Edgar Filing: NEWALLIANCE BANCSHARES INC

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 June 30, 2008.

[ ] 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 August 1, 2008

TABLE OF CONTENTS

Part I – FINANCIAL INFORMATION

Page No.


	Item 1.	Financial Statements (Unaudited)

		Consolidated Balance Sheets at June 30, 2008 and December 31, 2007	3

		Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007	4

		Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2008	5

		Consolidated Statements of Cash Flows for the six months ended June 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	41

	Item 4.	Controls and Procedures	41

	Item 4T.	Controls and Procedures	41

Part II – OTHER INFORMATION

	Item 1.	Legal Proceedings	41

	Item 1A.	Risk Factors	42

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

	Item 3.	Defaults Upon Senior Securities	45

	Item 4.	Submission of Matters to a Vote of Security Holders	45

	Item 5.	Other Information	45

	Item 6.	Exhibits	45

SIGNATURES

New Alliance Bancshares, Inc.

Consolidated Balance Sheets

(In thousands, except per share data) (Unaudited)	June 30, 2008			December 31, 2007

Assets
Cash and due from banks, noninterest bearing	$	112,287		$	108,917
Short-term investments		52,000			51,962

Cash and cash equivalents		164,287			160,879
Investment securities available for sale (note 5)		2,006,502			2,201,021
Investment securities held to maturity (note 5)		314,113			290,472
Loans held for sale		3,350			2,669
Loans, net (note 6)		4,901,669			4,684,156
Premises and equipment, net		60,898			61,939
Cash surrender value of bank owned life insurance		134,878			132,059
Goodwill (note 7)		527,643			531,191
Identifiable intangible assets (note 7)		48,588			53,316
Other assets (note 8)		100,328			93,282

Total assets	$	8,262,256		$	8,210,984

Liabilities
Deposits (note 9)
Non-interest bearing	$	500,673		$	477,408
Savings, interest-bearing checking and money market		2,168,256			1,834,190
Time		1,662,071			2,062,067

Total deposits		4,331,000			4,373,665
Borrowings (note 10)		2,454,606			2,355,504
Other liabilities		69,540			74,708

Total liabilities		6,855,146			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 June 30, 2008 and December 31, 2007		1,215			1,215
Additional paid-in capital		1,244,216			1,242,100
Unallocated common stock held by ESOP		(94,209	)		(96,039	)
Unearned restricted stock compensation		(21,785	)		(25,466	)
Treasury stock, at cost (13,531 shares at June 30, 2008 and 12,634 shares at December 31, 2007)		(189,483	)		(178,401	)
Retained earnings		461,597			451,729
Accumulated other comprehensive income (note 16)		5,559			11,969

Total stockholders’ equity		1,407,110			1,407,107

Total liabilities and stockholders’ equity	$	8,262,256		$	8,210,984

See accompanying notes to consolidated financial statements.

New Alliance Bancshares, Inc.

Consolidated Statements of Income

	Three Months Ended June 30,					Six Months Ended June 30,

(In thousands, except share data) (Unaudited)		2008		2007			2008		2007

Interest and dividend income
Residential real estate loans	$	34,512	$	31,729		$	67,790	$	61,549
Commercial real estate loans		18,291		18,636			37,177		37,008
Commercial business loans		6,819		8,862			14,185		16,980
Consumer loans		9,547		10,887			19,833		21,641
Investment securities		29,821		27,265			61,935		56,129
Short-term investments		190		732			474		1,610

Total interest and dividend income		99,180		98,111			201,394		194,917

Interest expense
Deposits		24,805		32,655			54,803		64,677
Borrowings		26,127		22,847			52,337		44,226

Total interest expense		50,932		55,502			107,140		108,903

Net interest income before provision for loan losses		48,248		42,609			94,254		86,014

Provision for loan losses		3,700		600			5,400		1,600

Net interest income after provision for loan losses		44,548		42,009			88,854		84,414

Non-interest income
Depositor service charges		6,708		7,003			13,340		13,492
Loan and servicing income		264		612			645		1,058
Trust fees		1,678		1,676			3,348		3,343
Investment management, brokerage & insurance fees		1,844		1,861			4,376		3,535
Bank owned life insurance		1,291		1,600			2,820		3,170
Net gain (loss) on securities		87		(22,345	)		1,225		(22,187	)
Net gain on sale of loans		656		467			913		664
Other		1,991		1,360			3,518		3,388

Total non-interest income		14,519		(7,766	)		30,185		6,463

Non-interest expense
Salaries and employee benefits (notes 11 & 12)		22,935		21,635			46,624		43,492
Occupancy		4,320		4,325			9,214		8,729
Furniture and fixtures		1,654		1,702			3,340		3,443
Outside services		4,471		4,182			8,744		8,759
Advertising, public relations, and sponsorships		2,036		2,258			3,745		3,938
Amortization of identifiable intangible assets		2,364		2,951			4,728		6,039
Merger related charges		23		472			78		2,339
Other		3,514		3,410			7,082		6,965

Total non-interest expense		41,317		40,935			83,555		83,704

Income (loss) before income taxes		17,750		(6,692	)		35,484		7,173

Income tax provision (note 13)		5,968		(2,833	)		10,768		1,736

Net income (loss)	$	11,782	$	(3,859	)	$	24,716	$	5,437


Basic earnings (loss) per share (note 17)	$	0.12	$	(0.04	)	$	0.25	$	0.05
Diluted earnings (loss) per share (note 17)		0.12		(0.04	)		0.25		0.05
Weighted-average shares outstanding (note 17)
Basic		100,112,529		103,872,256			100,194,898		103,960,928
Diluted		100,282,161		104,605,351			100,215,006		104,889,936
Dividends per share	$	0.07	$	0.065		$	0.135	$	0.125

See accompanying notes to consolidated financial statements.

New Alliance Bancshares, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

For the Six Months Ended June 30, 2008 (In thousands, except per share data) (unaudited)	Common Shares Outstanding			Par Value Common Stock		Additional Paid-in Capital			Unallocated Common Stock Held by ESOP			Unearned Compensation			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ 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 ($0.135 per share)																			(13,786	)					(13,786	)
Allocation of ESOP shares, net of tax							(166	)		1,830															1,664
Treasury shares acquired (note 15)		(897	)													(11,082	)								(11,082	)
Restricted stock expense													3,681												3,681
Excess tax benefit of stock-based compensation							107																		107
Stock option expense							2,175																		2,175
Adoption of EITF 06-4, net of tax (Note 2)																			(1,062	)					(1,062	)

Comprehensive income:
Net income																			24,716						24,716
Other comprehensive loss, net of tax (note 16)																						(6,410	)		(6,410	)

Total comprehensive income																									18,306

Balance June 30, 2008		107,955		$	1,215	$	1,244,216		$	(94,209	)	$	(21,785	)	$	(189,483	)	$	461,597		$	5,559		$	1,407,110

See accompanying notes to consolidated financial statements.

New Alliance Bancshares, Inc.

Consolidated Statements of Cash Flows

	Six Months Ended June 30,

(In thousands) (Unaudited)		2008			2007

Cash flows from operating activities
Net income	$	24,716		$	5,437
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		5,400			1,600
Gain on sale of OREO		(68	)		-
Restricted stock compensation expense		3,681			3,709
Stock option compensation expense		2,175			2,232
ESOP expense		1,664			1,934
Amortization of identifiable intangible assets		4,728			6,039
Net amortization/accretion of fair market adjustments from net assets acquired		(2,502	)		(3,645	)
Net amortization/accretion of investment securities		(1,483	)		(133	)
Change in deferred income taxes		277			(4,836	)
Depreciation and amortization		3,524			3,560
Net gain on securities		(1,225	)		(387	)
Impairment of investment portfolio		-			22,574
Net gain on sales of performing loans		(913	)		(664	)
Proceeds from sales of loans held for sale		52,222			23,564
Loans originated for sale		(58,682	)		(30,471	)
Net loss on sale of fixed assets		7			-
Gain on limited partnerships		(646	)		(784	)
Increase in cash surrender value of bank owned life insurance		(2,820	)		(3,170	)
(Increase) decrease in other assets		(2,408	)		73,371
Decrease in other liabilities		(3,250	)		(14,210	)

Net cash provided by operating activities		24,397			85,720

Cash flows from investing activities
Purchase of securities available for sale		(293,967	)		(89,599	)
Purchase of securities held to maturity		(58,995	)		-
Proceeds from maturity, sales, calls and principal reductions of securities available for sale		481,166			319,983
Proceeds from maturity, calls and principal reductions of securities held to maturity		35,865			29,604
Proceeds from sales of fixed assets		659			10
Net increase in loans held for investment		(216,809	)		(329,315	)
Net cash acquired in acquisitions		-			124,163
Proceeds from sales of other real estate owned		517			-
Purchase of premises and equipment		(3,111	)		(3,979	)

Net cash (used) provided by investing activities		(54,675	)		50,867

Cash flows from financing activities
Net decrease in customer deposit balances		(42,700	)		(122,381	)
Net increase (decrease) in short-term borrowings		31,639			(24,726	)
Proceeds from long-term borrowings		345,000			421,000
Repayments of long-term borrowings		(275,492	)		(305,072	)
Shares issued for stock option exercise		-			10
Excess tax benefit of stock-based compensation		107			62
Acquisition of treasury shares		(11,082	)		(10,529	)
Dividends declared		(13,786	)		(13,332	)

Net cash provided (used) by financing activities		33,686			(54,968	)

Net increase in cash and cash equivalents		3,408			81,619

Cash and equivalents, beginning of period		160,879			156,025

Cash and equivalents, end of period	$	164,287		$	237,644

Supplemental information
Cash paid for
Interest on deposits and borrowings	$	108,957		$	108,142
Income taxes paid, net		11,087			8,277
Noncash transactions
Net non-cash liabilities acquired		-			(144,062	)
Value of shares issued for acquisitions		-			58,939

See accompanying notes to consolidated financial statements.

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 May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 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 shall be effective 60 days following the Securities and Exchange Commission’s 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 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

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

		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 closing 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 will require 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).

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; corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.

•		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 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market prepayment speeds, credit information and the bond’s terms and conditions, among other things.

		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.

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

June 30, 2008

Quoted Prices in

Significant

Active Markets for

Significant

Unobservable

Identical Assets

Observable Inputs

Inputs

(In thousands)

(Level 1)

(Level 2)

(Level 3)

Securities Available for Sale

188,750

1,696,932

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

		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 June 30, 2008 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

June 30, 2008

Quoted Prices in

Significant

Active Markets for

Significant

Unobservable

Identical Assets

Observable Inputs

Inputs

(In thousands)

(Level 1)

(Level 2)

(Level 3)

Loan Servicing Rights

3,462

Impaired Loans

6,455

4.		Business Combinations

		There were no business combinations completed for the six months ended June 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		79,466		14,232		58,447		4,009		117,386

		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 December 31, 2006 CIMI had approximately $190.0 million in assets under management.

		Westbank Corporation
		On January 2, 2007 the Company completed the acquisition of Westbank Corporation (“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.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

5.		Investment Securities

		The following table presents the amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of investment securities at June 30, 2008 and December 31, 2007.

	June 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	$	596	$	-	$	-		$	596	$	1,092	$	3	$	-		$	1,095
U.S. Government sponsored
enterprise obligations		172,522		381		(841	)		172,062		201,408		672		(21	)		202,059
Corporate obligations		7,158		14		-			7,172		22,531		130		(146	)		22,515
Other bonds and obligations		47,518		53		(2,566	)		45,005		52,853		56		(275	)		52,634
Marketable and trust preferred
equity securities		72,451		6		(9,441	)		63,016		86,543		154		(3,231	)		83,466
Federal Home Loan Bank stock		120,821		-		-			120,821		113,760		-		-			113,760
Mortgage-backed securities		1,579,084		20,018		(1,272	)		1,597,830		1,706,966		21,098		(2,572	)		1,725,492

Total available for sale		2,000,150		20,472		(14,120	)		2,006,502		2,185,153		22,113		(6,245	)		2,201,021

Held to maturity
Mortgage-backed securities		306,978		4,283		(641	)		310,620		282,887		4,362		(281	)		286,968
Other bonds		7,135		22		(29	)		7,128		7,585		25		(33	)		7,577

Total held to maturity		314,113		4,305		(670	)		317,748		290,472		4,387		(314	)		294,545

Total securities	$	2,314,263	$	24,777	$	(14,790	)	$	2,324,250	$	2,475,625	$	26,500	$	(6,559	)	$	2,495,566

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 June 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		95,654		(841	)		-		-			95,654		(841	)
Corporate obligations		-		-			-		-			-		-
Other bonds and obligations		41,951		(2,595	)		-		-			41,951		(2,595	)
Marketable and trust preferred equity obligations		41,335		(9,102	)		1,657		(339	)		42,992		(9,441	)
Mortgage-backed securities		196,654		(1,913	)		-		-			196,654		(1,913	)

Total securities with unrealized losses	$	375,594	$	(14,451	)	$	1,657	$	(339	)	$	377,251	$	(14,790	)

		Of the issues summarized above, 112 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 June 30, 2008 represents an-other-than-temporary impairment, based on its normal 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) and broad market details.

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

		The unrealized losses reported on mortgage-backed securities relate to securities issued by 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. 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 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 spreads. All securities are performing in accordance with contractual terms.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements

		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 select 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 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.

6.		Loans

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

		June 30,			December 31,
(In thousands)		2008			2007

Residential real estate	$	2,533,248		$	2,360,921
Commercial real estate		999,048			947,185
Construction
Residential		19,816			29,023
Commercial		214,830			247,428
Commercial business		473,147			457,745
Consumer
Home equity and equity lines of credit		681,978			652,107
Other		27,400			33,560

Total consumer		709,378			685,667

Total loans		4,949,467			4,727,969
Allowance for loan losses		(47,798	)		(43,813	)

Total loans, net	$	4,901,669		$	4,684,156

At June 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, the majority of which are located in Connecticut and Massachusetts. The commercial real estate loan and commercial construction portfolios are collateralized primarily by multi-family, commercial and industrial properties located predominately in Connecticut and Massachusetts. A variety of different assets, including accounts receivable, inventory and property, and plant and equipment, collateralize the majority of the commercial business loan portfolio. The Company does not originate or directly invest in sub prime loans.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



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

		At or For the Three Months				At or For the Six Months
		Ended June 30,				Ended June 30,

	(Dollars in thousands)	2008		2007		2008		2007

	Balance at beginning of period	$	45,414	$	42,085	$	43,813	$	37,408
	Net allowances gained through acquisition		-		-		-		3,894
	Provision for loan losses		3,700		600		5,400		1,600
	Charge-offs
	Residential and commercial real estate loans		-		-		51		2
	Commercial construction		1,000		285		1,000		285
	Commercial business loans		504		121		774		659
	Consumer loans		205		175		351		287

	Total charge-offs		1,709		581		2,176		1,233

	Recoveries
	Residential and commercial real estate loans		14		15		29		265
	Commercial construction		-		11		-		11
	Commercial business loans		343		263		663		316
	Consumer loans		36		30		69		162

	Total recoveries		393		319		761		754

	Net charge-offs		1,316		262		1,415		479

	Balance at end of period	$	47,798	$	42,423	$	47,798	$	42,423

7.	Goodwill and Identifiable Intangible Assets

	The changes in the carrying amount of goodwill and identifiable intangible assets for the six months ended June 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		(3,548	)		-			-
	Amortization expense		-			(4,728	)		(4,728	)

	Balance, June 30, 2008	$	527,643		$	48,588		$	48,588

	Estimated amortization expense for the year ending:
	Remaining 2008				$	4,728		$	4,728
	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 $3.5 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 comprised of core deposit and customer relationships and had the following balances at June 30, 2008:

		Original						Balance
		Recorded			Cumulative			June 30,
	(In thousands)	Amount			Amortization			2008

	Core deposit and customer relationships	$	86,908		$	38,320		$	48,588

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



8.	Other Assets

	Selected components of other assets are as follows:
		June 30,		December 31,
	(In thousands)	2008		2007

	Deferred tax asset, net	$	13,691	$	10,033
	Accrued interest receivable		32,625		35,071
	Prepaid pension		13,450		14,180
	Investments in limited partnerships and other investments		9,804		9,069
	All other		30,758		24,929

	Total other assets	$	100,328	$	93,282


9.	Deposits

	A summary of deposits by account type is as follows:
		June 30,		December 31,
	(In thousands)	2008		2007

	Savings	$	1,349,136	$	941,051
	Money market		427,174		492,042
	NOW		391,946		401,097
	Demand		500,673		477,408
	Time		1,662,071		2,062,067

	Total deposits	$	4,331,000	$	4,373,665


10.	Borrowings

	The following is a summary of the Company’s borrowed funds:
		June 30,		December 31,
	(In thousands)	2008		2007

	FHLB advances (1)	$	2,244,598	$	2,136,965
	Repurchase agreements		183,783		192,145
	Mortgage loans payable		1,390		1,459
	Junior subordinated debentures issued to affiliated trusts (2)		24,835		24,935

	Total borrowings	$	2,454,606	$	2,355,504

	(1)	Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141,“Business Combinations,” of $7.6 million and $9.6 million at June 30, 2008 and December 31, 2007, respectively.

	(2)	Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141,“Business Combinations,” of $200,000 and $300,000 at June 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.

	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 U.S. Agency hybrid adjustable rate mortgage-backed securities. At June 30, 2008 and December 31, 2007, the Bank was in compliance with the FHLB collateral requirements. At June 30, 2008, the Company could borrow an additional $285.6 million from the FHLB, inclusive of a line of credit of approximately $20.0 million. Additional borrowing capacity of approximately $654.6 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 $114.6 million as of June 30, 2008, all of which was available on that date. Repurchase agreement lines of credit totaled $125.0 million at June 30, 2008, with availability of $100.0 million. At June 30, 2008, the majority of the Company’s $2.24 billion outstanding FHLB advances were at fixed rates ranging from 2.25% to 8.17%, while one advance of $15.0 million had a floating rate of 2.79%. The weighted average rate for all FHLB advances at June 30, 2008 was 4.57%.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



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.

	The following table presents the amount of net periodic pension cost for the three months ended June 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 six months ended June 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	$	1,575		$	1,618		$	269	$	250	$	98		$	99
Interest cost on projected benefit obligation		2,726			2,515			353		318		186			175
Expected return on plan assets		(3,595	)		(3,571	)		-				-			-
Amortization:
Transition		-			-			-		-		26			26
Prior service cost		25			25			3		3		-			-
Gain (loss)		-			159			-		-		(40	)		(11	)

Net periodic benefit cost	$	731		$	746		$	625	$	571	$	270		$	289

	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 June 30, 2008, the loan had an outstanding balance of $101.0 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 six months ended June 30, 2008 was approximately $817,000 and $1.5 million, respectively. For the three and six months ended June 30, 2007, the ESOP compensation expense was approximately $929,000 and $1.9 million, respectively. The amount of loan repayments made by the ESOP is used to reduce the unallocated common stock held by the ESOP.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



	The ESOP shares as of June 30, 2008 were as follows:


	Shares released for allocation		1,038,069
	Unreleased shares		6,416,493

	Total ESOP shares		7,454,562

	Market value of unreleased shares at June 30, 2008 (in thousands)	$	80,078

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. 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 June 30, 2008 and 2007 was $1.0 million and $1.1 million, respectively, or after tax expense of approximately $682,000 and $715,000, respectively. For both the six month periods ended June 30, 2008 and 2007, compensation expense of $2.2 million, or after tax of $1.4 million and $1.5 million, respectively was recorded. It is anticipated that the Company will recognize expense on options of approximately $4.2 million, $179,000, $153,000, $70,000 and $7,000 in calendar years 2008 through 2012, unless additional awards are granted.

	Options to purchase 79,250 shares were granted to employees during the six months ended June 30, 2008 and options to purchase 80,000 shares were granted during the six months ended June 30, 2007. Using the Black-Scholes option pricing model, the weighted-average grant date fair value was $1.96 and $2.72 for the options which were granted in 2008 and 2007, respectively. The weighted-average related assumptions for the six months ended June 30, 2008 and 2007 are presented in the following table.

	2008		2007

Risk-free interest rate	2.86	%	4.50	%
Expected dividend yield	2.12	%	1.50	%
Expected volatility	16.19	%	16.17	%
Expected life	6.25 years		3.84 years

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



	A summary of option activity as of June 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	79,250			12.43
	Exercised	-			-
	Forfeited/cancelled	(48,729	)		14.34
	Expired	(12,850	)		14.39

	Options outstanding at June 30, 2008	8,555,331		$	14.40		7.00	$	23

	Options exercisable at June 30, 2008	6,795,704		$	14.40		6.97	$	-

The following table summarizes the nonvested options during the six months ended June 30, 2008.

				Weighted-average
				Grant-Date
	Shares			Fair Value


Nonvested at January 1, 2008		1,801,508		$	2.65
Granted		79,250			1.96
Vested		(72,402	)		2.62
Forfeited/Cancelled		(48,729	)		2.59

Nonvested at June 30, 2008		1,759,627		$	2.62

	Restricted Stock Awards
	To date, 3,530,217 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 June 30, 2008 and 2007 was approximately $1.8 million and $2.0 million or after tax expense of approximately $1.3 million and $1.5 million, respectively. For the six months ended June 30, 2008 and 2007, compensation expense for both periods was $3.7 million, or after-tax expense of approximately $2.7 million. 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, unless additional awards are granted.

	The following table summarizes the nonvested restricted stock awards during the six months ended June 30, 2008.

				Weighted-average
				Grant-Date
	Shares			Fair Value

Nonvested at January 1, 2008		2,262,216		$	14.42
Granted		58,300			12.08
Vested		(533,295	)		11.72
Forfeited/Cancelled		(64,508	)		14.39

Nonvested at June 30, 2008		1,722,713		$	14.34

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



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 $13.7 million and $10.0 million at June 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						Six Months Ended
	June 30,						June 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	$	(3,905	)	$	4,356		$	(3,107	)	$	7,589
Stockholders’ equity, tax impact of adoption of EITF 06-04		-			-			(572	)		-
Goodwill		-			(32	)		(256	)		(3,812	)
Income		(1,780	)		(8,076	)		277			(4,836	)

Total deferred tax benefit	$	(5,685	)	$	(3,752	)	$	(3,658	)	$	(1,059	)

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:

	Six months ended
(In thousands)	June 30, 2008

Balance at December 31, 2007	$	4,436
Additions for tax positions of current year		80
Additions for tax positions of prior year		36
Reductions for tax positions of prior year		(4,175	)

Balance at June 30, 2008	$	377

	Included in the balance at June 30, 2008 are $367,000 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 June 30, 2008, the Company has accrued approximately $41,000 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. 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.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



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.

	June 30,		December 31,
(In thousands)	2008		2007

Loan commitments	$	132,409	$	71,191
Unadvanced portion of construction loans		116,343		163,302
Standby letters of credit		14,494		15,885
Unadvanced portion of lines of credit		581,070		560,298

Total commitments	$	844,316	$	810,676

	Other Commitments
	As of June 30, 2008 and December 31, 2007, the Company was contractually committed under limited partnership agreements to make additional partnership investments of approximately $2.7 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 June 30, 2008 and December 31, 2007, stockholders’ equity amounted to $1.41 billion, representing 17.0% and 17.1% of total assets, respectively. The Company paid cash dividends totaling $0.135 per share on common stock during the six months ended June 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.

	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 5,926,000 shares of common stock at a weighted average price of $13.38 per share as of June 30, 2008. There is no set expiration date for this repurchase plan.

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



	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 June 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.

										To Be Well
						For Capital				Capitalized Under
						Adequacy				Prompt Corrective
		Actual				Purposes				Action Provisions

	(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio

	NewAlliance Bank
	June 30, 2008
	Tier 1 Capital (to Average Assets)	$	706,019	9.3	%	$	302,237	4.0	%	$	379,047	5.0	%
	Tier 1 Capital (to Risk Weighted Assets)		706,019	15.6			180,948	4.0			271,422	6.0
	Total Capital (to Risk Weighted Assets)		753,817	16.7			361,896	8.0			452,370	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.
	June 30, 2008
	Tier 1 Capital (to Average Assets)	$	847,961	11.2	%	$	304,006	4.0	%	$	380,008	5.0	%
	Tier 1 Capital (to Risk Weighted Assets)		847,961	18.7			181,493	4.0			272,240	6.0
	Total Capital (to Risk Weighted Assets)		895,759	19.7			362,987	8.0			453,733	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 six months ended June 30, 2008 and 2007.

	Three Months Ended						Six Months Ended
	June 30,						June 30,

(In thousands)	2008			2007			2008			2007

Net income (loss)	$	11,782		$	(3,859	)	$	24,716		$	5,437
Other comprehensive income, before tax
Unrealized losses on securities
Unrealized holding losses arising during the period		(11,779	)		(10,183	)		(8,292	)		(783	)
Reclassification adjustment for (gains) losses included in
net income (loss)		(87	)		22,345			(1,225	)		22,187

Other comprehensive (loss) income, before tax		(11,866	)		12,162			(9,517	)		21,404
Income tax benefit (expense), net of valuation allowance		3,905			(4,356	)		3,107			(7,589	)

Other comprehensive (loss) income, net of tax		(7,961	)		7,806			(6,410	)		13,815

Comprehensive income	$	3,821		$	3,947		$	18,306		$	19,252

NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements



17.	Earnings Per Share

	The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2008 and 2007 is presented below.

		Three Months Ended					Six Months Ended
		June 30,					June 30,

	(In thousands, except per share data)	2008		2007			2008		2007

	Net income (loss)	$	11,782	$	(3,859	)	$	24,716	$	5,437
	Average common shares outstanding for basic EPS		100,113		103,872			100,195		103,961
	Effect of dilutive stock options and unvested stock awards		169		733			20		929

	Average common and common-equivalent shares for dilutive EPS		100,282		104,605			100,215		104,890
	Net income (loss) per common share:
	Basic	$	0.12	$	(0.04	)	$	0.25	$	0.05
	Diluted		0.12		(0.04	)		0.25		0.05

Forward-Looking Statements

This report may contain certain forward-looking statements as that term is defined in the U.S. federal securities laws.

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

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

	•	Changes in the interest rate environment may reduce net interest margin and/or the volumes and values of loans made or held as well as the value of other financial assets held;
	•	General economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services;
	•	Competitive pressures among depository and other financial institutions may increase significantly and may decrease the profit margin associated with its business;
	•	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;
	•	Adverse changes may occur in the securities markets impacting the value of NewAlliance’s investments; 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 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.

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 $8.26 billion and stockholders’ equity of $1.41 billion at June 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.

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 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).

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

In 2007 the Company completed two acquisitions, Westbank Corporation (“Westbank”) on January 2^nd and Connecticut Investment Management, Inc. (“CIMI”) on March 5^th. Westbank was the holding company for Westbank, a commercial bank and trust company with 16 banking offices in Massachusetts and Connecticut. CIMI was a registered investment advisory firm with approximately $190.0 million in assets under management. Further information regarding acquisitions can be found in Note 4, “Business Combinations” in the Notes to the Unaudited Consolidated Financial Statements.

Net income for the second quarter of 2008 was $11.8 million or $0.12 per diluted share, compared to a loss of $3.9 million or $0.04 per diluted share for the second quarter of 2007. For the six months ended June 30, 2008, net income was $24.7 million or $0.25 per diluted share, compared to $5.4 million or $0.05 per diluted share.

The largest single component causing the quarter-over-quarter and year-over-year increase in net income was 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). 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.

Results for the quarter were also positively affected by a $4.6 million decline in funding costs, mainly due to decreases in the average rate and balance of time deposits. These improvements were partially offset by an increase in the provision for loan losses of $3.1 million which reflects the increase in nonaccrual loans, an outcome of the current economic environment.

Year-over-year comparisons were positively impacted by the restructuring of the investment securities portfolio and a reduction in funding costs. Similar to the quarter, there was an increase in the provision for loan losses in the current year-to-date period of $3.8 million.

For the three and six months ended June 30, 2008 compared to 2007, return on average assets increased 78 basis points and 47 basis points, respectively, and our return on average equity increased 441 basis points and 271 basis points, respectively.

The net interest margin experienced improvements over 2007 for both the three and six months ended June 30, 2008 due to strong loan growth, the restructuring of the investment securities portfolio during the second quarter of 2007 and the reduction in deposit costs, partially offset by an increase in FHLB borrowings expense. For the three months ended June 30, 2008 the net interest margin was 2.67% as compared to 2.44% for the same period in 2007, an increase of 23 basis points. For the six months ended June 30, 2008 the net interest margin was 2.62%, an increase of 15 basis points from 2.47% for the six months ended June 30, 2007.

Our continued focus on maintaining credit quality has resulted in continued positive asset quality ratios as compared to our peers. The allowance for loan losses to total loans increased four basis points to 0.97% from 0.93% at December 31, 2007. The ratio of nonperforming loans to total loans was 0.53% at June 30, 2008 compared to 0.35% at December 31, 2007 and 0.33% at June 30, 2007. Net charge-offs were $1.3 million and $1.4 million for the three and six months ended June 30, 2008, respectively compared to $262,000 and $479,000 for the three and six months ended June 30, 2007, respectively.

Stockholders’ equity remained essentially flat with December 31, 2007 as net income for the six months ended June 30, 2008 of $24.7 million, was partially offset by cash dividends paid in the amount of $13.8 million, or 13.5 cents per common share, as well as the repurchase of approximately 783,000 shares for $9.8 million. Dividend payments and stock buybacks are in accordance with our continued strategy of judicious capital deployment. The Tier I capital ratio was xx% at June 30, 2008. Per common share data also improved as of June 30, 2008 from December 31, 2007 and June 30, 2007. Book value per share increased to $13.03 from $12.93 at December 31, 2007 and $12.61 at June 30, 2007, and tangible book value per share increased to $7.70 from $7.56 and $7.41 for the same time periods, respectively. Diluted weighted average shares decreased by 4.3 million shares from June 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						Six Months Ended
	June 30,						June 30,

(Dollars in thousands, except per share data)	2008			2007			2008			2007

Condensed Income Statement
Interest and dividend income	$	99,180		$	98,111		$	201,394		$	194,917
Interest expense		50,932			55,502			107,140			108,903

Net interest income before provision for loan losses		48,248			42,609			94,254			86,014
Provision for loan losses		3,700			600			5,400			1,600

Net interest income after provision for loan losses		44,548			42,009			88,854			84,414
Non-interest income		14,519			(7,766	)		30,185			6,463
Operating expenses		41,294			40,463			83,477			81,365
Merger related charges		23			472			78			2,339

Income before income taxes		17,750			(6,692	)		35,484			7,173
Income tax provision		5,968			(2,833	)		10,768			1,736

Net income (loss)	$	11,782		$	(3,859	)	$	24,716		$	5,437

Weighted average shares outstanding
Basic		100,112,529			103,872,256			100,194,898			103,960,928
Diluted		100,282,161			104,605,351			100,215,006			104,889,936
Earnings (loss) per share
Basic	$	0.12		$	(0.04	)		0.25		$	0.05
Diluted		0.12			(0.04	)		0.25			0.05


Financial Ratios
Return on average assets (1)		0.58	%		(0.20	)%		0.61	%		0.14	%
Return on average equity (1)		3.33			(1.08	)		3.49			0.78
Net interest margin (1)		2.67			2.44			2.62			2.47

Non-GAAP Ratios
Efficiency ratio (2)		66.62			71.55			67.92			73.35

Per share data
Book value per share	$	13.03		$	12.61			13.03		$	12.61
Tangible book value per share		7.70			7.41			7.70			7.41

(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.

Average Balances, Interest, Average Yields/Cost and Rate/Volume Analysis
Tables 2 & 3 below set forth certain information concerning average interest-earning assets and interest-bearing liabilities and their associated yields or rates for the periods indicated. The average yields and costs are derived by dividing 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 June 30, 2008 and 2007



	Three Months Ended

	June 30, 2008							June 30, 2007

					Average							Average
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate

Interest-earning assets
Loans
Residential real estate	$	2,496,686	$	34,512		5.53	%	$	2,296,841	$	31,729	5.53	%
Commercial real estate		1,201,492		18,291		6.09			1,129,658		18,636	6.60
Commercial business		460,348		6,819		5.93			478,037		8,862	7.42
Consumer		700,195		9,547		5.45			660,334		10,887	6.59

Total Loans		4,858,721		69,169		5.69			4,564,870		70,114	6.14
Short-term investments		29,012		190		2.62			55,736		732	5.25
Investment securities		2,346,725		29,821		5.08			2,359,563		27,265	4.62

Total interest-earning assets		7,234,458	$	99,180		5.48	%		6,980,169	$	98,111	5.62	%
Non-interest-earning assets		942,280							910,013

Total assets	$	8,176,738						$	7,890,182


Interest-bearing liabilities
Deposits
Money market	$	459,839	$	2,309		2.01	%	$	498,785	$	4,201	3.37	%
NOW		386,766		277		0.29			425,608		1,209	1.14
Savings		1,238,774		7,453		2.41			906,121		4,296	1.90
Time		1,667,174		14,766		3.54			2,055,404		22,949	4.47

Total interest-bearing deposits		3,752,553		24,805		2.64			3,885,918		32,655	3.36
Repurchase agreements		178,715		919		2.06			193,016		1,914	3.97
FHLB advances and other borrowings		2,273,945		25,208		4.43			1,821,975		20,933	4.60

Total interest-bearing-liabilities		6,205,213		50,932		3.28	%		5,900,909		55,502	3.76	%
Non-interest-bearing demand deposits		482,501							490,733
Other non-interest-bearing liabilities		74,564							71,945

Total liabilities		6,762,278							6,463,587
Equity		1,414,460							1,426,595

Total liabilities and equity	$	8,176,738						$	7,890,182

Net interest-earning assets	$	1,029,245						$	1,079,260

Net interest income			$	48,248						$	42,609

Interest rate spread						2.20	%					1.86	%
Net interest margin (net interest income
as a percentage of total interest-earning assets)						2.67	%					2.44	%
Ratio of total interest-earning assets
to total interest-bearing liabilities						116.59	%					118.29	%

Table 3: Average Balance Sheets for the Six Months Ended June 30, 2008 and 2007

	Six Months Ended

	June 30, 2008							June 30, 2007

					Average							Average
	Average				Yield/			Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate			Balance		Interest		Rate

Interest-earning assets
Loans
Residential real estate	$	2,446,768	$	67,790		5.54	%	$	2,222,235	$	61,549		5.54	%
Commercial real estate		1,200,327		37,177		6.19			1,125,494		37,008		6.58
Commercial business		458,508		14,185		6.19			461,341		16,980		7.36
Consumer		694,054		19,833		5.72			655,962		21,641		6.60

Total Loans		4,799,657		138,985		5.79			4,465,032		137,178		6.14
Short-term investments		28,841		474		3.29			60,053		1,610		5.36
Investment securities		2,378,191		61,935		5.21			2,435,575		56,129		4.61

Total interest-earning assets		7,206,689	$	201,394		5.59	%		6,960,660	$	194,917		5.60	%
Non-interest-earning assets		944,508							879,731

Total assets	$	8,151,197						$	7,840,391


Interest-bearing liabilities
Deposits
Money market	$	476,044	$	5,529		2.32	%	$	503,482	$	8,193		3.25	%
NOW		383,892		794		0.41			421,929		2,251		1.07
Savings		1,118,532		13,204		2.36			873,917		7,530		1.72
Time		1,805,033		35,276		3.91			2,096,046		46,703		4.46

Total interest-bearing deposits		3,783,501		54,803		2.90			3,895,374		64,677		3.32
Repurchase agreements		184,348		2,067		2.24			196,893		3,837		3.90
FHLB advances and other borrowings		2,222,070		50,270		4.52			1,781,600		40,389		4.53

Total interest-bearing-liabilities		6,189,919		107,140		3.46	%		5,873,867		108,903		3.71	%
Non-interest-bearing demand deposits		471,090							523,176
Other non-interest-bearing liabilities		75,502							49,337

Total liabilities		6,736,511							6,446,380
Equity		1,414,686							1,394,011

Total liabilities and equity	$	8,151,197						$	7,840,391

Net interest-earning assets	$	1,016,770						$	1,086,793

Net interest income			$	94,254						$	86,014

Interest rate spread						2.13	%						1.89	%
Net interest margin (net interest income
as a percentage of total interest-earning assets)						2.62	%						2.47	%
Ratio of total interest-earning assets
to total interest-bearing liabilities						116.43	%						118.50	%

Table 4: Rate/Volume Analysis

	Three Months Ended									Six Months Ended
	June 30, 2008									June 30, 2008
	Compared to									Compared to
	Three Months Ended									Six Months Ended
	June 30, 2007									June 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	$	20		$	2,763		$	2,783		$	21		$	6,220		$	6,241
Commercial real estate		(1,489	)		1,144			(345	)		(2,216	)		2,385			169
Commercial business		(1,725	)		(318	)		(2,043	)		(2,692	)		(103	)		(2,795	)
Consumer		(1,968	)		628			(1,340	)		(3,014	)		1,206			(1,808	)

Total loans		(5,162	)		4,217			(945	)		(7,901	)		9,708			1,807
Short-term investments		(277	)		(265	)		(542	)		(485	)		(651	)		(1,136	)
Investment securities		2,705			(149	)		2,556			7,154			(1,348	)		5,806

Total interest-earning assets	$	(2,734	)	$	3,803		$	1,069		$	(1,232	)	$	7,709		$	6,477

Interest-bearing liabilities
Deposits
Money market	$	(1,585	)	$	(307	)	$	(1,892	)	$	(2,237	)	$	(427	)	$	(2,664	)
NOW		(831	)		(101	)		(932	)		(1,270	)		(187	)		(1,457	)
Savings		1,335			1,822			3,157			3,231			2,443			5,674
Time		(4,276	)		(3,907	)		(8,183	)		(5,366	)		(6,061	)		(11,427	)

Total interest bearing deposits		(5,357	)		(2,493	)		(7,850	)		(5,642	)		(4,232	)		(9,874	)
Repurchase agreements		(862	)		(133	)		(995	)		(1,539	)		(231	)		(1,770	)
FHLB advances and other borrowings		(759	)		5,034			4,275			(84	)		9,965			9,881

Total interest-bearing liabilities		(6,978	)		2,408			(4,570	)		(7,265	)		5,502			(1,763	)

Increase in net interest income	$	4,244		$	1,395		$	5,639		$	6,033		$	2,207		$	8,240

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.

Comparison of Quarter-to-Date June 2008 and June 2007
As shown in Table 2, net interest income for the quarter ended June 30, 2008 was $48.2 million, an increase of $5.6 million from June 30, 2007. The increase is due to a 23 basis point increase in the net interest margin to 2.67% at June 30, 2008 from 2.44% for the same period in the prior year, which is offsetting the $50.0 million decline in net interest-earning assets.

Interest income increased $1.1 million to $99.2 million for the quarter ended June 30, 2008 due to the positive effect of the June 2007 investment portfolio restructuring, partially offset by the decrease in interest income earned on the loan portfolio. The restructuring of the investment portfolio primarily led to the 46 basis point increase in the average yield earned over the prior year period. The increase in the average yield earned offset the $12.8 million decline in the average balance of investment securities as the Company used cash flows from investments as one of the vehicles to fund loan growth and offset deposit outflows.

Loan income declined for the quarter due to the decrease in the average yield earned in response to the FRB rate cuts as new loans were originated and as adjustable rate loans reset, the yields were at lower rates. While most 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 organic loan originations as the Company continued 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. Loan portfolio volume accounted for approximately $4.2 million of the increase in interest income and partially offset the 45 basis point decline in the average yield earned on loans. All loan categories, except for residential, experienced a decline in the average yield due to the interest rate cuts by the FRB.

The cost of funds for the quarter ended June 30, 2008 decreased $4.6 million to $50.9 million, compared to $55.5 million for the same period a year ago. The Company’s strategy during this period was to bring down deposit costs while being mindful of competitor pricing, which resulted in a $7.9 million decrease in interest expense comprised of a 72 basis point decrease in the average rate paid and a $133.4 million decrease in the average balances. This decrease was primarily in higher costing time deposits as interest expense in this category decreased $8.2 million as the average balances and average rate paid decreased $388.2 million and 93 basis points, respectively. The decrease in time deposits was partially offset by an increase in savings accounts as the average balance for the period rose $332.7 million the average yield paid increased 51 basis points causing interest expense to increase $3.2 million. Savings accounts increased due to targeted marketing campaigns which offered higher pricing for select products and migration from maturing time deposits as they repriced at reduced rates.

To offset the overall decrease in the average balance of deposit accounts and to fund loan growth, the Company expanded the use of FHLB advances and other borrowings. This resulted in an increase in the average balance of $452.0 million, which accounted for $5.0 million of the increase in interest expense.

Comparison of Year-to-Date June 2008 and June 2007
As shown in Table 3, net interest income for the six months ended June 30, 2008 was $94.3 million compared to $86.0 million for the same period a year ago. This year over year increase is primarily due to the same factors as previously discussed above.

The increase in interest income was driven by the investment portfolio restructuring and the growth in the loan portfolio, partially offset by the decrease in the average yield earned on loans. As in the quarter, the cost of funds for the current year-to-date period decreased compared to the same period a year ago. Although the decline in the cost of funds of $1.8 million was not as significant as the decrease experienced in the quarter, the shift in the mix of interest-bearing liabilities has reduced the cost of funds by 25 basis points and helped to improve the net interest spread by 24 basis points.

The Company will continue to evaluate its options for funding loan growth and, as necessary, to counter deposit outflows including, a) expanding the use of FHLB advances and other borrowings, and b) increasing the rate paid on deposits, which may have a negative impact on the net interest margin.

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 $3.7 million for the three months ended June 30, 2008. The primary factors that influenced management’s decision to record this provision were growth in the loan portfolios as well as increasing trends in delinquencies, net charge-offs and nonperforming loans. The second quarter increase in non-performing loans of $7.2 million was primarily related to commercial construction loans for two residential condominium projects. A provision for loan losses of $600,000 was recorded for the three months ended June 30, 2007, based on growth in the portfolio, the level of net charge-offs, and non-performing loans at that time.

For the six months ended June 30, 2008, the provision for loan losses was $5.4 million as compared to $1.6 million for the same period a year ago. The year-to-date provision relates to increases in non-performing loans of $9.8 million, primarily in the residential portfolio and construction loans to commercial developers of residential condominiums due to the current economic conditions. Future provisions for loan losses may be deemed necessary if economic conditions do not improve or continue to deteriorate.

At June 30, 2008, the allowance for loan losses was $47.8 million, which represented 0.97% of total loans and 182.57% of non-performing 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 non-performing loans.

Table 5: Non-Interest Income
	Three Months Ended											Six Months Ended
	June 30,					Change						June 30,					Change

(Dollars in thousands)	2008		2007			Amount			Percent			2008		2007			Amount			Percent

Depositor service charges	$	6,708	$	7,003		$	(295	)		(4.21	)%	$	13,340	$	13,492		$	(152	)		(1.13	)%
Loan and servicing income		264		612			(348	)		(56.86	)		645		1,058			(413	)		(39.04	)
Trust fees		1,678		1,676			2			0.12			3,348		3,343			5			0.15
Investment management, brokerage &
insurance fees		1,844		1,861			(17	)		(0.91	)		4,376		3,535			841			23.79
Bank owned life insurance		1,291		1,600			(309	)		(19.31	)		2,820		3,170			(350	)		(11.04	)
Net gain (loss) on securities		87		(22,345	)		22,432			100.39			1,225		(22,187	)		23,412			105.52
Net gain on sale of loans		656		467			189			40.47			913		664			249			37.50
Other		1,991		1,360			631			46.40			3,518		3,388			130			3.84

Total non-interest income	$	14,519	$	(7,766	)	$	22,285			286.96	%	$	30,185	$	6,463		$	23,722			367.04	%

Non-Interest Income

Comparison of Quarter-to-Date June 2008 and June 2007
As displayed in Table 5, non-interest income increased $22.3 million to $14.5 million for the three months ended June 30, 2008 from the prior year period. The increase was primarily due to an increase in net gain/loss on securities attributable to the investment portfolio restructuring that resulted in a $22.6 million pre-tax charge during the prior year quarter. Excluding the restructuring charges, non-interest income decreased $289,000 primarily due to decreases in depositor service charges, loan and servicing income and bank-owned life insurance, partially offset by an increase in other income.

	•	Net gain (loss) on securities increased $22.4 million, primarily due to the restructuring in 2007. Excluding the securities restructuring, the net gain on securities decreased $142,000 due to the loss on the sale of the last two remaining bank stocks as a result of the market downturn in the financial sector, partially offset by the gain on the sale of mortgage-backed ARM securities which were sold at a premium in order to reduce prepayment risk and to fund deposit outflows.

	•	Other income increased primarily as a result of a net gain on limited partnerships due to the increase in the carrying value on certain limited partnerships.

	•	Depositor service charges decreased due to a decline in overdraft fees, ATM fees and inactive and dormant account fees. The Company eliminated ATM point-of-sale and inactive and dormant account service charges during the first quarter of 2008 due to promotional and competitive reasons and overdraft fees declined due to volume. These decreases were partially offset by increased check card revenue due to increased card activity.

	•	Loan and servicing fees declined due largely to a decrease in loan fees, principally commercial real estate prepayment fees, and to an increase in the valuation allowance of the SBA servicing asset.

	•	Bank-owned life insurance decreased due to a decline in the average yield earned as a result of current market interest rates.

Comparison of Year-to-Date June 2008 and June 2007
For the six months ended June 30, 2008 non-interest income increased $23.7 million to $30.2 million compared to $6.5 million for the same period a year ago. Non-interest income for the six months ended June 30, 2007 was positively affected by the restructuring of the investment portfolio discussed above. Excluding the investment restructuring, non-interest income increased $1.1 million due mainly to increases in investment management, brokerage and insurance fees, net gain on securities and net gain on sale of loans, partially offset by a decrease in loan and servicing income and bank owned life insurance.

	•	Net gain on securities increased $23.4 million due to the restructuring in 2007 and resulting impairment charge of $22.6 million. Excluding the restructuring, net gain on securities increased $838,000 due to gains recorded on the sale of adjustable-rate mortgage-backed securities. These securities were sold at a premium and were sold in order to reduce prepayment risk and offset deposit outflow. Partially offsetting the mortgage-backed securities gain was the loss on the sale of bank stocks due to a decline in the 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. 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.

	•	Loan and servicing income and bank owned life insurance decreased due to the same reasons as discussed in the quarterly comparison.


Table 6: Non-Interest Expense
	Three Months Ended										Six Months Ended
	June 30,				Change						June 30,				Change

(Dollars in thousands)	2008		2007		Amount			Percent			2008		2007		Amount			Percent

Salaries and employee benefits	$	22,935	$	21,635	$	1,300			6.01	%	$	46,624	$	43,492	$	3,132			7.20	%
Occupancy		4,320		4,325		(5	)		(0.12	)		9,214		8,729		485			5.56
Furniture and fixtures		1,654		1,702		(48	)		(2.82	)		3,340		3,443		(103	)		(2.99	)
Outside services		4,471		4,182		289			6.91			8,744		8,759		(15	)		(0.17	)
Advertising, public relations,
and sponsorships		2,036		2,258		(222	)		(9.83	)		3,745		3,938		(193	)		(4.90	)
Amortization of identifiable
intangible assets		2,364		2,951		(587	)		(19.89	)		4,728		6,039		(1,311	)		(21.71	)
Merger related charges		23		472		(449	)		(95.13	)		78		2,339		(2,261	)		(96.67	)
Other		3,514		3,410		104			3.05			7,082		6,965		117			1.68

Total non-interest expense	$	41,317	$	40,935	$	382			0.93	%	$	83,555	$	83,704	$	(149	)		(0.18	)%

Non-Interest Expense

Comparison of Quarter-to-Date June 2008 and June 2007
As displayed in Table 6, non-interest expense increased $382,000 to $41.3 million for the three months ended June 30, 2008 from $40.9 million for the same period a year ago. The main driver of the increase was salaries and employee benefits and outside services. These increases were partially offset by decreases in amortization of identifiable intangible assets, merger related charges and advertising, public relations, and sponsorships.

	•	Salaries and employee benefits increased as a result of employee incentive accruals, general merit increases and a decrease in capitalized salary expenses primarily due to the decline in loan originations, particularly commercial loans. These increases were partially offset by a decrease to charges associated with the LTCP for an executive that is no longer with the Company and to a lesser extent, expenses related to the Employee Stock Ownership Plan (“ESOP”). ESOP expense declined due to a lower average stock price during the second quarter of 2008 as compared to the same period in 2007.

	•	Outside services increased primarily due to legal and consulting costs related to human resources as well as charges incurred for outsourcing general internal audit work, partially offset by a decline in data processing expenses.

	•	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.

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

	•	Advertising expenses decreased due to a decline in higher-costing television advertisements, public relations, sponsorships and cash incentive programs.

Comparison of Year-to-Date June 2008 and June 2007
For the six months ended June 30, 2008 non-interest expense decreased $149,000 to $83.6 million from $83.7 million for the same period a year ago. The main drivers of the decrease were merger related charges and amortization of identifiable intangible assets. These decreases were mostly offset by increases in salaries and employee benefits and occupancy expenses.

	•	Conversion and merger related charges decreased due to the same reasons as outlined above.

	•	Amortization of identifiable intangible assets decreased due to using an accelerated method of amortization as discussed above.

	•	Salaries and employee benefits increased as a result of severance recorded in the first quarter of 2008 for an executive that is no longer with the Company. There were also increases in employee incentive accruals, general merit increases, bonus payouts due to the increased sales of investment products and a decrease in capitalized salaries primarily due to the same factors as discussed above. These increases are partially offset by a decrease in ESOP expense due to a decline in the average year-to-date stock price.

	•	Occupancy expense increased due to a charge of approximately $350,000 in order to facilitate the disposition of excess leased space and increased maintenance and repair costs spread throughout the branch network.

Income Tax Provision

The income tax expense of $6.0 million for the three months ended June 30, 2008 resulted in an effective tax rate of 33.6%, compared to an income tax benefit of ($2.8) million for the three months ended June 30, 2007, which resulted in an effective tax rate of 42.3%. The income tax expense for the six months ended June 30, 2008 and 2007 was $10.8 million and $1.7 million, respectively. The effective tax rate for these periods was 30.3% and 24.2%, respectively.

In the second quarter of 2007, the Company restructured a part of the investment securities portfolio which had a significant impact on the Company’s effective tax rate. Absent the investment portfolio restructuring, the effective tax rate for the three and six months ended June 30, 2007 would have been 31.9% and 32.4%, respectively.

The increase in the effective tax rate for the three months ended June 30, 2008 from June 30, 2007 (excluding the impact of the portfolio restructuring) is primarily due to a decrease in income from bank owned life insurance investments. The decrease in the effective tax rate for the six months ended June 30, 2008 from June 30, 2007 (excluding the impact of the portfolio restructuring) is primarily due to 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 31.6%.

Financial Condition

Financial Condition Summary
From December 31, 2007 to June 30, 2008, total assets and total liabilities increased $51.3 million, due mainly to increases in loans and borrowings, partially offset by a decrease in investments and deposits, with virtually no change in stockholders’ equity.

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

Table 7: Investment Securities
	June 30, 2008				December 31, 2007

	Amortized		Fair		Amortized		Fair
(In thousands)	cost		value		cost		value

Available for sale
U.S. Treasury obligations	$	596	$	596	$	1,092	$	1,095
U.S. Government sponsored enterprise obligations		172,522		172,062		201,408		202,059
Corporate obligations		7,158		7,172		22,531		22,515
Other bonds and obligations		47,518		45,005		52,853		52,634
Marketable and trust preferred equity securities		72,451		63,016		86,543		83,466
Federal Home Loan Bank stock		120,821		120,821		113,760		113,760
Mortgage-backed securities		1,579,084		1,597,830		1,706,966		1,725,492

Total available for sale		2,000,150		2,006,502		2,185,153		2,201,021

Held to maturity
Mortgage-backed securities		306,978		310,620		282,887		286,968
Other bonds		7,135		7,128		7,585		7,577

Total held to maturity		314,113		317,748		290,472		294,545

Total securities	$	2,314,263	$	2,324,250	$	2,475,625	$	2,495,566

At June 30, 2008, the Company had total investments of $2.32 billion, or 28.1%, of total assets. The decrease of $170.9 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 and to a lesser extent offset deposit outflows, 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 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 agency securities. For mortgage-backed securities, the average life, when purchased, would range between 1.5 and 3.5 years and the maturity dates for Agency obligations would range between one and five years.

SFAS No. 115 requires the Company to designate its securities as held to maturity, available for sale or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of June 30, 2008, $2.01 billion, or 86.5%, of the portfolio, was classified as available for sale and $314.1 million, or 13.5% of the portfolio was classified as held to maturity. The net unrealized gain on securities classified as available for sale as of June 30, 2008 and December 31, 2007 was $6.4 million and $15.9 million, respectively. The decline in the market value of securities available for sale was primarily due to 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 are current and no impairment of cash flows is anticipated. Management has performed a review of all investments with unrealized losses and determined that none of these investments had other-than-temporary impairment. 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.

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 June 30, 2008 and December 31, 2007.

Table 8: Loan Portfolio

	June 30, 2008				December 31, 2007

			Percent				Percent
(Dollars in thousands)	Amount		of Total		Amount		of Total

Residential real estate	$	2,533,248	51.2	%	$	2,360,921	49.9	%
Residential real estate construction		19,816	0.4			29,023	0.6

Net residential real estate		2,553,064	51.6			2,389,944	50.5
Commercial real estate		999,048	20.2			947,185	20.1
Commercial real estate construction		214,830	4.3			247,428	5.2

Net commercial real estate		1,213,878	24.5			1,194,613	25.3
Commercial business		473,147	9.6			457,745	9.7
Home equity and equity lines of credit		681,978	13.8			652,107	13.8
Other consumer		27,400	0.5			33,560	0.7

Total loans	$	4,949,467	100.0	%	$	4,727,969	100.0	%

As shown in Table 8, gross loans were $4.95 billion, up $221.5 million, or 4.7%, at June 30, 2008 from year-end 2007. The Company experienced an increase in most 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 June 30, 2008, comprising over fifty percent of gross loans. The increase of $163.1 million was due primarily to organic loan growth with only $25.0 million of purchased loans during the quarter.

Commercial real estate loans and commercial business loans increased $34.7 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 category includes approximately $58.0 million of loans to commercial borrowers for residential housing development. Since year-end 2007, this segment 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 30, “Asset Quality” and “Allowance for Loan Losses” sections located on pages 36-37 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.

Home equity loans and lines of credit increased $29.9 million from December 31, 2007 to June 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.

Asset Quality
As displayed in Table 9, nonperforming assets at June 30, 2008 increased to $27.6 million compared to $17.3 million at December 31, 2007. The increase is primarily due to loans secured by residential one-to-four family homes in both the residential and commercial construction portfolios, largely as a result of the current economic conditions. The increase of $3.6 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 that is causing difficulties for some borrowers due to high energy and food costs. The increase of $6.7 million in the commercial construction portfolio was primarily related to three relationships with residential home developers for condominium projects. As the current economic conditions persist or deteriorate there will be added stress on our loan portfolios. The Company believes that its historical practice of conservative underwriting, the relatively modest size of its residential construction portfolio, and the strong average FICO scores and 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 June 30, 2008 were 0.53%, compared to 0.35% at December 31, 2007.

Table 9: Nonperforming Assets
	June 30,			December 31,
(Dollars in thousands)	2008			2007

Nonaccruing loans (1)
Real estate loans
Residential (one- to four- family)	$	8,464		$	4,837
Commercial real estate loans		2,893			3,414
Commercial construction		9,055			2,382

Total real estate loans		20,412			10,633
Commercial business		4,904			4,912
Consumer loans
Home equity and equity lines of credit		745			606
Other consumer		120			235

Total consumer loans		865			841

Total nonaccruing loans		26,181			16,386
Real estate owned		1,418			897

Total nonperforming assets	$	27,599		$	17,283

Total nonperforming loans as a percentage of total loans (2)		0.53	%		0.35	%
Total nonperforming assets as a percentage of total assets		0.33			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 June 30, 2008, the Company recorded net charge-offs of $1.3 million compared to net charge-offs of $262,000 for the three months ended June 30, 2007. Current quarter charge-offs include write-downs totaling $1.0 million on two construction loan relationships. These two relationships are with residential home developers and are for condominium projects. For the six months ended June 30, 2008, net charge-offs were $1.4 million, compared to $479,000 for the six months ended June 30, 2007.

The Company had a loan loss allowance of $47.8 million and $43.8 million at June 30, 2008 and December 31, 2007, respectively. The allowance for loan losses to total loans was 0.97% at June 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.

Table 10: Schedule of Allowance for Loan Losses

	At or For the Three Months						At or For the Six Months
	Ended June 30,						Ended June 30,

(Dollars in thousands)	2008			2007			2008			2007

Balance at beginning of period	$	45,414		$	42,085		$	43,813		$	37,408
Net allowances gained through acquisition		-			-			-			3,894
Provision for loan losses		3,700			600			5,400			1,600
Charge-offs
Residential and commercial real estate loans		-			-			51			2
Commercial construction		1,000			285			1,000			285
Commercial business loans		504			121			774			659
Consumer loans		205			175			351			287

Total charge-offs		1,709			581			2,176			1,233

Recoveries
Residential and commercial real estate loans		14			15			29			265
Commercial construction		-			11			-			11
Commercial business loans		343			263			663			316
Consumer loans		36			30			69			162

Total recoveries		393			319			761			754

Net charge-offs		1,316			262			1,415			479

Balance at end of period	$	47,798		$	42,423		$	47,798		$	42,423

Net charge-offs to average loans		0.11	%		0.02	%		0.06	%		0.02	%
Allowance for loan losses to total loans		0.97			0.92			0.97			0.92
Allowance for loan losses to nonperforming loans		182.57			280.09			182.57			280.09
Net charge-offs to allowance for loan losses		2.75			0.62			2.96			1.13
Total recoveries to total charge-offs		23.00			54.91			34.97			61.15

Goodwill and Identifiable Intangible Assets
At June 30, 2008, the Company had intangible assets of $576.2 million, a decrease of $8.3 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.

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
	June 30,		December 31,
(In thousands)	2008		2007

Savings	$	1,349,136	$	941,051
Money market		427,174		492,042
NOW		391,946		401,097
Demand		500,673		477,408
Time		1,662,071		2,062,067

Total deposits	$	4,331,000	$	4,373,665

As displayed in Table 11, deposits decreased $42.7 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 increase 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 were lost to competitors. Partially offsetting the decrease in time deposit accounts was an increase in core deposits of approximately $357.3 million, as the Company was able to retain some of the attrition in time deposit accounts and established new customer accounts and relationships through targeted product promotions. During the most recent quarter, the Company ran product promotions and offered rates in line with many of our competitors which partially recouped deposit outflows from the first quarter. Total deposits increased $73.4 million from March 31, 2008.

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 June 30, 2008.

Table 12: Borrowings

	June 30,		December 31,
(In thousands)	2008		2007

FHLB advances (1)	$	2,244,598	$	2,136,965
Repurchase agreements		183,783		192,145
Mortgage loans payable		1,390		1,459
Junior subordinated debentures issued to affiliated trusts (2)		24,835		24,935

Total borrowings	$	2,454,606	$	2,355,504

(1)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141,“BusinessCombinations,” of $7.6 million and $9.6 million at June 30, 2008 and December 31, 2007, respectively.

(2)

Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141,“BusinessCombinations,” of $200,000 and $300,000 at June 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 $2.45 billion at June 30, 2008, an increase of $99.1 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 June 30, 2008, the majority of the Company’s outstanding FHLB advances were at fixed rates, while only $15.0 million had floating rates.

Stockholders’ Equity
Total stockholders’ equity equaled $1.41 billion at June 30, 2008 and December 31, 2007. There was virtually no change in stockholders equity due to increases of current year earnings of $24.7 million and stock option and restricted stock expense of $5.9 million. These increases were offset by the $13.8 million payment of cash dividends declared on our common stock during the six months ended June 30, 2008, our repurchase of 783,033 shares of our common stock for $9.8 million and a decline in the fair market value of available for sale investments of $6.4 million, net of tax. For information regarding our compliance with applicable capital requirements, see “Liquidity and Capital Position” below.

Dividends declared year to date June 30, 2008 were $0.135 per share compared to $0.125 per share for the same period last year. On July 29, 2008, we declared a $0.07 per share cash dividend payable on August 19, 2008 to shareholders of record on August 8, 2008. Book value per share amounted to $13.03 and $12.93 at June 30, 2008 and December 31, 2007, respectively, and tangible book value amounted to $7.70 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 several senior executives, is responsible for managing interest rate risk. On a quarterly basis, the Board of Directors reviews the Company’s gap position and interest rate sensitivity exposure described below and Asset/Liability Committee minutes detailing the Company’s activities and strategies, the effect of those strategies on the Company’s operating results, interest rate risk position and the effect changes in interest rates would have on the Company’s net interest income. The extent of movement of interest rates is an uncertainty that could have a negative impact on earnings.

The principal strategies used to manage interest rate risk include (i) emphasizing the origination, purchase and retention of adjustable rate loans, and the origination and purchase of loans with maturities matched with those of the deposits and borrowings funding the loans, (ii) investing in debt securities with relatively short maturities and/or average lives and (iii) classifying a significant portion of its investment portfolio as available for sale so as to provide sufficient flexibility in liquidity management. 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 June 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 negative $38.3 million, or negative 0.46% of total assets. The Bank’s approved policy limit is plus or minus 20%. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.

Income Simulation Analysis
Income simulation analysis considers the maturity and repricing characteristics of assets and liabilities, as well as the relative sensitivities of these balance sheet components over a range of interest rate scenarios. Tested scenarios include instantaneous rate shocks, rate ramps over a six-month or one-year period, static rates, non-parallel shifts in the yield curve and a forward rate scenario. The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a three-year period. Simulation analysis involves projecting future balance sheet structure and interest income and expense under the various rate scenarios. The Company’s internal guidelines on interest rate risk specify that for 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 flat yield curve as of June 30, 2008 was utilized. This yield curve was utilized due to the recent excessive volatility in the rates markets. As of June 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		3.65%
100 basis point twelve month ramp downwards in interest rates		-2.36%

As of June 30, 2008, a downward twelve month ramp of 100 basis points was a realistic representation of the risk of falling rates as the housing market 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 increases in both overall and core inflation rates.

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 June 30, 2008, total borrowings from the Federal Home Loan Bank amounted to $2.24 billion, exclusive of $7.6 million in purchase accounting adjustments, and the Company had the immediate capacity to increase that total to $2.54 billion. Additional borrowing capacity of approximately $654.6 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 June 30, 2008 the Company’s repurchase agreement lines of credit totaled $125.0 million, $100.0 million of which was available on that date.

The Company’s most liquid assets are cash and due from banks, short-term investments and debt securities. The levels of these assets are dependent on the Company’s operating, financing, lending and investment activities during any given period. At June 30, 2008, cash and due from banks, short-term investments and debt securities maturing within one year amounted to $244.4 million, or 2.96% of total assets.

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

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

At June 30, 2008, the Company had commitments to originate loans, unused outstanding lines of credit and standby letters of credit totaling $844.3 million. Management anticipates that it will have sufficient funds available to meet its current loan commitments. Time deposits maturing within one year from June 30, 2008 amount to $1.25 billion.

At June 30, 2008, the Company’s Tier 1 leverage ratio, a primary measure of regulatory capital was $848.0 million, or 11.16%, which is above the threshold level of $380.0 million, or 5.0% to be considered “well-capitalized.” The Tier 1 risk-based capital ratio stood at 18.69% and the Total risk-based capital ratio stood at 19.74%. The Bank also exceeded all of its regulatory capital requirements with leverage capital of $706.0 million, or 9.3% of average assets, which is above the required level of $303.2 million or 4.0%. The Tier 1 risk-based capital ratio was 15.61% and the Total risk-based capital ratio was 16.66%. 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 39 through 41.

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 June 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 second quarter 2008.

In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended June 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.

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 December 31, 2007, the Company had approximately $531.2 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.

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 recent acquisition of Westbank. 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. Many analysts are now predicting the U.S. Economy is in or will experience a recession in the near term. This could 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.

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

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

NewAlliance is Subject To Extensive Government Regulation and Supervision
NewAlliance, primarily through NewAlliance Bank and certain non-bank subsidiaries, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect 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 exposure to fraudulent use of our customer’s personal information resulting from its general business operations and through customer use of financial instruments, such as debit cards. If a breach in security does occur in the marketplace and the financial data of our customers is compromised, the Company will react as quickly as possible to protect customer accounts and limit potential losses to the Company.

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

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

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

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 June 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
April 1-30, 2008		0	$ -	0	4,709,000 shares
May 1-31, 2008		115,400	$ 12.99	115,400	4,593,600 shares
June 1-30, 2008	(1)	519,933	$ 12.68	519,720	4,073,880 shares
Total		635,333	$ 12.74	635,120

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 213 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.

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		Fourth Amendment to NewAlliance Bank Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.2 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.
10.2.1		NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.3 filed with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003.

10.3		NewAlliance Amended and Restated Employee Stock Ownership Plan Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.4		The NewAlliance Bank Amended and Restated 401(k) Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.4 filed with the Company’s Current Report on Form 8-K, filed October 1, 2007.
10.5		NewAlliance Bank Executive Incentive Plan approved by shareholders on April 17, 2008, as amended (filed herewith).
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		Amendment Number One to the New Haven Savings Bank/NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.11 filed with the Company’s Annual Report on Form 10-K, filed March 1, 2007.
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).

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:		July 28, 2008