banking relationships, while maintaining strong credit quality and profitability. In addition, it is also the Company’s strategy to limit its exposure to residential construction. As of September 30, 2008, commercial construction loans for residential housing development, decreased $13.4 million to $52.7 million compared to $66.1 million at December 31, 2007.

Home equity loans and lines of credit increased $53.0 million from December 31, 2007 to September 30, 2008. These products were promoted by the Company through competitive pricing and marketing campaigns as the Company is committed to growing this loan segment while maintaining credit quality as a higher yielding alternative to first mortgage loans. The weighted average FICO score and current loan to value ratio for home equity loans and lines of credit is 748 and 47%, respectively. Loan growth has been from organic originations in the Company’s market area, none of which is sub-prime.

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Asset Quality
As displayed in Table 9, nonperforming assets at September 30, 2008 increased to $36.3 million compared to $17.3 million at December 31, 2007. The increase is primarily due to loans for residential housing development and commercial and residential real estate, largely as a result of the current economic conditions. The increase of $3.4 million in the residential real estate portfolio was due primarily to an increase in residential inventory levels, declines in the median sales price of residential homes and a general worsening of the economy. The commercial construction portfolio increased $9.3 million, primarily related to four relationships to a total of $11.7 million as of September 30, 2008. All of these loans are to residential home developers, of which $11.4 million are for condominium projects. Similar to the residential real estate portfolio, high inventory and few sales are the primary reasons for the problems in this portfolio. The $4.1 million increase in the commercial real estate portfolio primarily relates to loans secured by retail and warehouse space. The Company continues to closely monitor its real estate portfolios which could be negatively impacted by the current softening in the real estate market and the decline in real estate values.

If current economic conditions persist or deteriorate further, there will be added stress on our loan portfolios. The Company believes, however, that its historical practice of prudent underwriting, the relatively modest size of its residential construction portfolio, and strong average FICO scores combined with low loan to value ratios associated with its residential portfolio are significant advantages in keeping asset quality manageable. Nonperforming loans as a percent of total loans outstanding continue to remain at relatively low levels and at September 30, 2008 were 0.71%, compared to 0.35% at December 31, 2007.

Table 9:  Nonperforming Assets

	September 30,			December 31,
(Dollars in thousands)	2008			2007
Nonaccruing loans (1)
Real estate loans
Residential (one-to four-family)	$	8,191		$	4,837
Commercial real estate loans		7,527			3,414
Commercial construction		11,706			2,382
Total real estate loans		27,424			10,633
Commercial business		6,383			4,912
Consumer loans
Home equity and equity lines of credit		1,135			606
Other consumer		54			235
Total consumer loans		1,189			841
Total nonaccruing loans		34,996			16,386
Real estate owned		1,339			897
Total nonperforming assets	$	36,335		$	17,283
Total nonperforming loans as a percentage of total loans (2)		0.71	%		0.35	%
Total nonperforming assets as a percentage of total assets		0.44			0.21

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

Allowance for Loan Losses
As displayed in Table 10 below, during the three months ended September 30, 2008, the Company recorded net charge-offs of $2.8 million compared to net charge-offs of $423,000 for the three months ended September 30, 2007. Current quarter charge-offs include write-downs totaling $2.2 million on two construction loan relationships with residential home developers for condominium developments and a commercial mortgage relationship for a retail/office facility. For the nine months ended September 30, 2008, net charge-offs were $4.2 million, compared to $902,000 for the nine months ended September 30, 2007.

The Company had a loan loss allowance of $49.2 million and $43.8 million at September 30, 2008 and December 31, 2007, respectively. The allowance for loan losses to total loans was 0.99% at September 30, 2008 compared to 0.93% at December 31, 2007. Management believes the allowance for loan losses is adequate and consistent with asset quality and delinquency indicators.

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Table 10:  Schedule of Allowance for Loan Losses

	At or For the Three Months						At or For the Nine Months
	Ended September 30,						Ended September 30,
(Dollars in thousands)	2008			2007			2008			2007
Balance at beginning of period	$	47,798		$	42,423		$	43,813		$	37,408
Net allowances gained through acquisition		-			-			-			3,894
Provision for loan losses		4,200			1,000			9,600			2,600
Charge-offs
Residential and commercial real estate loans		910			3			1,061			4
Commercial construction		1,431			-			2,431			285
Commercial business loans		468			528			1,143			1,186
Consumer loans		496			162			847			450
Total charge-offs		3,305			693			5,482			1,925
Recoveries
Residential and commercial real estate loans		255			16			285			11
Commercial construction		-			-			-			281
Commercial business loans		186			218			849			534
Consumer loans		41			36			110			197
Total recoveries		482			270			1,244			1,023
Net charge-offs		2,823			423			4,238			902
Balance at end of period	$	49,175		$	43,000		$	49,175		$	43,000
Net charge-offs to average loans		0.23	%		0.04	%		0.12	%		0.03	%
Allowance for loan losses to total loans		0.99			0.92			0.99			0.92
Allowance for loan losses to nonperforming loans		140.52			221.25			140.52			221.25
Net charge-offs to allowance for loan losses		5.74			0.98			8.62			2.10
Total recoveries to total charge-offs		14.58			38.96			22.69			53.14

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

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

Sources of 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 10 of Notes to Consolidated Financial Statements contained elsewhere within this Report for further borrowings information.

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

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Deposits

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

Table 11:  Deposits

	September 30,		December 31,
(In thousands)	2008		2007
Savings	$	1,402,874	$	941,051
Money market		344,681		492,042
NOW		356,162		401,097
Demand		497,749		477,408
Time		1,805,488		2,062,067
Total Deposits	$	4,406,954	$	4,373,665

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

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

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

Table 12:  Borrowings

	September 30,		December 31,
(In thousands)	2008		2007
FHLB advances (1)	$	2,175,184	$	2,136,965
Repurchase agreements		185,465		192,145
Mortgage loans payable		1,354		1,459
Junior subordinated debentures issued to affiliated trusts (2)		24,785		24,935
Total borrowings	$	2,386,788	$	2,355,504

(1)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141,“Business Combinations,” of $6.7 million and $9.6 million at September 30, 2008 and December 31, 2007, respectively.

(2)

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

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

Borrowings were $2.39 billion at September 30, 2008, an increase of $31.3 million from the balance recorded at December 31, 2007, and was mainly in FHLB advances. The increase in FHLB advances was primarily due to funding loan growth and to offset deposit outflows which occurred predominantly during the first quarter, while managing interest rate risk and liquidity. At September 30, 2008, all of the Company’s outstanding FHLB advances were at fixed rates.

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Stockholders’ Equity
Total stockholders’ equity equaled $1.40 billion at September 30, 2008, a decrease of $6.7 million compared to $1.41 billion at December 31, 2007. The decrease was primarily due to $20.8 million payment of cash dividends declared on our common stock during the nine months ended September 30, 2008, treasury shares acquired for $22.0 million representing 1.8 million shares of our common stock and a decline in the fair market value of available for sale investments of $9.1 million, net of tax. These decreases were partially offset by current year earnings of $35.7 million and stock option and restricted stock expense of $8.5 million. For information regarding our compliance with applicable capital requirements, see “Liquidity and Capital Position” below.

Dividends declared year to date September 30, 2008 were $0.205 per share compared to $0.19 per share for the same period last year. On October 28, 2008, we declared a $0.07 per share cash dividend payable on November 18, 2008 to shareholders of record on November 7, 2008. Book value per share amounted to $13.08 and $12.93 at September 30, 2008 and December 31, 2007, respectively, and tangible book value amounted to $7.72 and $7.56 at the same dates, respectively.

Management Of Market And Interest Rate 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 all are investment grade or have government guarantees. There is no direct sub-prime mortgage exposure in the investment portfolio. The chief market risk factor affecting financial condition and operating results is interest rate risk. Interest rate risk is the exposure of current and future earnings and capital arising from adverse movements in interest rates and spreads. This risk is managed by periodic evaluation of the interest rate risk inherent in certain balance sheet accounts, determination of the level of risk considered appropriate given the Company’s capital and liquidity requirements, business strategy, performance objectives and operating environment and maintenance of such risks within guidelines approved by the Board of Directors. Through such management, the Company seeks to reduce the vulnerability of its net earnings to changes in interest rates. The Asset/Liability Committee, comprised of numerous senior executives, is responsible for managing interest rate risk. On a quarterly basis, the Board of Directors reviews the Company’s gap position and interest rate sensitivity exposure described below and Asset/Liability Committee minutes detailing the Company’s activities and strategies, the effect of those strategies on the Company’s operating results, interest rate risk position and the effect changes in interest rates would have on the Company’s net interest income. The extent of movement of interest rates is an uncertainty that could have a negative impact on earnings.

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

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

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

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

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scenario. The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a three-year period. Simulation analysis involves projecting a future balance sheet structure and interest income and expense under the various rate scenarios. The Company’s internal guidelines on interest rate risk specify that for a range of interest rate scenarios, the estimated net interest margin over the next 12 months should decline by less than 12% as compared to the forecasted net interest margin in the base case scenario. However, in practice, interest rate risk is managed well within these 12% guidelines.

For the base case rate scenario the yield curve as of September 30, 2008 was utilized. This yield curve was utilized due to the recent excessive volatility in the rate markets. As of September 30, 2008, the Company’s estimated exposure as a percentage of estimated net interest income for the next twelve-month period as compared to the forecasted net interest income in the base case scenario are as follows:

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

As of September 30, 2008, a downward twelve month ramp of 100 basis points was a realistic representation of the risk of falling rates as the housing and banking markets and retail and business spending continued to falter, thereby putting pressure on future economic growth. For an increase in rates, an upward twelve month ramp of 200 basis points is also a relevant representation of potential risk given the recent stimulus initiatives that have been provided to the financial markets.

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

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

The Company has expanded its use of borrowings from the Federal Home Loan Bank to fund loan growth while managing interest rate risk and liquidity. At September 30, 2008, total borrowings from the Federal Home Loan Bank amounted to $2.17 billion, exclusive of $6.7 million in purchase accounting adjustments, and the Company had the immediate capacity to increase that total to $2.51 billion. Additional borrowing capacity of approximately $674.7 million would be readily available by pledging eligible investment securities as collateral. Depending on market conditions and the Company’s liquidity and gap position, the Company may continue to borrow from the Federal Home Loan Bank or initiate borrowings through the repurchase agreement market. At September 30, 2008 the Company’s repurchase agreement lines of credit with two large broker dealers totaled $125.0 million, $100.0 million of which was available on that date. Agreement terms vary based on the collateral submitted.

The Company’s most liquid assets are cash and due from banks, short-term investments and debt securities. The levels of these assets are dependent on the Company’s operating, financing, lending and investment activities during any given period. At September 30, 2008, cash and due from banks, short-term investments and debt securities maturing within one year amounted to $305.7 million, or 3.7% of total assets.

NewAlliance’s main source of liquidity at the parent company level is dividends from NewAlliance Bank. The main uses of liquidity are payments of dividends to common stockholders, repurchase of NewAlliance’s common stock, and the payment of principal and interest to holders of trust preferred securities.

Management believes that the cash and due from banks, short term investments and debt securities maturing within one year, coupled with the borrowing line at the Federal Home Loan Bank and the available repurchase agreement lines at selected broker dealers, provide for sufficient liquidity to meet its operating needs.

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At September 30, 2008, the Company had commitments to originate loans, unused outstanding lines of credit and standby letters of credit totaling $837.6 million. Commitments generally have fixed expiration dates or other termination clauses, therefore, total commitment amounts do not necessarily represent future cash requirements. Management anticipates that it will have sufficient funds available to meet its current loan commitments. Time deposits maturing within one year from September 30, 2008 amount to $1.13 billion.

At September 30, 2008, the Company’s Tier 1 leverage ratio, a primary measure of regulatory capital was $846.4 million, or 11.0%, which is above the threshold level of $383.6 million, or 5.0% to be considered “well-capitalized.” The Tier 1 risk-based capital ratio stood at 18.8% and the Total risk-based capital ratio stood at 19.9%. The Bank also exceeded all of its regulatory capital requirements with leverage capital of $721.5 million, or 9.4% of average assets, which is above the required level of $306.3 million or 4.0%. The Tier 1 risk-based capital ratio was 16.1% and the Total risk-based capital ratio was 17.2%. These ratios qualify the Bank as a “well capitalized” institution under federal capital guidelines.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about the Company’s market risk appears under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the caption “Management of Market and Interest Rate Risk” on pages 41 through 43.

Item 4.  Controls and Procedures

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of September 30, 2008. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that the information required to be disclosed by us in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure in the third quarter 2008.

In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 4T.  Controls and Procedures

Not applicable.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

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

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Item 1A.  Risk Factors

An investment in our common stock involves certain risks inherent to our business. The material risks and uncertainties that management believes affect the Company are described below. To understand these risks and to evaluate an investment in our common stock, you should read this entire report, including the following risk factors.

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

Changes in Interest Rates and Spreads Could Have an Impact on Earnings and Results of Operations, Which Could Have a Negative Impact on The Value of NewAlliance Stock.
NewAlliance’s earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads, meaning the difference between interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect NewAlliance’s earnings and financial condition. The Company cannot predict with certainty or control changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the Federal Reserve Board, affect interest income and interest expense. The Company has ongoing policies and procedures designed to manage the risks associated with changes in market interest rates.

However, changes in interest rates still may have an adverse effect on NewAlliance’s profitability. For example, high interest rates could also affect the amount of loans that we originate, because higher rates could cause customers to apply for fewer mortgages, or cause depositors to shift funds from accounts that have a comparatively lower cost, to accounts with a higher cost or experience customer attrition due to competitor pricing. If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If the Bank is not able to reduce its funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then the Bank’s net interest margin will decline.

Credit Market Conditions May Impact NewAlliance’s Investments
Significant credit market anomalies may impact the valuation and liquidity of the Company’s investment securities. The problems of numerous primary security dealers have reduced market liquidity, increased normal bid-asked spreads and increased the uncertainty of market participants. Such illiquidity could reduce the market value of the Company’s investments, even those with no apparent credit exposure.

NewAlliance’s Business Strategy of Growth Through Acquisitions Could Have an Impact on Earnings and Results of Operations That May Negatively Impact the Value of NewAlliance Stock.
In recent years, NewAlliance has focused, in part, on acquisitions. Over the past four years, the Company has acquired four banking institutions, a non-depository trust company and a registered investment advisory firm. From time to time in the ordinary course of business, the Company engages in preliminary discussions with potential acquisition targets. As of the date of this filing, there are no binding or definitive agreements, plans, arrangements, or understandings for such acquisitions by the Company. Although our business strategy includes both internal expansion and acquisitions, there can be no assurance that, in the future, we will successfully identify suitable acquisition candidates, complete acquisitions successfully, integrate acquired operations into our existing operations or expand into new markets. Further, there can be no assurance that acquisitions will not have an adverse effect upon our operating results while the operations of the acquired businesses are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect our earnings. These adverse effects on our earnings and results of operations may have a negative impact on the value of our stock.

If The Goodwill That The Company Has Recorded in Connection With Its Acquisitions Becomes Impaired, It Could Have a Negative Impact on The Company’s Profitability and Stockholders’ Equity.
Applicable accounting standards require that the purchase method of accounting be used for all business combinations. Under purchase accounting, if the purchase price of an acquired company exceeds the fair value of the company’s net assets, the excess is carried on the acquirer’s balance sheet as goodwill. At September 30, 2008, the Company had approximately $527.2 million of goodwill on its balance sheet. Companies must evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to the results of operations in the period in which the impairment occurs. There can be no assurance that future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on NewAlliance’s financial conditions and results of operations.

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NewAlliance May Experience Higher Levels of Loan Losses Due to Recent Growth.
NewAlliance’s growth strategy depends on generating an increasing level of loans to produce an acceptable return to our stockholders. We will also need to accomplish this loan growth while maintaining low loan losses in our portfolio. We expect growth to occur in markets that are relatively new to us, including central and western Massachusetts through our acquisition of Westbank in 2007. As such, NewAlliance’s allowance for loan losses may need to be increased, or may be deemed insufficient by various regulatory agencies. Such agencies may require the Bank to recognize an increase to the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly capital, and may have a material adverse effect on NewAlliance’s financial condition and results of operations. See the sections titled “Allowance for Loan Losses” and “Classification of Assets and Loan Review” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, located in the Company’s most recent Annual Report on Form 10-K for further discussion related to the process for determining the appropriate level of the allowance for loan losses.

NewAlliance May Experience Higher Levels of Loan Losses Due to Economic Conditions.
NewAlliance’s business is subject to periodic fluctuations based on national and local economic conditions. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on the Company’s operations and financial condition. For example, recent declines in housing activity including declines in building permits, housing starts and home prices may make it more difficult for our borrowers to sell their homes or refinance their debt. Sales may also slow, which could strain the resources of real estate developers and builders. It is apparent that the economy has entered a recession. This will likely affect employment levels and the ability of our borrowers to service their debt. The Bank may suffer higher loan losses as a result of these factors and the resulting impact on our borrowers.

The Impact on the Company and the Bank of Recently Enacted Legislation, in Particular the Emergency Economic Stabilization Act of 2008 and its Implementing Regulations Cannot be Predicted at this Time.
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 ("EESA"), which includes the Troubled Asset Relief Program (“TARP”). The legislation was in response to the financial crises affecting the banking system and financial markets.

EESA is expected to have a profound effect on the financial services industry. The effect of programs developed under EESA, including the TARP and Capital Purchase Programs, could dramatically change the competitive environment of the Company.

TARP gave the United States Treasury Department (“Treasury”) authority to deploy up to $700 billion into the financial system with an objective of improving liquidity in capital markets. On October 14, 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks, the first $125 billion of which has been allocated to nine major financial institutions. Applications are being considered through November 14, 2008 for the remaining $125 billion. The general terms of this preferred stock program are as follows for a participating bank:

- Pay 5% dividends on the Treasury’s preferred stock for the first five years, and then 9% dividends thereafter;

- Cannot increase common stock dividends for three years while Treasury is an investor;

- Cannot redeem the Treasury preferred stock for three years unless the participating bank raises high-quality private capital;

- Must receive Treasury’s consent to buy back their own stock;

- Treasury receives warrants entitling Treasury to buy participating bank’s common stock equal to 15% of Treasury’s total investment in the participating bank, and

- Participating bank executives must agree to certain compensation restrictions, and restrictions on the amount of executive compensation which is tax deductible.

Currently, the Company does not anticipate participating in the TARP, however, the actual impact that EESA and the implementation of its programs, or any other governmental program will have on the financial markets and the Company cannot reliably be determined at this time.

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

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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 customers, depositors’ funds, federal deposit insurance funds and the banking system as a whole, not stockholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. While NewAlliance has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in Item 1. of the Company’s most recent annual report on Form 10-K for further information.

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

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

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

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

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

• Actual or anticipated variations in quarterly operating results;

• Recommendations by securities analysts;

• New technology used, or services offered, by competitors;

• Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or the Company’s competitors;

• Failure to integrate acquisitions or realize anticipated benefits from acquisitions;

• Operating and stock price performance of other companies that investors deem comparable to NewAlliance;

• News reports relating to trends, concerns and other issues in the financial services industry;

• Government actions to combat the current stress in the financial system;

• Changes in government regulations; and

• Geopolitical conditions such as acts or threats of terrorism or military conflicts.

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

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

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

Issuer Purchases of Equity Securities

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

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

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

Item 3.  Defaults Upon Senior Securities

None.

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

None.

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Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit
Number
3.1	Amended and Restated Certificate of Incorporation of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 13, 2004.
3.2	Amended and Restated Bylaws of NewAlliance Bancshares, Inc.
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	Amended and Restated NewAlliance Bank Supplemental Executive Retirement Plan (filed herewith).
10.3	NewAlliance Amended and Restated Employee Stock Ownership Plan Supplemental Executive Retirement Plan (filed herewith).
10.4	The NewAlliance Bank Amended and Restated 401(k) Supplemental Executive Retirement Plan (filed herewith).
10.5	NewAlliance Bank Executive Incentive Plan approved by shareholders on April 17, 2008, as amended. Incorporated by reference is Exhibit 10.5 filed with the Company’s Quarterly Report on Form 10-Q, filed August 7, 2008.
10.6	Employee Severance Plan. Incorporated by reference is Exhibit 10.6 filed with the Company’s Quarterly Report on Form 10-Q, filed November 8, 2007.
10.7.1	Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Peyton R. Patterson, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.1 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.7.2	Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Merrill B. Blanksteen, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.2 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.7.3	Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Gail E.D. Brathwaite, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.3 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.7.4	Intentionally omitted.
10.7.5	Amended and Restated Employment Agreement between NewAlliance Bank and Diane L. Wishnafski, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.5 filed with the Company’s Quarterly report on Form 10-Q, filed November 8, 2007.
10.7.6	(Intentionally omitted)
10.7.7	(Intentionally omitted)
10.7.8	Amended and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.8 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.7.9	Employment Agreement between NewAlliance Bank and Paul A. McCraven, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.9 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.7.10	Amended and Restated Employment Agreement between NewAlliance Bank and Koon-Ping Chan, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.10 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.8.1	Form of Stock Option Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.8.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.8.2	Form of Stock Option Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.8.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.9.1	Form of Restricted Stock Award Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.9.1 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.9.2	Form of Restricted Stock Award Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.9.2 filed with the Company’s Quarterly Report on Form 10-Q, filed August 9, 2005.
10.10	NewAlliance Bancshares, Inc. 2005 Long-Term Compensation Plan. Incorporated herein by reference is Exhibit 4.3 filed with the Company’s Registration Statement on Form S-8, filed November 4, 2005.
10.11	(Intentionally omitted)

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

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SIGNATURES

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

NewAlliance Bancshares, Inc.

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

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